Analyses: Can Inaccurate Benefit Statements Lead to Pension Fund Liability under the South African Pension Funds Act

• Jurisdiction: South Africa
• Author: Mtendeweka Mhango
• Date: 25 May 2019
• Published date: 25 May 2019
• Pages: 448-463

Analyses

Can Inaccurate Benef‌it Statements Lead to

Pension Fund Liability under the South African

Pension Funds Act*

MTENDEWEKA MHANGO

University of the Witwatersrand

1 Introduction

Imagine that a pension member has received inaccurate annual pension

benef‌it statements from a pension fund for a period of more than ten years. He

relies on the f‌inancial information contained in the benef‌its statements to plan

his retirement and retire early from his pension fund (without which he would

not have retired early), only to f‌ind out after his retirement that the benef‌it

statements were inaccurate. If this member sued the pension fund, should the

fund be held liable for maladministration in having sent inaccurate benef‌it

statements to this member? This question has received conf‌licting rulings

from the Pension Funds Adjudicator (Adjudicator) in two cases: Bona v South

African Local Authority Fund & Another (1) [2001] 10 BPLR 2563 (PFA)

and Naicker v Orion Money Purchase Pension Fund [2002] 3 BPLR 3218

(PFA).

In this article I review these conf‌licting rulings of the Adjudicator. I criticise

the formula adopted by the Adjudicator in Bona v South African Local

Authority Fund, which said that in cases involving inaccurate benef‌it

statements the loss suffered by a member who resigns or retires early on the

strength of an inaccurate benef‌it statement is the difference between the

benef‌it paid to the member on early retirement or exit from the pension fund

and the benef‌it that the member would have received had the benef‌it statement

been correct. I argue that this determination and the formula for determining

loss suffered by complainants which it adopted should be criticised and

rejected because it compels pension funds to act ultra vires and without regard

to their registered rules (see s 13 of the Pension Funds Act 24 of 1956 and Tek

Corporation Provident Fund & Others v Lorentz 1999 (4) SA 884 (SCA) at

898G–899A, holding that pension funds are empowered to act only in terms

* I should like to thank members of the Harambe Law Scholars, particularly Sanele Sibanda, Tshepo

Madlingozi, and Freddy Mnyongani for their comments on an earlier draft. I am also grateful to

Professor Marius Pieterse for his insights and comments.

448

(2011) 23 SA Merc LJ 448

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of the rules, common law or legislation; and that actions not provided for in

the rules are ultra vires).

Instead, I argue that the preferred formula is the one adopted by the

Adjudicator in Naicker v Orion Money Purchase Pension Fund supra:

namely, that loss of salary or some other f‌inancial benef‌it is the appropriate

remedy in matters where a complainant prematurely retires or exits the

pension fund in reliance on an inaccurate benef‌it statement. I argue that this

formula is preferred because it is consistent with the Pension Funds Act ( Tek

Corporation Provident Fund & Others v Lorentz at 898G–899A, supra and

Abrahamse v Connock’s Pension Fund (1963 (2) SA 76 (W) at 78D–E

(holding that the rules of the fund constitute the constitution of the fund)) .

I also comment on the signif‌icance of the determinations in Bona v South

African Local Authority Fund and Naicker v Orion Money Purchase Pension

Fund supra, to the pension fund industry and the status of South African law

on complaints involving inaccurate benef‌it statements. I maintain that while it

is an open question in South African law whether a member is entitled to

compensation arising out of the receipt of an inaccurate benef‌it statement, the

Adjudicator appears to suggest, through his award for inconvenience in

Naicker v Orion Money Purchase Pension Fund, that a member may be

entitled to compensation for distress and inconvenience or potentially the loss

of salary as a consequence of maladministration involving inaccurate benef‌it

statements.

2 A Brief Discussion of the Legal Framework for Providing

Benefit Statements in South Africa

In South Africa, the Pension Funds Act is the primary legislation that

regulates private pension funds. Public and other statutorily established

pension funds such as the Government Employees Pension Funds, Transnet

Pension Fund, and others are governed by different legislation.

(These other items of legislation include the Government Employees

Pension Law (Proclamation No 21 of 1996) and the Transnet Pension Fund

Act, 62 of 1990. There are other pieces of legislation that have a regulatory

impact on private pensions. These include the Long-Term Insurance Act of

1998; Financial Institutions (Investments of Funds) Act 1984; Income Tact

Act of 1962; Tax on Retirement Funds Act of 1996). Since there is no

compulsory pension regime in South Africa, our primary focus is on private

pension fund organisations that fall under the ambit of the Pension Funds Act.

The term ‘pension fund’ is def‌ined in the Pension Funds Act to mean a

pension fund organisation. The term ‘pension fund organisation’ is in turn

def‌ined in s 1 of the Pension Funds Act as ‘any association established with

the object of providing annuities or lump sum payments for members or

former members of such association upon their reaching retirement dates, or

for the dependants of such members or former members upon the death of

such members or former members’.

PENSION FUND LIABILITY 449

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