Namfisa recently issued a draft directive on how pension funds are to deal with unclaimed benefits, for comment by stakeholders. We are concerned that this directive will make the management of unclaimed benefits unnecessarily complex and costly, at the expense of members.

We do not agree with the rationale Namfisa appears to have applied to arrive at the conclusions that have led to this circular. Our views are reflected below.

Draft Directive re Unclaimed Benefits

In this draft directive Namfisa apparently bases its views as reflected by the directive on the SA case of Joint Municipal Pension Fund and another versus Grobler and Other that served in Supreme Court of Appeal (case 183/06). This case dealt with a rule amendment that would have deprived the member of an established benefit.

The draft directive insinuates that the judgment delivered in this appeal case prohibits the deduction of costs from any benefit payable to a pension fund beneficiary. It would require pension funds to divert a portion of an employer’s contribution to fund an ‘unclaimed benefits expense reserve’ from which any costs a fund incurs in tracing a beneficiary of an unclaimed benefit are to be borne. In addition any portion of this diversion in respect of such a beneficiary that was not spent on tracing the beneficiary should be added back to the benefit.

Besides making the management of unclaimed benefits, that principally represent exceptional situations, awfully complex and expensive to administer, we believe that the rationale for this directive is based on an incorrect interpretation of the case referred to above.

In our opinion the principle of the Pension Funds Act is that the benefit due to a member is the amount specified in the rules of the fund and not, as Namfisa would simplistically want to insist, that it is the member’s fund credit. In this regard, SA precedent, even if it was relevant, of course does not ipso facto apply to Namibia. We do not believe the above case is relevant as precedent though, as it does not suggest that benefits cannot be calculated as a member’s fund credit less certain costs, but only addresses rule amendments that have the effect of reducing a member’s established entitlement.

What Namfisa should aim to achieve and with which objective we would fully agree is the principle that a benefit must be calculable by reference to the rules of a fund. As long as such costs are calculable they are consistent with the argumentation of the judges in the Grobler case. This is not a reduction of a benefit because the benefit is the, call it, fund credit less the calculable cost of effecting payment. After all it is sound and fair to determine costs for administrative effort, based on resources applied and we believe that any court would ensure that fairness is maintained above all.

We believe that the draft directive is actually in conflict with the Grobler case as it would require a fund to add back on a member specific basis any unspent balance. This benefit would clearly not be calculable and is unfair towards members under different scenarios, which I believe, the Grobler case intends to prevent. If Namfisa’s argument were to be correct, it should be able to apply it to a defined benefit fund in exactly the same way, which it will not be able to do.

Conclusion

We believe the directive should be amended by removing the requirement to credit any benefit with any unspent portion of the expense reserve allocation, by removing the specific reference to funding these expenses from the employer contribution and by rather introducing the principle of prohibiting member specific benefit adjustments for any credits or debits that cannot be quantified in the rules. The directive should also require that the rules must indicate how the fund will deal with unquantified or unquantifiable expenses and income, which may not be on a member specific basis unless Namfisa has specifically approved such process.

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.