Edition: June - August 2015


Be that as it "may"

Or is it “shall”? On the interpretation of such simple words can turn fortunes to top up pension funds for the benefit of former members. Before they celebrate, they’ll have to be traced.

It looks unnecessarily cumbersome and costly for the liquidator of a retirement fund to institute litigation against National Treasury and Financial Services Board over a ministerial regulation, arguably confused, that the FSB must enforce.

Had the proceedings been launched while the liquidator was still the curator, it would certainly have been possible for the Pension Funds Registrar to control his actions under s5 of the Financial Institutions (Protection of Funds) Act. However, it’s less certain that the registrar has these same control powers over a liquidator although he must still report to the FSB.

Whether curator or liquidator, he would have common cause with the FSB in their basic duty to protect the interests of pension funds’ members and former members. It would surely have been preferable then to resolve the matter in one-on-one discussion, abetted by senior counsel opinion if need be, than to face one another in court and evoke the legal costs that will accumulate for both the FSB and the fund.

In this instance, the litigation has been launched by Tony Mostert as liquidator of the Picbel Group provident fund. Even should the FSB and National Treasury ultimately not oppose Mostert’s application to court, fees would already have been incurred by the preparations for trial.
Unknown at this stage is why National Treasury and the FSB might want to stand in the way of funds being topped up, for the benefit of former members, by the apportionment to them of moneys due to others who’re untraceable. Former members who’re contactable would be able to get more, and those who’re uncontactable would get nothing anyway. But uncontactable after how long? And after what reasonable effort, applied and interpreted by whom, to make contact?
A regulation under the Pension Funds Act is the focus of the dispute. If concluded in Mostert’s favour, it can potentially release billions of rand in unclaimed benefits to members and former members of retirement funds. This will depend on the precedent that a judgment might set for other funds generally. The defined-benefit Picbel fund is one of several, subjected to surplus strips, of which Mostert has been or is the curator.

But the prospect of widespread consequences, in terms of windfalls, could be more theoretical than real. This is because of practical deficiencies in the distribution of unclaimed benefits (see other articles in this TT edition).

On the narrow issue of the regulation issued some years ago by the Minister of Finance, it’s evident that FSB deputy pensions registrar Rosemary Hunter agrees with the arguments that Mostert has advanced. In fact, as a lawyer in private practice before her FSB appointment, she’s advanced them herself.

In the textbook ‘The Pension Funds Act: A Commentary’, published in 2010, Hunter and her co-authors discussed this contentious Regulation 35(4) at some length. In part: “A board (of trustees) that was able to calculate minimum benefit top-ups for certain former members, but was unable to trace them...(was) not obliged (notwithstanding the minister’s purported regulation to the contrary) to make provision for their claims in respect of such top-ups and shares of residual surplus allocated to them.”

Then she noted that the minister (of finance) had sought by regulation to prevent a board of trustees from releasing in the future those moneys from a fund’s special-purpose contingency reserve account*. In the regulation he sought to compel trustee boards to make provisions other than on payments:

  • To former members for whom provision was made in the account;
  • Of moneys to the Guardian’s Fund;
  • Of moneys to a fund ‘established by law’ to hold unclaimed benefits.

Even that part of Reg 35(4) is inconsistent with the Pension Funds Act and thus ultra vires the powers of the minister in terms of s36 (of the Act),” she argued. “A regulation which purports to fetter discretion explicitly granted to a board (in terms of the Act) is certainly inconsistent with it. So is a regulation which purports to require funds to freeze some of their assets in circumstances in which it is highly unlikely that those for whom they were intended will ever be located and thus highly unlikely that they will ever be used in fulfilment of the objects of the Act.”
While the regulation is in force, the FSB is obviously obliged to comply with it. Meanwhile, the FSB has conducted a “thematic review” of how business is conducted by unclaimed-benefit funds. One conclusion is that the boards of these funds are “too passive”, Hunter told the recent Pension Lawyers Association annual conference: “We need more effective measures to trace and pay beneficiaries.”

  • A contingency reserve is an account in a pension fund representing unclaimed benefits, either to be held in the fund or transferred to a special-purpose unclaimed benefits fund. The UBF is a separate legal entity. These funds are mostly established by the pension fund’s administrator. UBFs attract fees for both administration and asset management. Trustees are usually appointed by the administrator.


Reg 35(4) says:

Where the board is able to determine the enhancement due in respect of a particular former member, in terms of s15B(5)(b) or (c) of the (Pension Funds) Act, but is unable to trace that former member in order to make payment, the board shall put the corresponding enhancement into a contingency reserve account specific for the purpose. Notwithstanding anything in the rules of the fund, moneys may not be released from such contingency reserve accounts except as a result of payment to such former members or as a result of crediting the Guardian’s Fund or some other fund established by law to include such amounts.

However, s15B uses the word “may”, not “shall”. Thus, it would seem, the discretion given to boards of trustees by the Act is contradicted by the regulation.