What is Section 37D?
Section 37D is a limited exception to the general protection afforded to retirement benefits under section 37A of the Pension Funds Act. While section 37A protects benefits from reduction, attachment or execution, section 37D (1)(b)(ii) allows a retirement fund, in specific and narrowly defined circumstances, to:
- Deduct amounts owed by a member to their employer, or
- Temporarily withhold payment of a benefit while liability is being determined through a formal legal process instituted by the employer.
This exception exists to prevent abuse of retirement benefit protection where members who have committed dishonest conduct causing financial loss to their employer, exit employment and immediately access their benefits. A deduction made in terms of Section 37D (1)(b)(ii) is not automatic and is within the Board of the Fund’s discretion. (Section 37D (1)(b)(ii) is interpreted restrictively by courts and regulators).
Employer Debt and Qualifying Conduct
Employer debt under section 37D refers only to compensation owed by a member to their employer arising from theft, fraud, dishonesty, or misconduct that includes an element of dishonesty.
Losses caused by negligence, poor performance, incompetence, operational errors, or ordinary breaches of contract do not qualify. Section 37D is therefore not a general debt‑recovery mechanism and cannot be used as a substitute for civil litigation or disciplinary outcomes. Incorrectly categorising conduct as dishonest exposes both employers and funds to regulatory, reputational, financial and legal risk.
When Can Employer Debt Be Deducted in Respect of Qualifying Conduct?
A deduction may only be considered after the member’s liability has been formally established through one of the following:
- Admission of Liability (AOL) – The member must admit liability:
- In writing
- To the employer
- For theft, fraud, dishonesty, or misconduct
- With the Rand value of compensation specified for damage caused
- Signed voluntarily and without duress
- Court Judgment – A valid judgment must:
- Be granted against the member
- Order compensation to the employer for damage caused
- As a result of theft, fraud, dishonesty, or misconduct
- Be a civil judgment or a Section 300 order in terms of the Criminal Procedure Act
A criminal conviction alone is insufficient unless accompanied by a compensation order. Even where these requirements are met, the Board retain discretion and are not obliged to approve a deduction.
Can an Employer Withhold a Claim Because of Debt?
No. Employers may not delay or block the submission of an exit claim, refuse to process a benefit, or withhold payment directly because of alleged or suspected debt. Only the Fund, acting through its Board, may withhold payment and only where the legal requirements for withholding have been satisfied.
The Fund’s Role
The Fund acts independently of the employer and is not an enforcement agent for employer claims. Decisions to withhold or deduct benefits are made by the Board, who must apply their minds independently and ensure compliance with procedural fairness and the audi alteram partem (“hear the other side”) principle. All requests must be formally referred to the Board for consideration.
The Section 37D Process
The section 37D process is procedural, discretionary and tightly regulated. Employers must notify the Fund of alleged employer debt but may not withhold benefits themselves. Where appropriate, the Fund may temporarily withhold payment while liability is determined.
If a member has not signed an AOL and the Employer does not yet have a court order, can it request the Fund to withhold whilst it obtains a valid and compliant order?
Yes. But the Fund has discretion to approve or decline the request to withhold and there are certain requirements to be met for a withholding to be considered valid:
- The request for withholding must be made by the employer in writing
- The type of conduct must be of the type envisioned by section 37D
- The employer must provide supporting evidence or documentation for its claims
- The employer must institute civil court proceedings within a reasonable time (this will depend on the circumstances of the case, if the employer does not institute proceedings within a reasonable time the Fund may release the benefit to the member)
- The Fund must notify the member of the allegations and request for withholding and give the member an opportunity to make submissions as to why the withholding should not be approved
- If there is an inordinate delay by the employer in driving the formal legal process to finality, then the Fund has a discretion to decide to release the benefit to the member
A deduction may only proceed once liability is established through a written admission of liability or a court judgment, and only after Board approval. Members must be informed, given an opportunity to object (typically within 8 days), and the decision must be communicated to all parties. Approved deductions are applied pro rata across the member’s benefit pots (vested, emergency savings and retirement savings).