A retirement fund is not discriminating against its members who are single by providing the spouses of married members with a pension, John Murphy, the Pension Funds Adjudicator, has ruled.
Your retirement fund calculates the cash value of your pension when you transfer to another fund, or when you retire and buy an annuity (monthly pension) from a life company.
However, your retirement fund should be careful when calculating the cash amount that you use to buy a pension. The fund must instruct the life assurance company that any additional amount allocated to buy a spouse a pension is earmarked for this purpose only.
If the fund fails to do this, it will be guilty of discriminating against single members, because married members could use the additional amount to buy themselves a higher pension than single members.
Furthermore, the fund's trustees would be in breach of their obligations in terms of the rules of the fund, as well as their fiduciary duties.
Murphy recently dismissed a complaint by K Sinclair against the Sentech Pension Fund that the fund discriminated against him because he was no longer married.
Sue Myrdal, the deputy pension funds adjudicator, says that after Sinclair retired from the Sentech Pension Fund, the value of his benefit to be used to buy an annuity was calculated at just over R770 000.
A few months later, the Sentech fund sent Sinclair a revised quotation of about R130 000 less. It said the earlier quotation was incorrect, because the fund had mistakenly assumed that he was still married. Sinclair's wife had died in September 1996.
Sinclair argued that it was unfair for members to received different benefits according to whether they were married or not.
Sinclair argued that he was entitled to the higher pension because he had contributed to the fund as a married man, and because he could not find anything in the fund's rules referring to a reduced retirement benefit for unmarried members.
Sentech Pension Fund said that married members received higher pensions because, when the fund calculated the cash value required to purchase an annuity for a married member, it had to include an amount for a spouse's pension.
Murphy found that married and single members of the Sentech fund paid the same contributions, and the retirement benefits of married and single members was calculated in the same way.
The only difference was that if a married member died after retirement and left a spouse, the fund provided that spouse with a pension equal to two thirds of what the member would have received.
Myrdal says defined benefit pension funds have traditionally provided pensions to members' spouses - usually widows - based on the outdated assumption that women had not worked outside the home, had no independent source of income, and were dependent on their husbands.
Changing social circumstances and the new Constitution have resulted in retirement funds adjusting their rules to provide pensions for both male and female partners.
Also, Murphy says, his office has on numerous occasions upheld the right of same-sex partners to receive each other's pensions.
Paying a spouse's pension performs the valuable social function of providing for a former employee and his or her family, which is in keeping with the principles of the Pension Funds Act and the Constitution.
If married and unmarried members were treated alike and the unmarried members received the additional amount allocated to a member for a spouse's pension, it could be unfair to the married member because the unmarried member would be able to buy a larger pension with his or her capital than was intended in terms of the rules of the fund. The married member would receive a lower pension whether or not the spouse survived to receive a pension, he says.
Murphy advised the trustees of the Sentech Pension Fund to amend the fund's rules to reflect more clearly that the additional amount given to a married member is used solely for the purpose of ensuring a spouse's pension should a pensioner die.