Q: What happens regarding a GEPF pension payout when an employee is discharged as a result of misconduct? Does the pension payout include both employee’s and employer’s pension contribution?
Mark Swanepoel - Axiomatic Consultants
On withdrawal from a pension/provident fund, all monthly contributions made (employer and employee) plus any investment growth (or loss) thereon (if applicable), being the total fund credit is due to the member. The member can then choose whether to take his or her fund credit in cash (which may attract tax in accordance with the Income Tax Act) or transfer this to another registered retirement fund or preservation fund.
However, where termination of employment and subsequent withdrawal from the fund was due to an act of member misconduct, it must be determined whether or not the fund is entitled to withhold the withdrawal benefit which would ordinarily be due to the member as briefly explained above.
Section 37D(1)(b) of the Pension Funds Act (the Act) deals with this particular issue and states that a fund may:
Deduct any benefit due by a member to his employer on the date of his retirement or on which he ceases to be a member of the fund in respect of –
Compensation (including any legal costs recoverable from the member in respect of a judgement having been obtained against the member in any court, including a magistrate’s court) in respect of any damage caused to the employer by reason of any theft, dishonesty, fraud or misconduct by the member, and in respect of which:
– The member has in writing admitted liability to the employer; or
– Judgement has been obtained against the member in any court, including a magistrate’s court.
From any benefit payable in respect of the member or a beneficiary in terms of the rules of the fund, and pay such amount to the member’s former employer.
Simply put, if the employer suffered a loss due to a member’s theft, fraud, negligence or misconduct which the member has admitted to in writing or which is undergoing legal proceedings, having already been initiated by the employer, the employer may request that the fund withhold an amount from the withdrawal benefit commensurate to the loss suffered by the employer.
The two principles referred to in the Act are considered in more detail as follows:
The member’s written admission of liability
The member’s written admission needs to be unambiguous with respect to the theft, fraud, negligence or misconduct committed by the member as well as the financial value of the loss suffered by the employer which is intended to be deducted from the member’s withdrawal benefit.
Judgement against the member in a court of law
In which the financial value of the loss suffered by the employer is specifically awarded to the employer for compensation thereof where the employer would need to have claimed that the financial loss suffered was due to the theft, fraud, negligence or misconduct committed by the member in accordance with Section 37D of the Act.
The above provides an overview of the general principles in respect of the ability of an employer to request the fund to withhold a member’s withdrawal benefit in terms of Section 37D of the Act, however, it goes without saying that each circumstance is materially different and will be assessed as such.