Ruling on backdated pension fund changes overturned
The Constitutional Court yesterday ruled that all pension funds cannot simply backdate changes to their rules – however important – without first registering the change with the authorities, overturning a previous decision by the SCA.
BusinessLIVE reports the ruling comes after a municipal worker found his pension fund payout was less than he expected because the fund changed its rules after his resignation and applied the change retrospectively, but without registering the rule change.
Pandelani Mudau was an employee of the Vhembe District Municipality for more than a decade and thus a member of the Municipal Employees Pension Fund. When he resigned in May 2013, he became entitled to withdrawal benefits from the fund in terms of its then rule.
The old rule indicated that on resignation he would be entitled to three times his contribution plus interest.
However, in June 2013, after the fund was warned in an actuarial report that it would not meet its future liabilities, the administrators amended the rule.
Instead of three times, the benefit would now only be one-and-a-half times. The amended new rule was to apply retrospectively from 1 April almost two months before Mudau’s resignation.
In July 2013, the fund applied to the relevant authority to register its new rule, which would only reflect a year later.
In October 2013, Mudau received his withdrawal benefit and it amounted to about R650 000 in terms of the new rule instead of about R2.1m in terms of the old rule.
Mudau complained to the pension funds adjudicator, who found in his favour.
The adjudicator held that the new rule could not be applied before it was registered. The fund was told to pay Mudau using the old rule.
BusinessLIVE reports the fund tried to review this decision in the Gauteng High Court (Pretoria) but lost its case.
After a further appeal by the fund, the SCA ruled unanimously in its favour. The SCA held that the relevant laws permit the fund to amend its rules and to determine a date of application. Retrospective application of the new rule should be allowed.
Mudau then appealed to the Constitutional Court.
Article disclaimer: While we have made every effort to ensure the accuracy of this article, it is not intended to provide final legal advice as facts and situations will differ from case to case, and therefore specific legal advice should be sought with a lawyer.