Government’s recent default regulations applicable to the pension funds industry will ensure that members are better informed about their decisions at retirement, said Muvhango Lukhaimane, the Pension Funds Adjudicator.
She added that once fully implemented, the regulations will require that pension funds ensure that an explanation is given to a member in “understandable language” about the risks and costs of electing a one-third lumpsum benefit with a guaranteed period and a spouse’s pension.
Ms Lukhaimane was commenting in a determination she issued following a complaint that Sentinel Retirement Fund (respondent) had refused to pay a lumpsum retirement benefit.
The default regulations to the Pension Funds Act are meant to improve the outcomes for members by ensuring that they get good value for their savings and retire comfortably. Member defaults should be relatively simple, cost-effective and transparent. Trustees are required to help members in the accumulation and retirement phases of their membership of a fund.
The default regulations require the board of trustees to offer its members a default investment portfolio which is not excessively complex or unreasonably expensive; a default in-fund preservation of benefits for members who move between employers before retirement; and a default annuity strategy to ensure that members are able to convert their retirement savings into an income at retirement that is efficient, transparent and cost effective.
In the matter that came before the Pension Funds Adjudicator, the complainant who had been employed with Harmony Gold Mining Company Limited from 2000 until his retirement in 2016, was paid a lumpsum benefit in the amount of R320 943.13 and was in receipt of a monthly pension in the amount of R2 352.84.
The complainant submitted that the remaining balance of his retirement benefit with the respondent was in the amount of R633 000.00.
He submitted that his monthly pension was too small to pay for his daily needs. He had requested the respondent to increase his monthly pension. However, the respondent advised him that it was not possible. He said the respondent should transfer his retirement benefit to another approved retirement fund or pay him the balance in a lump sum.
The respondent submitted that the complainant, upon retirement, completed a retirement benefit claim form wherein he elected to commute one-third of his fund credit for a lump sum and the balance to be paid as a lifelong monthly pension.
Therefore, the complainant was paid a lump sum benefit in the amount of R320 943.13 and was receiving a monthly pension in the amount of R2 352.84.
The respondent submitted that its rules provide that a member is entitled to claim a lump sum withdrawal benefit if he has left service for any other reason than death and has not reached normal retirement age. It submitted that the complainant reached his normal retirement age when he left service and was not eligible to claim a withdrawal benefit.
The respondent submitted that limits were set by the South African Revenue Service.
It submitted that if retirement interest did not exceed an amount of R247 500, then the retiring member was permitted to take the entire retirement interest lump sum.
However, the complainant’s retirement interest was in the amount of R962 829.39 and as such, he was not allowed to commute more than one-third thereof for a lump sum.
The respondent further submitted that the board may grant pension increases from time to time. It submitted that no provision has been made for a retiring member to transfer his retirement benefit or the post-commutation portion to purchase an annuity from a third party.
In her determination, Lukhaimane said the rules of a fund were supreme and binding.
She said the complainant had elected to commute a lump sum in the amount of R320 943.13 and the balance was applied to purchase him a monthly pension in the amount of R2 352.84. The complainant’s retirement benefit exceeded the amount as prescribed by SARS. Therefore, he was not entitled to receive his entire retirement benefit in a lump sum.
She said in August 2017, National Treasury gazetted some fundamental changes to how pension funds are going to work. The default regulations placed a number of new requirements on boards of management.
“With the implementation of the default regulations, the board will be required to ensure that members have access to retirement benefits counselling before they make any decisions. The Act provides for the disclosure and explanation, in clear and understandable language of the risks and costs of the options the member has.
“All retirement funds have to implement this capability prior to 1 March 2019. Since the Act will not specifically state how the counselling should be delivered, funds could come up with a number of ways of doing it.
“The fund is ultimately responsible and it can decide who and how to provide the counselling. What is key, is the provision of factual information on fund options.
“Therefore, once implemented, members should be better informed about their decisions at retirement and the respondent should explain to a member in understandable language the risks and costs of electing a one-third lumpsum benefit with a guaranteed period and a spouse’s pension.”
She said in the case of the complainant, the election made regarding the type of benefit the complainant claimed, was irrevocable.
“The claim form signed by the complainant included an acknowledgement which, by itself, precludes the relief sought by the complainant to transfer his benefit or to increase his monthly pension.
“The complainant appended his signature on the claim form. The function of a signature is to signify that the writing to which it pertains accords with the intention of the signatory.
“Therefore, in signing the claim form, the complainant confirmed that the terms and conditions referred to above apply to him.
“However, considering the implementation of the default regulations, the respondent will have to provide its members with retirement benefits counselling and explain in clear and understandable language the risks and costs of the options the member has in order for him to make an informed decision.”
Ms Lukhaimane said since retirement benefits counselling had still not been implemented, this Tribunal found that the complainant was paid his correct benefit in terms of the Rules of the respondent and the respondent had discharged its responsibility to the bare minimum in terms of the current legislative provisions.
The complainant was not entitled to a further lump sum benefit or to transfer his benefit to another approved retirement fund.
The complaint was dismissed.