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Chapter 6 - Labour Law

Pension and provident funds

The main aim of a pension or provident fund is to provide benefits for its members when they retire from employment. The fund also usually pays benefits when a member dies while still working, or is unable to work because of illness, or is retrenched.

The main difference between a pension fund and a provident fund is that if a pension fund member retires, the member gets one third of the total benefit in a cash lump sum and the other two-thirds is paid out in the form of a pension over the rest of the member's life. A provident fund member can get the full benefit paid in a cash lump sum. Pension funds also offer better tax benefits to employees. An employee’s contributions to a pension fund are deductible for tax, while contributions to a provident fund are not. There are advantages and disadvantages to both types of funds. It will depend on a person’s own financial needs. However, one of the strongest arguments in favour of provident funds and the lump sum payment concerns the means test used to work out whether a person qualifies for a state old age pension. Usually if a person receives a private pension, that person is disqualified from receiving a state old-age pension. If a person gets a lump sum payment then that person may also qualify for a state pension in some cases.

Types of funds and benefits

Different workplace funds have different kinds of benefits, for example:

• withdrawal benefits, paid to employees who resign or are dismissed
• retrenchment benefits, paid to employees who are retrenched
• retirement benefits, paid to employees when they retire
• insured benefits, including benefits paid to a worker who is disabled and benefits paid to the dependants of a employee who dies.

Not all funds provide all these benefits. To understand how any fund works, the member must read the rules of the fund.

Bargaining Council funds

A pension or provident fund may be established by a Bargaining Council Agreement. The Bargaining Council Agreement will lay down the rules for the pension or provident fund. Usually all employees who fall under a Bargaining Council Agreement have to become members of any fund set up by that Bargaining Council, unless their employer has de-registered from the fund and set up their own fund.

Bargaining Council funds do not allow an employee to withdraw benefits if he or she leaves one company to go and work for another company in the same industry. Usually an employee can only withdraw benefits after a year of leaving the company, if he or she is still unemployed or was re-employed outside the industry. If the employee is re-employed in the same industry before one year is up, then contributions carry on as if there was no change in job.

Complaints about payments from pension funds

Any person who has a complaint about benefits from a pension fund can make a complaint to the Pension Funds Adjudicator.

The Pension Funds Adjudicator

The law says you must first send your complaint in writing to the pension fund or to the employer. The pension fund or employer then has 30 days to reply to the complaint. If they don't reply, or if you are not satisfied with the reply, then you can send an official complaint to the Pension Funds Adjudicator. Include your letter to the pension fund or employer, and their reply. After you have made a complaint to the Pension Funds Adjudicator, the Adjudicator gives the pension fund 30 days to reply. Once the Adjudicator has received the pension fund's reply, they will look at the facts and decide who is right.

The Pension Funds Adjudicator does not deal with government pension funds. If a person who works for the government has got a complaint about a government pension then they must send their complaint to the Public Protector.

See Problem 2: Making a complaint to the Public Protector.

There is no charge to make a complaint with the Pension Funds Adjudicator.

See How to write a complaint to the Pension Funds Adjudicator.
See Resources, for contact details of the Pension Funds Adjudicator.

Who can make a complaint to the Pension Funds Adjudicator?

The following people can make a complaint to the Pension Funds Adjudicator:

• a member or former member of a pension fund
• a beneficiary of a fund or a former beneficiary of a fund
  (a beneficiary is someone who is written down in your pension fund agreement to get the money from your pension fund, for example your family if you die)
• an employer who participates in a workplace fund
• a board or board member of a fund
• any person with an interest in a complaint

Time limits

You must get your complaint to the Pension Funds Adjudicator within 3 years of the problem arising.