In a far-reaching recommendation that could have implications for close on two million members and pensioners of government and parastatal retirement funds, Selby Baqwa, the Public Protector, has contradicted a decision of the Transnet Second Defined Benefit Fund to reject paying a pension to a member's former spouse and dependant daughter.
Baqwa has also recommended that the three Transnet retirement funds, including the Transnet Second Defined Benefit Fund, be registered in terms of the Pension Funds Act, so that members will have the right to lodge complaints with John Murphy, the Pension Funds Adjudicator.
Government and Transnet retirement funds are established in terms of their own legislation and fall outside of the Pension Funds Act. This means that in the event of a dispute, members have no right of appeal to the adjudicator. Instead, they can appeal to review committees within the government and Transnet funds, but these committees are not completely independent, as is the adjudicator.
If appeals to the review committees fail, members can appeal to the Public Protector or follow the expensive route of taking legal action.
Members of funds registered under the Pension Funds Act have the no-cost option of appealing to the Pension Funds Adjudicator.
One of the main reasons why the government and Transnet funds are subject to their own legislation is that, until 1998, members of the funds did not pay tax on their benefits - the argument being that they did not receive market-related salaries. However, the government put a stop to this in 1998, although all benefits accruing to that date are still not taxable.
So, members of these funds who retire today will only pay tax on the portion of benefits built up after 1998. If the funds are made subject to the Pension Funds Act, tax legislation will have to be amended accordingly.
The Public Protector's recommendations were made after an appeal to him by Joan Metcalfe, of Cape Town, who has been fighting an ongoing battle with the Transnet fund for a share of her former and late husband's pension in terms of a divorce agreement. Metcalfe supports herself and a dependant adult daughter, who suffers from chronic fatigue syndrome (myalgic encephalomyelitis).
The Transnet Second Defined Benefit Fund has repeatedly turned down Metcalfe's applications on the basis that the rules of the pension fund do not allow for the pension to be split between Metcalfe and her husband's second wife.
Phillip Thompson, the chairman of the fund, says that the board of trustees does not agree with the Public Protector's recommendation because the rules of the fund do not allow for the payment, even though the board of trustees is sympathetic towards Metcalfe's position. However, the board will now consider making an ex gratia payment to Metcalfe.
Thompson says the board will also take up the issue of registering the Transnet Second Defined Benefit Fund under the Pension Funds Act with the main board of Transnet which, in terms of the rules of the fund, must deal with any changes to the current legislation.
Thompson says that as a result of the Metcalfe case, the fund is considering making changes to the rules that will allow a pension to be split between a current spouse and the dependant children of a deceased member. However, even if these changes are made to the rules, a former spouse will not be entitled to a share of the pension of a deceased member and would lose any alimony from that source.
The dispute in the Metcalfe case arose because the member's widow was entitled, in terms of the rules of the fund, to receive a pension as the surviving spouse equal to 70 percent of the pension being paid to the member. In terms of the rules, there is no entitlement for former spouses as no assets are held in the fund to pay for an additional pension.
Baqwa does not agree with the interpretation and states in his recommendation that both Metcalfe and her daughter are dependants in terms of the rules of the fund "and as such are entitled to a portion of the pension of the late Mr DF Metcalfe".