Understanding how employer compensation may affect your retirement benefits
17 Aug 2017
As much as employees have the benefit of employers making contributions towards their pension funds, employers also have a right to be compensated under certain circumstances (provided for in section 37D of the Pension Funds Act) from these benefits.
When can an Employer receive your pension benefit?
A fund may deduct any amount owing by a member to his or her employer where:
- The employer has suffered loss as a result of the member’s theft, fraud, misconduct, or dishonesty while the member was in the service of the Employer;
- The deduction can only be made from the member’s benefit when he or she exits the fund (i.e. resignation, dismissal, retrenchment, death, or retirement);
- The member has admitted liability in writing to the theft, fraud, dishonesty or misconduct; or
- Judgement has been obtained against the member in a court.
Wrongdoing by the member
Theft: A crime where the member (employee) unlawfully and intentionally takes possession of any asset (money, equipment, information or any property of the Employer or the Employer’s clients and/or customers) for his or her own benefit.
Fraud: A crime where the member makes a misrepresentation to his Employer or the Employer’s clients and/or customers (“the victim of fraud”), with the intention to cause the victim of fraud to act to their detriment.
Misconduct: It is important to note that it has to have an element of intent, and Employers should not just indicate that the member did not follow policies and procedures. The Employer would need to prove that the member acted intentionally.
Dishonesty: The Employer will have to prove that although the member did not commit theft or fraud of misconduct, the conduct of the member (being dishonest) caused the Employer to suffer loss (e.g. where an employee who is required to report a suspicious transaction to his Employer does not do so in return for a bribe).
Admission of liability
It is important for the member’s written admission of liability to be clear and explicit and should specifically allow for deductions to be made in respect of wrong doing committed by the member against the employer. Only if a valid admission of liability is received can fund decide to compensate the Employer.
Judgment against the member
In some cases the Employer may decide to take legal action (i.e. civil or criminal) and obtain judgment against the member. If the judgment is granted, the Employer will have to ask the court for a compensation order in terms of section 300 of the Criminal Procedure Act, failing which the fund will not compensate the Employer from the member’s benefit.
What is not allowed as a bases for deduction from member’s (employees) pension benefits?
A fund cannot make a deduction from a member’s benefit if the amount owed by the member to the Employer is in respect of contractual debt such as car loans, computer loans, bursaries/study loans in respect of which the member still owes a balance to the employer on the date when he or she exits the fund. These amounts owed to the Employer must be sought after through other means (e.g. legal action).
Can payment from the fund be withheld whilst there is an investigation at the company?
The Employer may request the fund to withhold payment of a member’s benefit in order for the Employer to have the opportunity to investigate its loss suffered on account of the member’s wrongdoing and/or to pursue legal action against the member. The fund may withhold the portion of the member’s benefit that the Employer intends to claim. In terms of cases decided by the Pension Funds Adjudicator, it has been established that a fund may not withhold payment for an unreasonable time (not more than 2 years).
Trustees will need to ensure that they receive accurate information and apply their minds to the section 37D requests, to withhold or make a deduction submitted by the Employer, equally ensuring that they adhere to their responsibility to both the employer and the member (employee).
To find out more about your pension or retirement options with your employer, contact Liberty Corporate on +27 11 408 2999 or email us at