We were recently approached with a question with regard to the following scenario:

The fund member who is 48 years old now, was declared disabled in 2008 and is still receiving a disability income from the Fund’s insurance company. The member decided that he does not want to be on disability anymore and that he wants to terminate his membership and receive his fund credit to go and start a business. Per the rules, early retirement age is 50, normal retirement age is age 60 and late retirement is age 70.

The two questions arising from this scenario are:

• Can the Trustees prevent and or enforce the rule and force him to remain in the fund until such time that he can exit and what are the consequences?
• Can they allow the member to terminate his membership to the fund as he wishes and what will be the consequences thereof?

In finding an answer to these questions, one has to study the rules of the fund and these will be different from fund to fund although some of the principles will mostly still be relevant.

1. Firstly, the definition of ‘employee’ and of ‘membership’ in fund rules typically require that for every new employee fund membership shall be a condition of employment of all persons in the permanent and full-time service of the employer who have not yet attained normal retirement age.
2. Secondly rules would typically direct that membership terminates only when the member ceases to be an employee, unless he/she is in receipt of a disability benefit, or when he or she becomes entitled to any benefit in terms of the rules.
3. Thirdly, the rules typically then provide for withdrawal benefits, retirement benefits, death benefits and disability benefits. For this scenario the rules on retirement benefits, resignation benefits and disability benefits must now be considered to establish whether they specifically allow or prohibit a member in receipt of a disability income to withdraw from the fund voluntarily.
   1. The withdrawal benefit would typically apply if a member terminates service before normal retirement age and is not entitled to any other benefits under the fund. Unless elsewhere specifically allowed, a member in receipt of a disability benefit would thus not meet this precondition.
   2. Retirement benefit would typically be available when a member reaches normal retirement age, in the event of voluntary early retirement as from an earlier age and only with the employer’s consent, in the event of ill-health early retirement as from any age, again only with the employer’s consent due to ill-health, or in the event of late retirement after normal retirement age, mostly also only with the employer’s consent. Only one of these alternative retirement avenues are thus not subject to employer consent, being normal retirement, where it is the member’s right to retire.
   3. Finally, rules typically provide for a disability benefit to a member who becomes disabled before normal retirement age provided that the claim has been accepted by the insurer. The rules mostly further provide that contributions towards the fund will continue for as long as the member is in receipt of a disability benefit and he/she will consequently remain a member of the fund for as long as the disability benefit is paid by the insurer and until the member becomes entitled to any other benefit in terms of the rules.

In terms of paragraph 2, membership of a member in receipt of a disability benefit can typically only terminate when he/she becomes entitled to a retirement benefit or death benefit, but not upon withdrawal (resignation). Since the member is only 48 years old and still below normal retirement age, he is not entitled to retire early in terms of the relevant rule due to him being ‘under age’. This leaves as only potential early exit option, retirement due to ill-health. This rule typically requires employer consent due to ill-health. In our opinion, this rule cannot be used as the member is not employed by the employer anymore, although this would have to be confirmed by reference to the conditions or contract of employment. If the definition of employee in the fund rules reads similar to that in 1 above, it would clearly preclude a person on a disability benefit to remain an employee, stating that the person must be either in the permanent full-time employment or must be employed on a predetermined contract period. If the person is no longer employed by the employer there is no employer to consent to the person’s ill-health, and early or late retirement for that matter. We would further argue that even if by some remote deduction the person could still be regarded an employee of the employer, the intention of the early ill-health retirement rule cannot be to allow a member to employ this clause where the rules still provide a benefit for the very reason of ill-health. This member in most cases then also cannot proceed on early retirement nor retire late, as this would also require employer’s consent, where the disabled member does not have an employer anymore who could consent.

Based on the above scenario the member in most likelihood cannot exit the fund prior to reaching normal retirement age. The situation would be different once the insurer ceases payment of the disability benefit.

Important notice and disclaimer
This article summarises the understanding, observation and notes of the author and lays no claim on accuracy, correctness or completeness. Retirement Fund Solutions Namibia (Pty) Ltd does not accept any liability for the content of this contribution and no decision should be taken on the basis of the information contained herein before having confirmed the detail with the relevant party. Any views expressed herein are those of the author and not necessarily those of Retirement Fund Solutions.