Pension fund rule ruining workers


October 5, 2015 | Source: Heraldlive | Posted by: Deneesha Pillay Link:

Photo by Mister GCPayments made to former spouses leave divorced state employees with huge debt THOUSANDS of divorced state employees, including teachers, soldiers, police and nurses, are finding themselves in debt because of a ruling that gives their former spouses immediate access to their pensions. At least one policeman has been forced to moonlight because the interest-bearing debt is so crippling. Another policeman will take 65 years to clear his debt. The problem is a Government Employee Pension Fund debt rule, which the fund, in notes from a feedback meeting in March, admits is prejudicial. The rule was created in 2012 after an amendment to the South African Pension Fund Act in 2007. The amendment – known as the clean-break principle –sees former spouses of pension fund members being granted immediate access to a portion of the pension, as determined by a court. Before 2007, that amount could only be accessed after a pension fund member retired. It is believed GEPF trustees tweaked the fund’s rules around the principle because the fund was losing millions of rands in capital through divorce settlement payouts. The tweak means that fund members divorced after 2012 are indebted to the fund for the payouts to their former spouses, which the fund’s trustee board chooses to see as a loan. Divorced members are instructed by the fund to settle the debt they owe and are warned in a letter that the debt will “accrue interest at the applicable rate”. The letter says that in the event the debt is not “extinguished prior to a member exiting from the fund, it will be deducted, together with interest, from any pension benefit” payable to the member. “If the gratuity is not sufficient to cover the debt, your annuity must . . . be used to cover the debt.” If there is no annuity, or the annuity is insufficient, the debt is claimed directly from the member, the fund warns. Economists and pension fund experts have slammed the rule, claiming it is challengeable in court. The feedback meeting’s note states that due to complaints from employees who ended up with no benefits, the board has approved changes. As the GEPF is governed in terms of a law, any changes would require the specific law to be amended before implementation could be effected. It is anticipated this process would take about two years. The note states the proposed changes entail changing the debt process to one where the years of service are deducted for the portion paid out, “which will result in the members’ fund not having a debt against it and still be in a position to grow”. The fund’s trustees failed to answer questions put to them. A Durban policeman, who did not want to be named, said the debt had crippled him. “My pension is gone . . . To repay this debt, which I never signed for, will take 784 months.” The Wits School of Governance’s social security systems administration and management studies chairman, Professor Alex van den Heever, said the rules, which the fund created, were unenforceable. “You cannot create a debt which someone knows nothing about.” Wits Economics and Business Sciences School head Professor Jannie Rossouw said it was clear the fund had serious problems with it being underfunded by the withdrawals through the court orders. “By not lowering the defined benefits of divorced members, the trustees risked bankrupting the fund . . . so they took this decision [to put the members in debt for the shortfall] to stop it going bankrupt.” -Graeme Hosken