Section 37D of the Pension Funds Act provides for the Board of Trustees of a retirement fund to authorise a deduction from a member’s benefit for damages caused to the employer, due to theft or fraud on the part of the member, provided that the member has either admitted liability in writing or the employer has obtained judgment against the member. The Board is also empowered to withhold a member’s benefit to enable the employer to obtain a judgment against them.
Until recently, the Pension Funds Adjudicator was of the view that a deduction can be made from a member’s benefit on the basis of a civil judgment as well as a compensation order made by a criminal court in terms of section 300 of the Criminal Procedure Act. However, in two recent cases, the Financial Services Tribunal ruled that a deduction can only be made from a member’s benefit in the case of a civil judgment.
The Tribunal further held that a member’s benefit may only be withheld in the case of a civil action, and not in the case of a pending criminal case. During a recent webinar, the Adjudicator’s office confirmed that it would, in future, follow the same approach as the Tribunal.
This means that the Fund had to adjust its procedures relating to section 37D requests to ensure that:
- A deduction is only made from a member’s benefit based on a civil judgment, and not based on a compensation order in terms of section 300 of the Criminal Procedure Act.
- A member’s benefit is only withheld to allow the employer to pursue a civil action. The Fund may no longer withhold a benefit while the employer pursues a conviction in a criminal case against the member.
- The Fund affords the member the opportunity to respond to the employer’s allegations.
Transitional arrangements
In most cases where the Fund is currently withholding the payment of benefits in terms of Section 37D, employers opened a criminal case. The case will be investigated by the South African Police Services and acted on by the National Prosecuting Authority. Therefore, the result will be a compensation order in terms of section 300 of the Criminal Procedure Act, which, as explained, can no longer be accepted.
As a transitional arrangement, the affected employers must provide the Fund with a copy of the issued summons and details of the claim instituted against the member by the end of September 2021.
If the Fund has not received the following documents by the stipulated date, then payment of the benefit will be made to the member in accordance with the registered rules of the Fund and the Pension Funds Act:
- A copy of the summons issued;
- A court interdict to prevent the fund from making payment, or
- A complaint filed with the PFA to that effect.
Sanlam Umbrella Fund