When employers can and can’t touch your pension savings

By Nicola Mawson

An ex-employee recently learnt the hard way that, by defrauding her former employer, she may not only have to face charges but could also lose all the contributions made into her pension fund – including the portion that would have formed part of her cost-to-company earnings.

A recent decision by the Pension Funds Adjudicator, Muvhango Lukhaimane, dealt with this sort of issue, with an added wrinkle: the fund can’t willy-nilly withhold the pension payout.

Lukhaimane recently ordered that a provident fund that withheld payment of a withdrawal benefit on the basis that the member had allegedly defrauded her former employer had to allow her to place her version of events before it.

The employee, as a member of the fund, had filed a complaint with the adjudicator, arguing that the fund had withheld her savings without her being able to state her case. Lukhaimane ordered the fund to first consider the complainant’s representations and then decide whether it should continue to withhold the benefit.

When the employee left the company, which resulted in her exiting the fund, “a withdrawal benefit became due and payable to the complainant,” the adjudicator’s decision reads.

The complainant said that she resigned in April 2024 after 15 years. Her former employer said it had withheld payment of her withdrawal benefit of R538 771 on the grounds that she had committed fraud at her place of employment.

The fund, in turn, stated that it had established that a summons had been issued against the former employee for alleged fraud and that the South African Police Service was also investigating alleged theft. It was, therefore, legally within its rights in terms of the Pension Funds Act to withhold the money.

Lukhaimane said that funds are entitled to deduct any amount due by a fund member to his or her employer when it came to damage caused to the employer through theft, dishonesty, fraud or misconduct. However, this only applies when the fund member has admitted in writing to liability, or a judgment has been obtained against the member in court.

What’s more, Lukhaimane explained, this applies to contributions made by both an employer and an employee. In this case, the employee denied fraud, and various accusations were slung around during the hearing.

Withholding a benefit also doesn’t apply when a staff member has, for example, negligently damaged an employer’s car, or to loans for studies or salary advances, Lukhaimane told Personal Finance.

Another matter that ended up before the Financial Services Tribunal dealt with exactly an instance in which a former staff member caused damage through a vehicle accident. In this case, a trucking company fired the driver after finding him guilty of misconduct. It then also instituted a damages claim against him.

The adjudicator ruled that it would not force the retirement fund to pay over a portion of the driver’s benefit to the trucking company. The trucking company took that decision on appeal to the Tribunal and lost.

The Tribunal especially noted that the fact that the driver may have lied about the reason for the accident or that he may have been drunk did not entitle the fund to withhold all or any of the member’s retirement benefits.

In addition, the trucking company’s request to have judgement issued against the driver did not provide for the deduction of the debt from the pension fund withdrawal benefit payable to him, according to the Act. 

“The court ordered the driver to pay R400 000 to the trucking company as compensation for the damages it suffered,” not the fund, the decision said.

Back to the alleged fraud. “In this instance, the employer instituted criminal and civil proceedings against the complainant. However, the fund failed to put the employer’s case to the complainant, nor did it afford the complainant an opportunity to place her case properly before it,” said Lukhaimane.

Because of this, the adjudicator found that the fund didn’t apply its mind “appropriately, impartially, and in a balanced manner”. Because it didn’t do so, Lukhaimane said the fund couldn’t balance the party’s competing interests before making the decision to withhold the savings. “The fund exercised its discretion improperly,” she added.

This failure, Lukhaimane said, was a breach of the fund’s legally prescribed obligations. In this case, she sent the matter back to the fund to revisit. The law, she explained, seeks to ensure that a fund does not abuse the system or merely rubber-stamps the employer’s request to withhold a member’s benefit without any investigation into the merits of the allegations or the financial prejudice a member may suffer.

Just the fact that there were allegations wasn’t sufficient for funds to be withheld.

Lukhaimane said a fund is meant to balance the interests of the parties and evaluate the employer’s claim, as it is the third party that stands in-between the employee and the employer.

“Funds sometimes yield to employers and, in those instances when we discover that they withheld the benefit without following proper processes to the prejudice of the member, we order that they not only release the benefit to the member, but the fund is also made liable for punitive interest,” said Lukhaimane.

PERSONAL FINANCE