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One of the main benefits of a retirement fund is that your investment is protected from creditors, that is, unless you fall behind on your maintenance payments.
If a member of a retirement fund defaults on maintenance payments, a court order can be issued to claim arrears payments from the fund.
As Tony Remas – independent retirement funds compliance consultant – explains, financial dependency is an important consideration when it comes to the payment of death benefits in terms of the rules of retirement funds.
For example, section 37(c) of the Pension Funds Act requires the trustees to pay out the death benefits of a retirement fund to those dependants who can prove their financial dependency first, irrespective of the beneficiaries selected on the member’s nomination form.
“The same social-objective approach is taken by the courts to look after the interests of vulnerable children, flowing from the legal duty of parents to maintain their children.
"The retirement fund is willing to come to the party if it is a legitimate case.”
Remas says, however, that the attachment order on a retirement fund should be a last resort as there are other means to obtain the same objective, such as emoluments attachment orders on an employer.
“As the [Pension Fund Act] stands, the emphasis is on arrears maintenance. If the defaulter has been in arrears for 10 days, the mother would go to court to enforce the maintenance order. At that point, they look at how they could get hold of father.
“Usually, if the defaulter is missing, as last resort, the court issues an attachment order on the fund to pay maintenance in arrears,” says Remas.
He says what is concerning is that orders for future maintenance claims are also being issued more regularly.
Serial defaulter
In a landmark ruling more than 10 years ago, in the case of the Beacon Sweets & Chocolates Provident Fund, the court ordered the fund to pay for future maintenance.
The father had resigned from his employer and was planning to withdraw all his retirement benefits.
As he was a serial defaulter, the mother of the two children feared that future maintenance would not be paid.
In this case, the high court stretched the provisions of the act to take care of future maintenance payments.
“Normally, in cases where a father tries to resign from a fund to protect it from maintenance orders, the mother obtains an interdict on the fund preventing the withdrawal until the attachment order is executed.
"However, we are now seeing cases where the mother can argue in court that she is unlikely to receive payments in future and the court can rule to attach future payments,” says Remas, who adds that, while this can be a way to protect a child’s interest, many maintenance court rulings are being made too easily.
“Legally, the father is given an opportunity to come to court to explain nonpayment, but if he does not arrive, the court will issue the default order without hearing his case.”
This is creating an administrative nightmare for retirement funds who represent the member.
Kobus Hanekom, principal officer at the Sanlam Umbrella Fund, says the fund has seen an exponential increase in the number of maintenance orders, which he says is a direct result of economic stress.
In a submission to National Treasury, Hanekom wrote that there was significant legal uncertainty around arrears, future and current maintenance orders made against retirement funds.
Maintenance orders
“The position is exacerbated by the volume of cases dealing with maintenance defaulters.
"These cases impact on many stakeholders in the wider community, including retirement funds, their administrators, the defaulting members of retirement funds, their spouses and their children, their employers, their communities and the courts.”
Sanlam Umbrella Fund has asked for clarity from Treasury around maintenance orders and especially future maintenance payments.
“If the government’s policy is that a member’s withdrawal benefit can be attached or held as security for the payment of future maintenance payments, we have to do so in a way that is constitutional and fair,” wrote Hanekom, who told City Press in an interview that the amounts claimed for future payments are not necessarily correctly motivated.
“We have situations where the lawyer will ask how much money is in the fund before applying for the court order.”
The problem for the fund is that challenging any incorrectly issued court orders costs money, easily around R30 000 per case, which becomes unaffordable as the number of court applications increase.
“If the fund must go to court – it means all members in fact subsidise a serial defaulter as the court costs are coming out of fund expenses paid for by fund members,” says Remas, adding that they have recommended to trustees to adjust the fund rules so that, if they need to spend money on an incorrect court order, the cost should only be borne by the defaulting member.
Remas says the industry is in consultation with Treasury and the Financial Services Board to try to create a proper legal framework, but believes it will take years for the legislation to be changed.
In the meantime, if you default on your maintenance order, a significant portion, if not all, of your retirement savings may be at risk.
