LEGAL UPDATE

Short notes covering some topical legal issues relevant to trustees.

Dlamini v Roman Patrols CC and NBC Holdings

The wife of a deceased individual claimed payment of a death benefit on her husband’s death. She’d been advised that her deceased husband was never registered as a member of the fund. The widow introduced uncontested evidence that the employer had made monthly deductions from the deceased’s salary for pension contributions.

The Pension Funds Adjudicator acknowledged lack of jurisdiction to adjudicate the matter as the deceased was never a member of any pension fund. However, despite the lack of jurisdiction, she felt the tribunal could not turn a blind eye to what appeared to be a bad business practice by the employer.

The Adjudicator found that the conduct of the employer to deduct monies from the deceased’s salary in the name of a pension fund, for which the deceased was never a member, was contrary to the Pension Funds Act.

The Adjudicator ordered the administrator to calculate the value of the death benefit, to which the widow would have been entitled, had the employer registered the deceased as a member of the fund and paid all contributions to the fund. The employer was ordered to pay the widow that calculated amount.

City of Johannesburg v National Fund for Municipal Workers, Registrar of Pension Funds & Others

The employer had applied to the High Court for the setting aside of certain rule amendments that had been registered. The employer’s main contention was that the trustees of the fund had amended the rules without having first obtained the consent required by the fund’s existing rules.

Before amendment, the rules allowed for negotiations between the employer and the trustees if the employer wanted to withdraw as a participating employer in the fund. The amended version, on the other hand, required approval of the trustees if the employer decided to cease participation. In essence, the employer could not withdraw from the fund without the consent of the trustees.

The fund and the Registrar raised two main arguments. First, the High Court lacked jurisdiction to review a decision of the Registrar to register the rule amendment. They relied on the Promotion of Administrative Justice Act, which provides that the court may not consider a matter if all the internal remedies have not been exhausted, as the employer should at the outset have referred the matter to the Financial Services Appeal Board.

Second, the employer was represented by at least three employer-appointed trustees when the resolution was passed to amend the rule. The fund and Registrar contended that the employer, through these trustees, had fully consented to the rule being amended.

The court held that the rule amendment was invalid. The trustees had failed to comply with the requirement in the rules that the employer had to be consulted, and its consent obtained, for any rule to be amended. Further, the fact that the three employer-elected trustees did not object to the resolution could not be equated to seeking consent from the employer.

The court concluded that the employer’s consent was never obtained and therefore the previous rule had to be reinstated. It also noted that referring the matter to the Appeal Board was unreasonable as the invalid amendment would then remain until the new process had been completed.

Financial Services Laws General Amendment Act

This Act, which introduces a number of changes to the Pension Funds Act, came into operation last November. Some notable changes:

• “Beneficiary funds” will replace trusts to administer death benefits on behalf of beneficiaries;
• Benefits assigned to non-member spouses by valid divorce orders granted before 13 September 2007 are deemed to have accrued on 13 September 2007;
• Benefits due to minor beneficiaries are payable not only to a person appointed by the courts, but also to a person recognised in law as responsible for managing the affairs or meeting the daily needs of the beneficiary. The intention is to allow payments to caregivers;
• Benefits legally payable to a member, that remain unpaid for more than 24 months, are now classified as unclaimed benefits.

Revenue Laws Amendment Act

Most of the amendments relate to the tax treatment and accrual dates of withdrawal and death benefits. Effective date of this Act is from the commencement years of assessments ending on or after 1 January 2009.

This means the general effective date applicable to individuals is 1 March 2009. Some important changes are:

• The Act allows beneficiaries of a death benefit payable by a fund to elect to receive an annuity. The benefit will be taxed as an annuity irrespective of the fund’s rules regarding the method of payment;
• Amounts transferred to beneficiary funds or unclaimed benefit funds, that were taxable before being transferred to these funds, may now be paid out tax-free;
• Lump-sum payments of surplus to pensioners of a pension or provident fund are allowed.

Payments in terms of divorce orders granted on or after 13 September 2007 will be taxed

• in the member spouse’s hands at his or her average tax rate when the accrual date is before 1 March 2009;
• in the non-member spouse’s hands, according to a new standalone tax table, when the accrual date is on or after 1 March 2009.