Requirements for withholding pension funds from a member
28 Sep 2023
Introduction to the Pension Funds Act:
The Pension Funds Act plays a crucial role in safeguarding pension benefits, aiming to prevent individuals from relying solely on state assistance once their pension funds are depleted. However, there are instances where deductions can be made from pension benefits under specific circumstances. One such scenario involves withholding or deducting a portion of an employee’s pension benefit as compensation for damages resulting from their dishonest conduct, theft, fraud, or misconduct, at the request of the employer.
Requirements for withholding a pension benefit in cases of employee misconduct:
To withhold or deduct an amount from a member’s pension benefit in favour of an employer, certain conditions must be met:
- Pension benefit must be payable: There must be a pension benefit payable by a pension or provident fund.
- Amount owed by the member: The member must owe an amount to their employer when they retire or cease to be a fund member.
- Dishonest conduct leading to damages: The damages suffered by the employer must result from theft, dishonesty, fraud, or misconduct by the member, excluding negligent conduct.
- Admission of liability or court judgment: The member must either admit liability in writing to the employer, or a civil judgment must be obtained against them in court. A criminal conviction alone isn’t enough; it must be accompanied by a compensation order issued as part of the sentence.
- Specific amount of compensation: The written admission or court judgment must specify the amount of compensation or damages owed to the employer.
- Voluntary admission: Any admission of liability must be made voluntarily, without coercion.
Withholding pending litigation:
Sometimes, an employer suspects dishonest conduct by an employee upon termination but hasn’t yet obtained a civil judgment. In such cases, the law allows for the possibility of withholding pension benefits until the litigation against the member concludes. This recognises the delays in the justice system that prevent employers from securing judgments before paying out pension benefits.
Withholding pending divorce:
The Pension Funds Act permits pension funds to withhold payment of a member’s benefit in certain situations, but this doesn’t extend to pending divorce orders. Unlike cases involving theft, fraud, or employee misconduct, where funds can be withheld pending legal proceedings, divorce orders don’t fall under this category. If a member has left their job, the fund can’t delay payment while awaiting a divorce order. This distinction reflects the specific provisions of the Pension Funds Act.
Withholding pending final maintenance order:
Maintenance orders in South Africa can affect a member’s pension benefit under specific legal provisions. Section 26(4) of the Maintenance Act, in conjunction with Section 37D(1)(d)(iA) of the Pension Funds Act, allows for a deduction from a member’s pension interest to benefit their non-member spouse or child when the fund receives a binding final maintenance order. Initially, it was unclear whether these orders could also apply to future maintenance. However, the Durban court’s decision in Mngadi v Beacon Sweets and Chocolates Provident Fund clarified that South African courts can enforce orders related to future child maintenance. To succeed, the claimant must show the defaulting member’s history of neglecting maintenance responsibilities.
Maintenance creditors in South Africa have the option to request that a pension fund withhold a member’s benefit to secure potential future maintenance orders granted by the court. The legal framework and precedent cases provide guidance on how such deductions and withholdings can be enforced to ensure the financial well-being of spouses and children entitled to maintenance support.
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