- The Municipal Employees Pension Fund must allow a member to access her two-pot savings withdrawal benefit.
- Deputy Pension Funds Adjudicator Naheem Essop found that the fund used a rule that does not apply to defined contribution members.
- The fund must give the member her savings account details and pay out the benefit within two weeks of her request.
A member of the Municipal Employees Pension Fund has won a dispute over access to her two-pot retirement savings after Deputy Pension Funds Adjudicator Naheem Essop ruled that the fund could not rely on a contribution arrears provision to block her withdrawal claim.
This decision came after the Financial Services Tribunal set aside an earlier determination from 11 April 2025 and sent the dispute back for review. The tribunal said the main question was whether the complainant could access her savings withdrawal benefit under the fund’s rules even though some contributions were said to be in arrears.
In his new decision, Essop ruled in favour of the complainant and stressed a key principle of pension fund governance: funds are bound by their own rules and can only act within the powers those rules give them.
Essop said, “Fund rules are like the fund’s constitution. The fund may only act within the powers those rules give. It’s not allowed to go beyond them.”
Member challenged refusal to allow withdrawal
The complainant was permanently employed by Ba Phalaborwa Municipality from 1 September 2015 until 31 January 2018. During that period, pension contributions were paid into the Municipal Employees Pension Fund on her behalf.
On 31 January 2018, she applied for a withdrawal benefit. The following day, she commenced employment with Polokwane Local Municipality, which is also a participating employer in the same fund.
She later lodged a complaint after the fund refused to allow her access to a savings withdrawal benefit under the two-pot retirement system.
The fund told her she could not access the benefit because she was not a contributing member. She argued that she was entitled to the benefit because of contributions made during her time at Ba Phalaborwa Municipality, and she wanted to withdraw from the fund.
Fund said benefits were frozen
The Municipal Employees Pension Fund opposed the complaint and argued that the complainant remained a member of the fund when she moved from Ba Phalaborwa Municipality to Polokwane Local Municipality. For that reason, the fund maintained that she was not entitled to a resignation benefit.
The fund further argued that both the complainant and Polokwane Local Municipality were liable for pension contributions from 1 February 2018 onwards. It is submitted that once those contributions were brought up to date, she would then be entitled to make withdrawals from her two-pot savings component account.
The fund said the complainant was an active member in default, so her benefits were frozen under the fund’s rules, except for a withdrawal benefit she could get if she resigned.
The fund relied on Rule 27(2)(b), arguing that the provision applied to all benefits, including those created under Rule 48A, dealing with the two-pot retirement system. It contended that the rule prevented access to benefits under the two-pot system while contributions remained unpaid.
The fund also argued that the list of exclusions from the two-pot retirement system was not exhaustive. It maintained that it was incorrect to conclude that because the complainant did not fall within one of the recognised exclusions, she automatically qualified for a savings withdrawal benefit.
Tribunal ordered a review
The matter first came before the Pension Funds Adjudicator, resulting in a determination issued on 11 April 2025.
The Financial Services Tribunal subsequently set that determination aside and referred the dispute back for reconsideration. In doing so, the Tribunal directed that the decisive question was whether the complainant could access her savings withdrawal benefit under the fund’s rules while contributions were in arrears.
Following that reconsideration, Essop concluded that the fund’s reliance on Rule 27(2)(b) was misplaced. He said that the rule does not apply to defined contribution members and so could not be used to stop the complainant from accessing her savings withdrawal benefit.
The determination explained that Rule 27(2)(b) was meant to protect the fund from paying defined benefit members under guaranteed benefit formulas, even if contributions were in arrears. But this rule does not apply to defined contribution members in the two-pot retirement system.
Essop emphasised that pension funds must follow their own rules and cannot apply them beyond what they are meant for.
He said, “Fund rules are like the fund’s constitution. The fund may only act within the powers those rules allow. It’s not allowed to go beyond them.”
He also said that if a board wants to act outside its rules, it must first formally change and register those rules. Essop added, “If a board wants to do something not allowed by the rules, it must first amend and register those rules.”
The ruling rejected the fund’s attempt to use a rule for defined benefit members to block a withdrawal claim from a defined contribution member under the two-pot retirement system.
Fund ordered to pay member
Having found in favour of the complainant, Essop ordered the Municipal Employees Pension Fund to provide her with details of her savings account, together with information regarding the process for claiming her benefit.
The fund was also ordered to pay the savings withdrawal benefit within two weeks of receiving her instruction to make the withdrawal.
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