Thursday, June 02, 2005

The Pension Funds Act limits the circumstances in which a fund may make deductions from the benefits payable to a member. Permissible deductions include amounts outstanding in respect of housing loans made to the member by the fund or the employers as well as housing loans guaranteed by the fund or the employer. The fund may also deduct medical aid subscriptions and insurance premiums with the member’s consent and is empowered to make any other deductions to which the registrar of pension funds may agree.

Deductions in respect of damages caused to an employer by an employee may only be made if the damages arise as a result of theft, fraud, dishonesty or misconduct, and only if the member has admitted liability for the damages in writing, or if judgement has been obtained against the member in civil or criminal proceedings. The provisions for deductions in the case of theft, fraud or similar misconduct have always been difficult for employers to use, but recent determinations by the pension funds adjudicator and judgements by the High court, have assisted in giving teeth to the law in this respect.

The existing provisions, set out in section 37D of the Act, are considered contrary to a central principle underlying the discussion paper on retirement fund reform that was issued by National Treasury in December last year. The discussion paper stresses that retirement savings are intended for the protection of members and their dependants and should not be eroded unnecessarily. The discussion paper therefore recommends that the only deductions permissible on the exit of a member from a fund should be in respect of tax and housing loans or guarantees. National Treasury proposes that the new retirement funding legislation should do away with all other types of deductions.

The reform paper is currently under discussion, and National Treasury has indicated that it will accept further submissions from the public later in the year (initial submissions were accepted until 31 March). The new Act is expected to be promulgated in 2006. In the meantime, employers should take note of the proposed changes, and may need have to revisit their strategies to deal with dishonest employees in order to prepare for the expected legislative developments.