Issue: September/November 09


Notes on topical issues relevant to trustees a nutshell a nutshell

Ruling on prescription

The Pension Funds Adjudicator has dismissed complaints that relate to events which occurred more than three years before the complaint was lodged.

She said the Pension Funds Act precludes the Adjudicator from investigating a matter if the complaint to which it relates occurred more than three years prior to the claim being lodged with her office.

Due to the peremptory nature of the Act, she had no authority to adjudicate upon any complaint which is out of time. She also stated that her authority to condone the late lodging of a complaint or to extend the three-year time limit had been removed by the repeal of s30I(3).

This is a departure from the Adjudicator’s previous stance of insisting that administrators and funds address the merits of a case in their responses, even where the claim was time-barred or had prescribed i.e. three years from when the claim arose or from when the complainant ought to have known about the claim.

Legal status of cohabitees: N G Hlathi v University of Fort Hare Retirement Fund & Others

It concerned the distribution of death benefits under s37C of the Pension Funds Act and the determination of cohabitees’ legal status.

The case arose from the fund having awarded a substantial part of the death benefit to the deceased member’s permanent cohabitee, his common law spouse. The complainant was the deceased’s mother who argued that the benefit should have been paid to her instead.

The Adjudicator held that the cohabitee could not qualify as spouse, but could qualify as a factual dependant. She departed from the previously-held view that factual dependency requires a dominantservient relationship. It was held that the trustees had acted reasonably in distributing the death benefit and so the complaint was dismissed.

The Pension Funds Amendment Act, which came into effect on 13 September 2007, had amended the definition of spouse to include permanent life partners.

Consumer Protection Act

Having become law in April, it will have a staggered phasing-in period. Primary purposes include preventing exploitation of consumers and creating a strong culture of consumer rights.

The Act will impact on pension funds; for example, how members’ information is kept and protected. It will also impact on funds’ relationships with their service providers.

However, the industry is awaiting the outcome of an application by the Registrar of Pension Funds to exempt funds from this Act.

Taxation Laws Amendment Bill 2009

Some of the more important changes proposed in the second draft:

  • All payments in terms of maintenance orders will be taxed at the member’s marginal rate and not as a withdrawal lump sum;
  • With effect from 1 March 2009, lump-sum benefits payable by SA retirement funds to foreign nationals may be subject to tax. Tax will apply if that person worked in SA for at least two years during the 10 years prior to the date on which the benefit became due;
  • Amounts transferred to beneficiary funds are subject to tax in the hands of the deceased member on the date immediately prior to his death. The after-tax amount transferred to the beneficiary fund will remain tax-free, so there is no tax on the growth within the beneficiary fund and no tax on payments to the beneficiary;
  • Any employer who has an obligation to provide post-retirement medical aid subsidies to retired employees, and who chooses to settle this liability by a cash settlement to the retirees or their dependents or through an insurance policy, may deduct these costs in the year when the amount is paid;
  • On divorce benefits where the accrual date is on or after 1 March 2009:
    • For divorce orders granted before 13 September 2007, the member will pay the tax;
    • For divorce orders granted on or after 13 September 2007, the non-member will pay the tax;
    • The accrual date is when the non-member elects to have the amount paid in cash or, if no election is made within 120 days, the date on which the benefit is paid;
  • For their tax treatment, retirement benefits that accrued on or after 1 October 2007 and withdrawal benefits that accrued on or after 1 March 2009 need to be aggregated.
Compiled by Tshepiso Watson,
Legal Advisor at Alexander Forbes.