Claim from death benefits ruled out

Published Nov 18, 1998

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Your employer may not willy nilly deduct money that you owe the company from your retirement fund benefits.

This is the strong message from Professor John Murphy, the Pension Funds Adjudicator, who recently ordered the provident fund of a Cape Town firm of attorneys to pay out almost R100 000 plus interest in death benefits to the widow of one of the directors.

The widow complained to Murphy after the provident fund decided not to pay her her husband's benefits after his death in January 1996.

The firm argued that the director, Mr S, owed R16 000 for a personal loan and that he had granted unauthorised loans from estates which he was administering, exposing the firm to possible losses of R120 000.

The firm relied on a rule in the provident fund which gives the company's directors the discretion to award a death benefit.

However, Murphy says the rule was used to achieve an illegitimate purpose and this constituted maladministration of power by the fund's trustees.

He says it is unreasonable for the provident fund to enforce its unproved claims by effectively confiscating the death benefits due to Mr S's dependants.

"Moreover the fund has tried to do this without following a process in which it would be required to prove its claims before the liquidator of the estate," he says.

By denying Mr S's widow any death benefits, the employer contravened the provisions of the Pension Funds Act on two counts, Murphy says.

The first is the provision which aims to protect pension benefits from the claims of creditors and the second is the provision which stipulates that no loans, other than housing loans, may be deducted from a pension fund benefit.

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