LAURA DU PREEZ: Looking beyond legal fine print in quest for fairness
As of this month, the Pension Funds Adjudicator has had a mandate to make decisions that take into account principles of equity. Members and beneficiaries of retirement funds should take comfort in knowing that the adjudicator can look beyond the legal clauses of a contract to decide what would be a fair outcome.
The adjudicator, Muvhango Lukhaimane, believes we all have a sense of what is fair, but her colleagues in the legal profession regard fairness as a slippery concept that cannot be applied in the highly regulated retirement industry.
At the recent Pension Lawyers Association's conference, advocate Pieter van den Berg said chaos would ensue if equity could be applied generally.
In his view the adjudicator will not be able to make rulings that conflict with the law, the rules of a fund, the regulations, the constitution or common law. Only if there was a lacuna in the law (a gap in the law, or a particular situation for which there is no applicable law), will the adjudicator be able to apply equitable considerations, he says.
Van den Berg speculated on what the adjudicator will be able to do under her new mandate — perhaps she will be able to reformulate complaints that are not properly set out, or stay proceedings on a complaint to allow a member to challenge an unconstitutional fund rule. Or perhaps she could hold off hearing a complaint until the correct representative of a beneficiary has been identified.
But, he said, ultimately the courts would have to decide over time what powers the adjudicator has or has not gained by the amendment to the Pension Funds Act.
That seems the complete opposite of what was intended both when the adjudicator's office was initially set up and how its mandate has now been extended.
The adjudicator's office was set up to be a simple, cheap and quick way for members and other beneficiaries of retirement savings to resolve complaints.
The extension of the office's mandate could surely only have been intended to ensure that the outcomes are fairer for legally unsophisticated members and beneficiaries.
Lukhaimane says there shouldn't be any conflict about your retirement fund entitlements because funds are set up to benefit members. Conflict starts when underwriters, actuarial administrators, actuarial consultants, investment managers and legal consultants want to share in your retirement fund profits, she says.
Despite the threat of legal challenges hanging over her new powers, the adjudicator plans to use her equity mandate not to destroy the law but to fulfil it.
She says she will be looking for more from providers than a tick-box approach to treating customers fairly. The adjudicator expects funds to re-examine their rules to see if they are fair.
In a recent determination, Lukhaimane highlighted a rule that prejudiced a member who transferred a large sum of cash from his previous employer's fund. Another unfair rule is one that pays out only a small percentage of a member's benefit when he or she dies within months of retiring with a large sum saved, the adjudicator says.
Tackling unfair rules may mean the Financial Sector Conduct Authority (FSCA) will be joined as a respondent in some complaints because it will have registered an inequitable rule that results in an unfair outcome, Lukhaimane says.
At other times it may mean questioning trustees' actions. If a fund was supposed to pay a benefit but cannot because an employer has not paid contributions for two years, is it fair that a member hears this for the first time when he or she retires or resigns, the adjudicator asked.
And is it fair that funds allocate a death benefit to favour spouses over girlfriends even if there is no proof a spouse was being supported at the time the member died?
Lukhaimane says the equity mandate will enable her to direct funds to increase allocations to certain beneficiaries rather than to just direct trustees to reconsider their decisions.
She also frowns upon funds that pressure members or beneficiaries to sign away their right to benefits when there is a dispute after a member's death. Lukhaimane says funds do this to short circuit the work trustees have to do to determine how to distribute death benefits fairly.
The adjudicator revealed that she plans to apply for a declaratory order to force those who take her rulings on appeal to make use of the FSCA's tribunal rather than the courts.
Taking proceedings straight to court prejudices members who do not have the means to get legal representation.
Lukhaimane says the equity mandate is an attempt to bring a semblance of values and morality to the law.
• Du Preez is editor of Money