How the law protects your interests if your employer wants to move you to an umbrella fund

The Pension Funds Act protects the interests of members of stand-alone occupational retirement funds whose employers want to move them to commercial umbrella funds, Rosemary Hunter, the deputy executive in charge of retirement funds at the Financial Services Board (FSB), says.

However, you cannot prevent a transfer if it is a condition of employment that you belong to a fund of your employer’s choice. But you can object to the transfer if you believe you are being prejudiced by the scheme put together to facilitate the move.

In terms of the Pension Funds Act, any scheme to transfer members and their savings from one fund to another must be approved by at least 75 percent of the members of the fund.

Hunter says any transfer of members between occupational retirement funds – from a stand-alone fund to an umbrella fund, or between umbrella funds, or between standalone funds – or any amalgamation of funds must comply with section 14 of the Pension Funds Act.

Retirement fund trustees have to take account of any objections they receive from members. If an objection cannot be resolved, it must be brought to the attention of the FSB.

“If a member of a fund who is aggrieved by the terms of a transfer scheme is not confident that his or her concerns will be properly conveyed to the registrar [of retirement funds], the member may convey them to the registrar by sending an email containing a detailed description of their concerns to section14@fsb.co.za,” she says.

Hunter says if your retirement savings are to be transferred from one fund to another, the trustees of both funds must comply with a number of duties, including:

◆ Taking all reasonable steps to ensure that your interests are protected at all times in terms of the rules of the funds and the Pension Funds Act;

◆ Ensuring that members and beneficiaries are properly informed of their rights, benefits and duties in terms of the rules of the funds; and

◆ Ensuring that you are kept informed of your rights and choices, if any, and the progress of the transfer.

Hunter says transfers are also affected by the new principles-based regulatory regime of Treating Customers Fairly, particularly outcome three, which requires that consumers are provided with clear information and kept appropriately informed before, during and after the point of sale.

Hunter says the FSB handles transfers between occupational retirement funds differently from transfers between retirement annuity (RA) or preservation funds.

She says if you join an RA fund or a preservation fund, your membership will be a matter of personal choice. If you later choose to end your membership of that fund and join another RA or preservation fund, the approval of the FSB is not required, unless the fund is required to have an actuarial valuation.

She says that transfers between workplace (occupational) retirement funds in terms of contracts of employment are different from transfers involving RA or preservation funds.

“The trustees of a workplace fund cannot decide for employers and employees which fund the employees will belong to. So, if the employers and employees (in some cases represented by employer organisations and/or trade unions) have agreed, or their existing contracts of employment allow the employer to decide, that the employees will belong to a different fund in the future, the trustees of their current fund are not entitled to interfere in those contractual relationships by trying to prevent the termination of the employees’ memberships, even if they think that the employees would be better off if they remained members of their current fund in the long term.”

However, Hunter says a number of conditions must be met when transferring your savings from your current fund (the transferor fund) to another fund (the transferee fund). These conditions include: ◆ You must be informed of the transfer;

◆ Any objections to the transfer that were conveyed to the trustees of the transferee fund must be resolved to the satisfaction of those trustees; and

◆ The FSB must approve the scheme of transfer.

The FSB will approve the transfer only if it is satisfied that a number of conditions have been met. These conditions include:

◆ The transfer must be authorised in terms of the rules of both the transferor fund and the transferee fund;

◆ Reasonable and equitable provision has been made for the transfer of your assets and benefits, including any share of a surplus or reserve account;

◆ Your rights and expectations of a reasonable benefit are protected, at least as they relate to your period of membership before the date of transfer;

◆ The trustees of the transferor fund have investigated whether members may be prejudiced in that they may receive smaller benefits;

◆ You must be informed of the amount, or a reasonable estimate of the amount, of your transfer value at the effective date of the transfer;

◆ You have the right to object to the transfer scheme (but not to membership of the new fund) within 30 days of being notified of the transfer, and you must be told how to lodge an objection with your trustees.