Professor John Murphy, the Pension Funds Adjudicator, has rapped retirement funds that discriminate between married and unmarried members.
Murphy made the stand in his latest precedent-setting ruling, ordering the Independent Schools Pension Fund to pay a divorced man the same benefit as he would have had he still been married.
Robert Clarence resigned from St Johns College, Johannesburg, at which time he had belonged to the fund for 16 years. Shortly before he gave notice of his leaving the fund, he was divorced. The administrators of the fund informed him that his payout as a married man would be more than R290 000, but the quotation for an unmarried man was about R33 000 lower, because the first amount made provision for a spouse's pension.
Clarence complained that he was discriminated against and that although divorced, he was still required to provide maintenance for his former wife and his children as well as a pension for his former wife in the future. The fund defended its actions saying the trustees had a responsibility to ensure that the benefit was paid to a member who withdrew from the fund. Because Clarence was not married at the date of withdrawal and his wife no longer fell within the rules definition of a spouse, no spouse's benefit would be due to her.
All three categories of unmarried members - those who never married, those who have been divorced and those who have been widowed receive lower withdrawal and transfer benefits than married persons in terms of the funds rules. The unmarried person's withdrawal benefit is discounted on the assumption that the fund to which he or she transfers will not have to fund the liability of the spouse's pension. In the case of a married member transferring out of the fund, the fund is prepared to pay for the additional liability.
The effect of this is that the unmarried members cross-subsidise the married members because both pay the same contributions, Murphy says. But, he says, there are no requirements in the fund's rules that the money, after withdrawal should be invested in a way to make provision for a spouse's pension.
"The principal officer of the fund readily admits that the fund has no control over how a married person who withdraws from the fund invests his money in a new fund.
"The admission amounts to a concession that where the married member receives an additional benefit to provide for a spouse's pension, he may use it for other purposes, for example, to acquire a greater share in a defined contribution fund, yet the divorced member is denied this benefit, simply because of his marital status."
Also, the underlying assumption that unmarried people do not have to support partners and dependents is highly questionable, Murphy says. People who do not formalise their relationships also have obligations to partners and dependents.
Murphy says the trustees did not act impartially in Clarence's case. He labelled the decision to pay a lower benefit to unmarried members as unreasonable, unfairly discriminatory and an infringement of the Constitution. Because this ruling could have a dramatic effect on the fund, Murphy limited its effect to complaints lodged with the Independent Schools Pension Fund after March 17, 1998.