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"I was not a member, so return my full contributions with interest"

Fasken
Reading Time 5 minute read
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Overview

On Monday 14 March 2022, the Constitutional Court in its judgment in Municipal Employees Pension Fund and another v Dineo Mongwaketse and another[1], held that pension contributions of a person who was erroneously enrolled as a member of the pension fund must be refunded with interest. It also held that you do not need to have been a member of a fund in order to be a ‘complainant’ as defined in section 1 of the Pension Funds Act (PFA).

Background

Ms Mongwaketse was employed as a Chief Audit Executive by Ngaka Modiri Molema District Municipality (the ‘municipality’) in terms of on a five-year fixed term contract with a ‘total cost of employment’ remuneration package.

When her employment commenced in February 2012, Ms. Mongwaketse and the municipality together completed an application form for her membership of the Municipal Employees Pension Fund (the Fund). No one told her that, in terms of the rules of the Fund, only municipal employees employed in terms of permanent contracts could become members of it. The municipality then deducted both the member and employer contributions from Ms. Mongwaketse’s remuneration every month and paid them to the Fund which accepted them and treated her as a member.

In November 2014, Ms Mongwaketse discovered that the Fund’s rules did not allow for fixed-term contract employees to be members. So the municipality stopped deducting and paying contributions to the Fund and asked for a refund of all of her contributions, approximately R850 000, with interest.

The Fund refused, saying that Ms Mongwaketse had become its member and had enjoyed all benefits of membership including death and disability cover. The impasse persisted and Ms Mongwaketse’s contract expired in January 2017. 

In March 2017, Ms Mongwaketse lodged a compliant with the pension funds adjudicator (‘the adjudicator’) and asked that the Fund be ordered to refund all contributions made to the Fund in respect of her, plus interest. Before it answered the compliant to the adjudicator, the Fund paid her an early withdrawal benefit based on only her ‘member contributions’, from which tax was deducted.

The Adjudicator’s Determination

In November 2017, the adjudicator determined that Ms Mongwaketse had not satisfied the criteria for membership of the Fund, and so had not become a member and therefore was not bound by the Fund’s rules. The adjudicator then ordered the Fund to refund all the contributions to her, including those deemed to have been ‘employer contributions’, less the amount of whatever she had already been paid.

This determination was filed with the high court in terms of section 30M of the Pension Funds Act, 1956 (‘the Act’) which had the effect that the determination was deemed to be a civil judgment of the High Court capable of execution. The Fund challenged the determination in the high court both in terms of PAJA and in terms of section 30P of the Act.  It was unsuccessful in both the High Court and before the Supreme Court of Appeal following this it got leave to appeal to the constitutional court. 

Constitutional Court Judgment

In a unanimous judgment by Rodgers AJ, the constitutional court found that, in terms of the rules of the Fund, only employees employed on permanent contracts were eligible for membership, Ms Mongwaketse had never become a member of the Fund. Its acceptance of her contributions had been ultra vires (beyond) its powers and the fact that she had acted as if she was a member by paying those contributions did not mean that she could be estopped from denying her membership. This is because estoppel[2] cannot be used to make invalid conduct valid.

The Fund then argued that, if Ms Mongwaketse had never been a member of the Fund, the adjudicator did not have jurisdiction to determine the dispute because Ms. Mongwaketse could not be a ‘complainant’ as defined. The definition of that term limits its scope to members, former members, beneficiaries, employers and boards of funds. The court, however, adopted a wider interpretation of the term. It held that, for so long as a grievance submitted to the adjudicator relates to ‘the administration of a fund’, ‘the investment of its funds’ or ‘the interpretation and application of its rules’ and makes one or more of the allegations contemplated in the definition of the term ‘complaint’, it will fall within the scope of that definition and the person who lodged the grievance will be a ‘complainant’ as defined due to them having an interest in the complaint.

The court then found that the admission of Ms Mongwaketse to the Fund and the receipt of her contributions were acts of ‘administration’, even if they had been ultra vires the powers of the Fund. The adjudicator thus had jurisdiction to deal with the dispute and had correctly found that Ms Mongwaketse was entitled to a refund of all her contributions plus interest.

Conclusion

This judgment is a progressive addition to retirement fund jurisprudence.

Firstly, the judgment makes it clear that a fund cannot rely on the ignorance of its third parties to justify keeping money it was never authorised by its rules to receive.

And secondly, and most importantly, it keeps the doors of the office of the pension funds adjudicator open to those who have never been members or beneficiaries of a retirement fund but have suffered prejudice as a result of its conduct relating to its administration, investments or interpretation or application of its rules. This promotes access to an important, affordable and accessible dispute resolution mechanism.


[1] [2022] ZACC 9

[2] A person may be ‘estopped’ from asserting a right or raising a defence to a claim that is inconsistent with its own prior conduct – provided that the claim is not based on invalid conduct.

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