When can an employer ask pension fund administrators to withhold an employee’s pension benefits?

Section 37D(1)(b)(ii) of the Pension Funds Act (PFA) provides that a retirement fund may deduct any amount due by a member to their employer for any damage caused by theft, dishonesty, fraud, or misconduct. The member must have admitted liability to the employer in writing, or a judgment must have been obtained against the member.

If an employee does not admit liability, an employer would ask the retirement fund to withhold payment of the member’s benefit pending the final determination of the action instituted by the employer against the former employee to recover damages. The fund may accede to the request or not. If it refuses to do so, the employee must approach a court to interdict a retirement fund from paying out the member’s benefit pending the final determination of action proceedings.

In Hansen & Genwest (Pty) Ltd v Corporate Selection Umbrella Retirement Fund No 2 and Others (23/002990) [2023] ZAGPJHC (06 February 2023) (Hansen case) the High Court shed light on the interdictory grounds that an employer must satisfy.

It cited the Supreme Court of Appeal’s decision in Highveld Steel & Vanadium Corporation Ltd v Oosthuizen 2009 that, while the above section of the PFA expressly states that the deduction of benefits must occur after a judgment has been obtained against the member (or after a member has admitted liability in writing), in view of its purpose to “protect an employer’s right to recover money misappropriated from it” the section is interpreted to afford retirement funds a discretion to comply with an employer’s request. However, it does not follow that a court may compel a retirement fund to do so, especially where the rules of that fund regulate such discretion.

The High Court reiterated that when exercising its discretion, a retirement fund must balance the “potential prejudice to an employee who may urgently need access to his pension benefits and is in due course found innocent” against the strength of the employer’s claim. Furthermore, the retirement fund must exercise this discretion reasonably even if it is unfettered. Where the rules of a retirement fund make provision for a discretion to withhold payment of a benefit, the discretion must be exercised according to the standard of a reasonable person and the employer and employee must be given the opportunity to be heard, unless the information on which the retirement fund based its decision is known to both.

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