Funds shouldn’t use prescription to pre­vent pay­ment of un­claimed ben­e­fits

If you do not try to claim an amount owed to you within three years of it be­com­ing due, the debtor can ar­gue that the debt has been ex­tin­guished by prescription. As Martin Hesse re­ports, this has im­pli­ca­tions for un­claimed re­tire­ment fund ben­e­fits. Knowin

Weekend Argus (Saturday Edition) - - PERSONALFINANCE -

The of­fice of the Pen­sion Funds Ad­ju­di­ca­tor is en­cour­ag­ing re­tire­ment funds not to in­voke the Prescription Act when deal­ing with un­claimed ben­e­fits, in its ef­forts to unite ben­e­fi­cia­ries with what is due to them. Life as­sur­ance com­pa­nies af­fil­i­ated to the As­so­ci­a­tion for Sav­ings & In­vest­ment SA ( Asisa) have pledged not to do so through their ad­her­ence to Asisa’s Stan­dard on Un­claimed As­sets, which was im­ple­mented in June 2013.

Ac­cord­ing to the an­nual re­port of the Fi­nan­cial Ser­vices Board (FSB) for the year to the end of 2013, un­claimed ben­e­fits in re­tire­ment funds amount to about R20 bil­lion.

The Prescription Act gov­erns the ex­piry of, among other things, claims to debt. It ap­plies to money you owe a credit provider, such as a bank, and to money owed to you, in the form of, say, a ben­e­fit from a re­tire­ment fund.

For most types of debt, the ex­piry pe­riod is three years. Es­sen­tially, the Act states that if, af­ter three years of a debt be­com­ing due, the cred­i­tor (the party to whom the money is owed) makes no at­tempt to claim the amount owed by the debtor, the debtor is en­ti­tled to refuse to pay the debt, be­cause the debt has been ex­tin­guished by prescription.

How­ever, there are con­di­tions gov­ern­ing when the prescription pe­riod be­gins and when it can be in­ter­rupted. One con­di­tion con­cerns at what stage the cred­i­tor be­comes aware of the debt and the iden­tity of the debtor (see “Know­ing that a debt is re­cov­er­able”, above). An­other is that the prescription pe­riod does not ap­ply to chil­dren, so it is de­layed un­til a child reaches the age of ma­jor­ity.

A fea­ture of the Prescription Act is that it takes ef­fect only if it Rose­mary Hunter, the deputy chief ex­ec­u­tive of the Fi­nan­cial Ser­vices Board (FSB) who over­sees re­tire­ment funds, says that, in the con­text of the work the FSB is do­ing to try to re­duce un­claimed ben­e­fits, a use­ful judg­ment con­cern­ing the Prescription Act is one by the Supreme Court of Ap­peal: Macleod v Kweyiya (2013).

The case con­cerns a woman who was al­most 25 years old when she sued an at­tor­ney, who, she said, had neg­li­gently set­tled her claim for dam­ages for in­juries sus­tained in a mo­tor accident when she was four years old on is suc­cess­fully in­voked as a de­fence for not pay­ing a debt. In other words, a debt does not pre­scribe au­to­mat­i­cally.

With the dis­tri­bu­tion of death ben­e­fits in re­tire­ment funds, the onus is on the fund to take all rea­son­able steps to iden­tify and trace the ben­e­fi­cia­ries ( de­pen­dants and/ or nom­i­nees) to whom shares of the ben­e­fits may be awarded, to de­cide on the shares to be awarded to each ben­e­fi­ciary, if any, tak­ing into ac­count their dif­fer­ent fi­nan­cial needs, and to pay out those shares.

The Prescription Act really be­comes an is­sue only when de­pen­dants who have not been iden­ti­fied and traced by a re­tire­ment fund come for­ward years af­ter a mem­ber’s death to claim a share of a ben­e­fit. For ex­am­ple, a un­rea­son­ably un­favourable terms. The at­tor­ney re­lied on prescription as a de­fence.

Un­der the Act, a cir­cum­stance that de­lays the on­set of the prescription pe­riod is if the cred­i­tor has no knowl­edge of the iden­tity of the debtor and of the facts from which the debt arises.

The case re­volved around what con­sti­tuted enough knowl­edge for a rea­son­able per­son to re­alise that a debt was re­cov­er­able.

In this case, the court held that the woman’s knowl­edge of the fact that her for­mer at­tor­ney may have acted neg­li­gently arose only when re­tire­ment fund mem­ber dies and the fund is un­able to trace the mem­ber’s widow, his sole ben­e­fi­ciary. If the widow does not sub­mit a claim to the fund, or does not lodge a com­plaint with the Pen­sion Funds Ad­ju­di­ca­tor, within three years of her hus­band’s death, she may for­feit her right to that ben­e­fit, un­less there are fac­tors that de­lay or in­ter­rupt prescription.

The ad­ju­di­ca­tor, Mu­vhango Lukhaimane, says in cases where funds cite only the ex­piry of the three- year pe­riod, her of­fice al­ways checks that there are no fac­tors that may have im­peded the run­ning of prescription.

Lukhaimane says her of­fice has no ju­ris­dic­tion over cases where a fund has le­git­i­mately cited prescription as a rea­son not she con­sulted an­other at­tor­ney (when she was an adult).

The judg­ment refers to a sim­i­lar case. In MEC for Ed­u­ca­tion, KwaZulu-Na­tal v Shange (2012), the court had to con­sider whether a 15-year-old learner who had been hit with a belt on the side of his eye by his teacher acted rea­son­ably in wait­ing more than five years to in­sti­tute ac­tion against the teacher’s em­ployer. The learner, by then an adult, be­came aware of the pos­si­bil­ity of a claim by chance. He had ini­tially ac­cepted the teacher’s ex­pla­na­tion that it was an accident.

A fam­ily friend no­ticed that he to pay a ben­e­fit, and th­ese are re­ferred to the FSB.

But she says she has asked funds not to use this de­fence as a rea­son not to pay ben­e­fits.

“In cer­tain in­stances, pen­sion fund con­sul­tants ad­vise funds to re­spond on the tech­ni­cal­ity that the claim has pre­scribed, even though they are hold­ing a ben­e­fit for a mem­ber or de­pen­dant. I raised this is­sue with the in­dus­try ear­lier this year and have held meet­ings with ad­min­is­tra­tors that have been ad­vis­ing funds to re­spond like this. Given the huge prob­lem with un­claimed ben­e­fits, we en­cour­age funds not to raise the tech­ni­cal­ity of prescription, so that we can do our bit to as­sist,” Lukhaimane says.

Rose­mary Hunter, the deputy ex­ec­u­tive in charge of re­tire­ment was wear­ing an eye patch and sug­gested that he should ap­proach the Pub­lic Pro­tec­tor. An ad­vo­cate in that of­fice ad­vised him of the pos­si­bil­ity of a claim against the teacher.

The judge in the case held that the de­lay was in­no­cent, say­ing: “He was a ru­ral learner who could not rea­son­ably be ex­pected to know that, not only the teacher was his debtor, but, more im­por­tantly, that the [MEC for ed­u­ca­tion] was a joint debtor. Only when he was in­formed of this fact did he know the iden­tity of his debtor for the pur­poses of the Prescription Act.” funds at the FSB, says the FSB does not have the hu­man re­sources ca­pac­ity to in­ves­ti­gate prop­erly all cases re­ferred to it in which peo­ple al­lege they have been de­nied ben­e­fits due to them.

“But we do in­ves­ti­gate what we can, and if we iden­tify funds in re­la­tion to which there have been sev­eral such al­le­ga­tions, we do try to con­duct more in­tru­sive in­ves­ti­ga­tions, and we have had some suc­cesses in get­ting claims paid,” she says.

WIS­DOM OF SOLOMON

The board of a re­tire­ment fund faces con­sid­er­able chal­lenges when al­lo­cat­ing a lump- sum death ben­e­fit to a de­ceased mem­ber’s ben­e­fi­cia­ries, Hunter says.

First, she says, the board must de­cide whether to rely on in­for­ma­tion given to it about the iden­ti­ties of po­ten­tial re­cip­i­ents or ac­tively in­ves­ti­gate whether there are oth­ers to be con­sid­ered. This, in turn, re­quires the board to de­cide whether to dis­trib­ute the ben­e­fit to those it knows about, and who may have im­me­di­ate fi­nan­cial needs, to de­lay its dis­tri­bu­tion while it waits for more po­ten­tial re­cip­i­ents to come for­ward or while it con­ducts an in­ves­ti­ga­tion, or to make par­tial dis­tri­bu­tions and fi­nalise the dis­tri­bu­tion only af­ter some time.

The board then has to weigh up the ve­rac­ity of claims by po­ten­tial re­cip­i­ents as to their fi­nan­cial cir­cum­stances and, “with the wis­dom of Solomon”, make de­ci­sions that a rea­son­able per­son would re­gard as eq­ui­table.

The fund could still face a claim sev­eral years later by a de­pen­dant it did not know about, Hunter says. Whether the fund is li­able to pay that per­son any­thing de­pends both on ( a) why the de­pen­dant did not sub­mit a claim ear­lier and (b) whether the board took all steps it rea­son­ably could have been ex­pected to take to iden­tify, lo­cate and as­sess the claims of all po­ten­tial re­cip­i­ents.

Hunter says the an­swer to (a) will de­ter­mine whether the de­pen­dant’s claim is time-barred in terms of the Pen­sion Funds Act, which in­cor­po­rates, by ref­er­ence, the Prescription Act.

But even if the claim is not time-barred, the claimant may still not be en­ti­tled to any­thing if the an­swer to (b) is yes, she says.

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