Fund trustees need to be diligent when granting loans

The Pension Funds Adjudicator has found that a retirement fund should not have granted the numerous loans it did to a fund member, and therefore the loans could not reduce his former spouse’s share of his savings in the fund.

Acting adjudicator Elmarie de la Rey referred her determination to the head of surveillance in the office of the Registrar of Pension Funds at the Financial Services Board (FSB) for possible further action against the fund and its administrator, NBC, for granting the loans in contravention of the Pension Funds Act.

GZ, the former wife of BZ, a member of the Nampak Contributory Provident Fund, complained to the adjudicator’s office, because she had expected to be paid out about R51 000 from her former husband’s fund, but was paid only R5 300.

The couple were divorced in 2005. In terms of the divorce order, GZ was entitled to half of BZ’S pension interest, but, in terms of the law as it then stood, the money could be paid to her only when BZ retired, died or resigned from the fund.

In 2007, the Pension Funds Act was amended, introducing the principle of a clean break in pension fund interests after divorce. This paved the way for former spouses to obtain immediate access to any portion of a member’s interest awarded to them in a divorce order.

In 2008, GZ requested that her share of the money in the Nampak fund be transferred to her.

The fund paid her out her share of the pension interest at the date of the divorce order but deducted half of the outstanding loans, which had been made to the member before the divorce and which by then amounted to R92 179.

The Pension Funds Act provides for funds to grant loans to members, or to guarantee a loan granted to a member only under strict conditions. These are to acquire property on which a residence has been or will be erected, to erect a residence on property owned by the member or his or her spouse, or to make additions, alterations or repairs to a residence. The member or a dependant of the member must occupy the residence.