What deductions are allowed under Section 37D?

• Tax amounts due under the Income Tax Act.
• Housing loans granted or guaranteed by the fund or employer (subject to the Act and fund rules).
• Divorce (“pension interest”) orders in favour of a former spouse.
• Maintenance orders issued by a competent court.
• Employer damages from theft, fraud, dishonesty, or misconduct—but only if the member admits liability in writing or the employer has instituted legal proceedings and obtains either a civil court judgment or a section 300 Criminal Procedure Act compensation order.

Employer checklist: 

To recover losses from a departing employee’s benefit, employers must follow several key steps. 

• Firstly, employers need to secure a legal basis for recovery by obtaining either a signed admission of guilt/liability and acknowledgment of debt (AOL) from the employee or a court judgment (civil or criminal judgment) for a monetary amount.
• In the absence of an AOL, the employer can request the fund to withhold the benefit — up to the claimed amount — pending legal proceedings being instituted,
• Any request to withhold the benefit must be made in writing and employers must also provide supporting documents such as the loss calculation (including legal costs when recoverable), disciplinary records, court documents, and a completed withdrawal claim form by the former employee.
• This is required for the trustees to decide on whether the benefit (or a portion of it) can be withheld pending the finalisation of the legal proceedings.
• The trustees must consider the strength of the employer’s legal case and any potential prejudice to the member/former employee. It is a requirement under the current law that the former employee be given an opportunity to make representations in relation to the withholding decision to be made by the trustees.
• If the trustees decide that the benefit (or a portion of it) can be withheld pending the finalisation of the legal proceedings, the employer is obliged to actively pursue the case against the former employee.
• Finally, it is essential to keep the trustees updated throughout the legal process, as unjustified delays may result in the trustees reversing the withholding decision and making payment of the benefit to the member. 

Common employer pitfalls 

It is important to note that an employer must carefully consider what type of legal proceedings to institute if an AOL cannot be obtained from the employee. There can be disadvantages to instituting a criminal case alone. For example, these proceedings are often lengthy and if unsuccessful, the civil claim against the employee may have prescribed. Also, a SAPS case docket may not provide sufficient information to the trustees to assess the strength of the employer’s legal case to justify withholding a benefit. In such situations, it may be necessary to also pursue civil proceedings or obtain a valid AOL from the employee before any withholding or deduction can be considered. 

Additionally, the approach of simply holding back the employee’s completed withdrawal claim form is incorrect. The decision to withhold benefits rests with the trustees and cannot be treated as a tactic by the employer.

Withholding must be based on a formal trustee decision, not at the employer’s discretion.

Fund & Trustee duties (including the Administrator)

Boards of trustees and their section 13B‑licensed administrators have distinct, complementary roles:

Trustees (the decision‑makers)

Trustees are required to exercise independent and balanced judgment when assessing an employer’s claim, carefully weighing it against the rights of the member. This involves a thorough review of the available evidence, potential prejudice, and the progress of any legal proceedings. When it comes to withholding benefits, trustees hold a discretionary power rather than there being an automatic right for the employer; therefore, trustees must revisit their decision if there are changes in circumstances or if delays become unreasonable. 

Importantly, trustees must act independently of the employer; the fund is not the employer’s agent and must always consider the interests of the fund and its members. Clear communication is also essential, and trustees should explain their decisions and inform members of their rights, providing opportunities for members to lodge a complaint if a withholding decision is disputed.

Section 13B Fund Administrator (the implementer)

A section 13B administrator is an FSCA-approved entity responsible for managing the receipt of contributions and the payment of benefits, operating under prescribed conduct standards. Within the context of Section 37D, the administrator plays a crucial role by first verifying that all formalities are in place. This includes checking the validity of an AOL or a civil court judgment or criminal court compensation order, confirming the amounts involved, and highlighting any irregularities for trustee review, ensuring that no deductions are made without an appropriate legal basis. 

Once formalities are confirmed, the administrator is tasked with executing the trustees’ decisions, which means setting up and monitoring the continued withholding of benefits, calculating deductions (such as taxes and interest when applicable) strictly in accordance with the fund’s rules and relevant laws, and processing payments when all conditions are satisfied. 

In essence, trustees are responsible for making decisions grounded in legal requirements and fairness, while the section 13B administrator reviews the documentation and implements those decisions within a strict framework of compliance, ensuring that members are treated equitably and that the fund remains within legal boundaries.

Employee rights if their benefit is to be withheld

Employees have the right to be informed about the reasons why the withholding of their benefit has been requested and are entitled to respond. This could include contesting the claim or demonstrating any prejudice they might face. No deductions can be made from the benefit due unless the employee has either signed a valid AOL or the employer has obtained a court judgment against them. 

If the employer unnecessarily delays the legal process, the fund has the authority to release the payment, as trustees actively monitor the situation and will not permit the benefit to be withheld indefinitely.

In conclusion

Understanding the processes and responsibilities involved in the withholding of retirement benefits is essential for both employers and employees. By being aware of the respective rights and obligations, and maintaining open communication throughout any benefit withholding scenario, all parties can help ensure that actions taken are fair, compliant with legal and fund requirements, and that outcomes are reached efficiently and transparently.

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Disclaimer: 

The Prescient Retirement Funds (“the Funds”) are registered with the Financial Sector Conduct Authority and approved by the South African Revenue Services for tax purposes. The Funds are administered by Prescient Fund Administration (Pty) Ltd (Reg. No: 2023/697717/07, “Prescient Fund Administration”). Prescient Fund Administration is an approved retirement benefits administrator (Licence No: 24/810) under section 13B of Pension Funds Act, 24 of 1956 and a Juristic Representative of Prescient Fund Services (Pty) Ltd, an authorised Financial Services Provider (Licence No: 43191) under the Financial Advisory and Intermediary Services Act, 37 of 2002. This document is made available by the Funds for information purposes only and does not constitute advice or a solicitation for investments. Members may need to seek professional financial advice before making an investment decision. It is subject to copyright and may not be altered, copied or reproduced in whole or in part without the written permission of the Funds. The Funds and their trustees, and / or Prescient Fund Administration cannot be held liable for damages or loss suffered as a result of any action taken based on the information in this document.