It’s not easy for an employer to get at your pension savings

The law is strict on who can touch your pension savings when you retire or change jobs. Picture: Independent Newspapers.

The law is strict on who can touch your pension savings when you retire or change jobs. Picture: Independent Newspapers.

Published Nov 10, 2023


The law is strict on who can touch your pension savings when you retire or change jobs. Your retirement fund can withhold or make a deduction from your withdrawal benefit only under a limited set of conditions.

The Pension Funds Act’s (section 37D) states that deductions may only be made:

• For a loan granted in respect of a mortgage on a property;

• For compensation to your employer in respect of any damage caused by theft, fraud or dishonesty on your part, to which you have admitted guilt or been found guilty in a court of law;

• For any outstanding medical scheme or insurance contributions;

• For the portion of your benefit assigned to an ex-spouse in terms of a divorce agreement;

• For anything you may owe under a maintenance order;

• For any income tax you owe to the South African Revenue Service.

A benefit may be withheld pending the outcome of civil proceedings against a former employee, but the delay may not be unreasonably long. It cannot be withheld pending the outcome of criminal proceedings.

The 2022/23 Annual Report of the Pension Fund Adjudicator contains the following case studies in which the adjudicator’s office intervened in complaints about the withholding of benefits.

Case study 1

Mr A complained that his employer had failed to sign his withdrawal claim form. It emerged that this was because the employer had laid criminal charges against Mr A, whom it accused of stealing R40 000 from its safe. The employer had reported the matter to the police, who had held Mr A in custody for 48 hours before releasing him without charge.

The pension fund had asked the employer to provide it with either a written admission of liability or a summons showing it had instituted civil proceedings against Mr A. The fund had also requested confirmation that the criminal case against Mr A was still being pursued.

The employer had informed the fund that it did not have a written admission of liability, no civil summons had been issued, because it was too costly, and that the criminal case was not continuing owing to police incompetence.

Based on this, the fund had decided to pay the benefit to Mr A, but it needed the employer’s signature on the claim form.

The adjudicator, Muvhango Lukhaimane, held that:

• The fund was not in possession of any facts that could reasonably justify the continued withholding of Mr A’s benefit.

• The criminal case appeared to be abandoned on the basis of insufficient evidence, and the employer has not instituted civil proceedings against Mr A.

• The mere opening of a criminal case does not provide sufficient grounds for the fund to withhold the benefit.

• The employer was not pursuing civil action.

Lukhaimane ordered the fund to pay Mr A’s withdrawal benefit.

Case study 2

An employer complained that the pension fund of an ex-employee, Ms B, had refused to deduct a compensation claim from the retirement benefit of Ms B, who had allegedly committed fraud and stolen from the company.

Ms B was alleged to have created fictitious employees on the company payroll and paid their salaries into bank accounts that she controlled.

The employer had instituted a sequestration order against Ms B to retrieve the money. In the complaint it argued that the order constituted a civil judgment and, therefore, met the requirement of the Pension Funds Act.

The fund had refused to make a deduction or withhold Ms B’s benefit on the grounds that the Insolvency Act specifically excludes a pension benefit from falling into a member’s insolvent estate.

Ms B stated that her ex-employer had been paid from her estate and that the sequestration proceedings had been finalised. She also submitted that since her exit from her employer, she had not applied for her withdrawal benefit from the fund.

The adjudicator held that:

• A member’s pension benefit is protected from forming part of the assets in the member’s insolvent estate. That protection, however, does not extend to claims made by an employer under section 37D of the Pension Funds Act.

• The sequestration order was granted solely on the basis of the employer’s claim against Ms B for damages it suffered as a result of theft and fraud perpetrated by her.

• The claim, according to the court that granted the sequestration order, met the requirements of the Insolvency Act and, therefore, was sufficiently proven to enable the employer to obtain the order.

• The employer was therefore entitled to a deduction.

• However, section 37D requires that any deduction must occur on the date of a member’s retirement or on the date membership ceases. Ms B had submitted that, since her exit from the employer, she had not applied for her withdrawal benefit from the fund.

• Thus the employer could claim its deduction only when Ms B claimed her withdrawal benefit.

The adjudicator said the wording of this condition – which means that a member may continue to frustrate an employer by simply not submitting a withdrawal claim – is being addressed through amendments to financial legislation. However, she was bound by the current wording.