Natal Joint Municipal Pension Fund v Endumeni Municipality

JurisdictionSouth Africa
JudgeFarlam JA, Van Heerden JA, Cachalia JA, Leach JA and Wallis JA
Judgment Date16 March 2012
Citation2012 (4) SA 593 (SCA)
Docket Number920/2010 [2012] ZASCA 13
Hearing Date23 February 2012
CounselKJ Kemp SC (with HS Gani) for the appellant. M Pillemer SC (with P Blomkamp) for the respondent.
CourtSupreme Court of Appeal

Wallis JA (Farlam JA, Van Heerden JA, Cachalia JA and Leach JA C concurring):

[1] Two pension funds, the Superannuation Fund and the Retirement Fund, [1] and one provident fund, the Provident Fund, [2] established by legislation for employees of local authorities in KwaZulu-Natal, are managed in terms of a single set of regulations. They are referred to D collectively as the Natal Joint Municipal Pension Fund (the Fund), the appellant in this appeal. In addition to the regulations for the management and administration of the three funds, each separate fund has its own set of governing regulations dealing with the operation of that fund and in particular the contributions payable to that fund by members and E employers and the benefits due to members of that fund. All three funds are registered as pension funds in terms of the Pension Funds Act 24 of 1956 (the Act). The Endumeni Municipality (Endumeni), the respondent, is a participant in the Fund and its employees are entitled to select which of the three funds they will join. The dispute between Endumeni F and the Fund concerns an attempt by the latter to recover an adjusted contribution imposed on Endumeni under the regulations governing the Superannuation Fund. The attempt failed before Swain J and the present appeal is with his leave. The dispute arises in the following circumstances.

G [2] In real life it is impossible for a person who is only 43 years old to have 45 years of service with their employer. However, in the arcane calculations that actuaries are required to undertake in relation to pension funds, that is not only possible but entirely legitimate. By changing his membership from the Superannuation Fund to the Provident Fund; reducing his pensionable emoluments to R5000 per month H while a member of the latter and then rejoining the Superannuation Fund and, with immediate effect, increasing his pensionable emoluments to R34 000 per month, Mr Bart Maltman, a senior employee with Endumeni, was able to secure that he was credited in the Superannuation Fund with 45 years' service, although he was only 43 years old.

Wallis JA (Farlam JA, Van Heerden JA, Cachalia JA and Leach JA concurring)

A year later he resigned his employment and received a lump sum A withdrawal benefit of some R2,7 million. To some degree his resignation was stage-managed in order to enable him to claim this benefit because he resigned on the basis of advice he received from within the municipality and was immediately re-employed on a contract basis in his former position. However, all concerned accept that his conduct was legitimate and that he was entitled to the benefit he received. B

[3] The amount of Mr Maltman's withdrawal benefit was determined by two factors: the years of service attributed to him and his final average pensionable emoluments in the 12 months prior to his resignation. The C withdrawal benefit was accordingly calculated on the basis of some 46 years' service and average pensionable emoluments of around R34 000 per month. While this is accepted as legitimate and proper, it gave rise to a problem for the Fund. That problem arose because it had not received the benefit of contributions by Mr Maltman and Endumeni for 46 years and the contributions made during his membership of the D Provident Fund had been reduced to well below his actual earnings. As the premise underlying the operation of a defined benefit pension fund, such as the Superannuation Fund, is that the contributions of the member and the member's employer, plus the investment earnings of the fund, should be sufficient to provide the agreed benefits, the result in the case of Mr Maltman was that the lump sum withdrawal benefit paid to E him was underfunded. Absent the Fund's ability to rely on the provision in the regulations that is the subject of the present litigation, there were only two ways in which this problem could be addressed. Either the shortfall had to be recovered from a surplus in the Superannuation Fund, [3] or it had to be recovered by way of a surcharge on all the F municipalities that participate in the Fund. In either event, other members or other employers would shoulder the cost of providing Mr Maltman with this benefit.

[4] This problem was not confined to Mr Maltman but arose in relation G to a number of municipal employees who took advantage of the same or similar manoeuvres to secure enhanced benefits from the Superannuation Fund or the Retirement Fund. However, Mr Maltman's was the most extreme case. On the advice of Mr Els, who has acted for many years as the actuary appointed by the committee of management of the Fund (the committee) and the valuator in terms of s 9A of the Act for the H three funds, the committee sought to claim an adjusted contribution from Endumeni under the proviso to the definition of 'pensionable emoluments' in reg 1(xxi)(h) of the regulations governing the operations of the Superannuation Fund. This proviso had been inserted [4] in the regulations with effect from 1 July 2004. I

Wallis JA (Farlam JA, Van Heerden JA, Cachalia JA and Leach JA concurring)

A [5] Endumeni resisted the claim on three broad grounds. First it said that the amendment to the regulations inserting the proviso was not registered in terms of s 12(4) of the Act until 17 February 2009, by which stage pleadings had closed and litis contestatio had been reached. It contended that, until that stage, the proviso was invalid by virtue of the B provisions of s 12(1) of the Act and the Fund therefore had no cause of action; and that, whatever the consequence of the subsequent registration after litis contestatio, it could not operate retrospectively to validate the existing defective cause of action; second it contended that the regulation, properly interpreted, did not permit the Fund to make the C claim that it did for an adjusted contribution; and third, even if it did, it said that the necessary formalities for the exercise of that power were not satisfied. In order to address these arguments it is necessary to have regard to the regulations governing the Superannuation Fund.

The regulations

D [6] While the regulation on which the Fund relies in advancing its claim takes the form of a proviso — and it is convenient to use that term to describe it — in truth it is not a proviso properly so-called. A proviso would serve to qualify and limit the scope of the definition to which it was appended, [5] but this is an independent provision dealing with the power of the committee of the Superannuation Fund to direct a local E authority to pay an adjusted contribution. It reads as follows:

'Provided further that, should at any time the pensionable emoluments of a member including a section 57 contract employee, increase in excess of that assumed by the actuary from time to time for valuation purposes in terms of Regulation 13, then the committee on the advice F of the actuary, may direct that the local authority employing such member pay an adjusted contribution in terms of Regulation 21 to the Fund;. . . .'

The Fund's case is that when, on 1 July 2005, Mr Maltman rejoined the Superannuation Fund and adjusted his pensionable emoluments from G R5000 per month to R34 000 per month, there was an increase in his pensionable emoluments in excess of that assumed by the actuary in making his most recent valuation of the Superannuation Fund, and that this increase warranted the committee directing Endumeni to pay an adjusted contribution.

H [7] The provisions of the regulations dealing with contributions are central to the issues in the case. They are to be found in regs 19 and 22 in respect of members, and reg 21 in respect of local authorities. Under reg 19(1), members must contribute to the Superannuation Fund an amount equal to 9,25% of their pensionable emoluments. This is deducted either monthly or at shorter intervals, no doubt depending on I whether they are weekly-paid or monthly-paid staff. In addition, under

Wallis JA (Farlam JA, Van Heerden JA, Cachalia JA and Leach JA concurring)

reg 19(2), a person who becomes a member of the Superannuation Fund A after the introduction of the regulations [6] may elect to make an additional contribution in respect of prior service with a local authority. Under reg 22(2) a member placed on leave without pay may, with the permission of the committee of the Superannuation Fund, continue to make contributions to it on the basis of their full pensionable emoluments. It B is apparent that, save in these two exceptional cases, the members' monthly contributions are relatively stable.

[8] The contributions to be made by local authorities in terms of reg 21 are as follows:

'(1) A local authority shall pay to the Fund within seven days after C the expiration of the period in respect of which the contribution is being paid: —

(a)

the contributions and interest paid by the members in the preceding calendar month;

(b)

an amount equal to the following proportion of the contributions D paid in terms of Regulation 19(1) by the members in its service:

. . .

From 1 July 1992

(c)

an amount equal to the proportion in paragraph (b) of the contributions and interest paid in terms of Regulations 19(2) and 22 by the members in its service; E

(d)

such surcharge on its contributions in terms of paragraphs (b) and (c) as may be agreed to by the local authorities in general committee on the advice of the actuary in order to provide the whole or part of bonus additions made in terms of Regulation 37; and

(e)

. . .

provided that if the member is paying by instalments, the local authority F may make a lump sum payment to the Fund in lieu of its instalments and interest.'

These contributions will necessarily be less consistent from month to month than those of individual members. There...

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