The protection of pension benefits

Naheem Essop (Senior Legal Advisor)

One of the many benefits of saving your money in a pension fund is the protection that the relevant legislation offers to you as a member of a pension fund. The Pension Funds Act, 1956 expressly protects your benefits from being reduced, transferred, or otherwise ceded, or being pledged or hypothecated, or be liable to be attached or subjected to any form of execution under a judgment or order of a court of law. These protections are provided subject to certain limited exceptions that are expressly contained in the Act such as the provision for housing loans granted against the value of your pension interest.

Pension fund benefits may not be subjected to any form of execution under a judgment or order of a court of law. One of the permitted exceptions to this provision is that a judgment debtor whose financial position is to be determined in terms of section 65 of the Magistrates Court Act, may have not more than three thousand rands per annum from their pension benefit considered for that purpose. 

Another exception is when a member has been subjected to an order under the Maintenance Act. Here, the legislature deemed it necessary to ensure that a member prioritises the current needs of their dependent children over retirement savings. A further exception ensuring that the tax man is always paid is the Income Tax Act which also provides an exception to the general rule allowing for the protection of pension benefits.

The Act also provides specific protection of pension benefits against insolvency. It states that if the estate of any person entitled to a benefit payable in terms of the rules of a registered fund (including an annuity purchased by the said fund from an insurer for that person) is sequestrated or surrendered, such benefit or any part thereof shall not be deemed to form part of the assets in the insolvent estate of that person and may not in any way be attached or appropriated by the trustee in his insolvent estate or by his creditors, notwithstanding anything to the contrary in any law relating to insolvency. The protection against insolvency too has an exception that subjects it to any housing loan benefit that may have been provided by your pension fund and the provisions of section 37D.

Section 37D provides that a fund may make certain deductions from pension benefits. The permissible deductions are:

• tax payable to the SARS; 
• amounts due in terms of a housing loan benefit; 
• compensation to an employer for damages caused to the employer by a member in respect to theft, fraud, dishonesty or misconduct by the member and in respect of which the member has in writing admitted liability to the employer, or judgment has been obtained against the member in any court, including a magistrate’s court; 
• subscriptions and premiums due to medical aid or long-term insurer, or for any purpose approved by the FSCA; and
• any portion of the benefit awarded to a non-member spouse in terms of a decree of divorce.

Except for what has been stated above, there are no other circumstances under which deductions may be made from your pension benefit.

A recent example that has come to light is that of loans, other than housing loans, granted to a member by their employer. An employer may not instruct a pension fund to deduct a student loan or any other type of loan (except a housing loan) from your pension benefit. Such an instruction would be illegal as it is contrary to the provisions of the Pension Funds Act. It remains illegal irrespective of whether it is done with your consent or not. 

The prohibition against deductions from pension benefits applies equally to so-called “voluntary deductions” and “involuntary deductions”. The Act specifically provides that your pension benefit is not capable of transfer, cession, pledge or hypothecation. All of these acts are voluntary acts and so it follows that even voluntary deductions are impermissible. There is also a further express provision in section 19(5B)(a) of the Act that provides that notwithstanding anything to the contrary contained in the rules of a registered fund, such a fund shall not, directly or indirectly grant a loan to, or furnish a guarantee in respect of, a member or make any of its funds available, whether by way of an investment or otherwise, to be utilised in any manner by the fund or someone else for a loan to a member or a guarantee on behalf of a member, other than for the purposes of a housing loan benefit.

Members should be aware of their rights and the protections that are afforded to them in terms of the Act. If they experience any issues, they are welcome to lodge a complaint with the Office of the Pension Funds Adjudicator at:

Online: www.pfa.org.za 

Email: enquiries@pfa.org.za 

By hand: Office of the Pension Funds Adjudicator, 4th Floor, Block A, Riverwalk Office Park, 41 Matroosberg Road, Ashlea Gardens, Pretoria