National Tertiary Retirement Fund v Registrar of Pension Funds (221/08) [2009] ZASCA 41; 2009 (5) SA 366 (SCA) ; [2009] 3 All SA 254 (SCA); (2009) 30 ILJ 1011 (SCA) (31 March 2009)

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[2009] ZASCA 41
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National Tertiary Retirement Fund v Registrar of Pension Funds (221/08) [2009] ZASCA 41; 2009 (5) SA 366 (SCA) ; [2009] 3 All SA 254 (SCA); (2009) 30 ILJ 1011 (SCA) (31 March 2009)

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THE
SUPREME COURT OF APPEAL
REPUBLIC
OF SOUTH AFRICA
JUDGMENT
Case
No: 221/08
NATIONAL
TERTIARY RETIREMENT FUND
Appellant
and
REGISTRAR
OF PENSION FUNDS Respondent
Neutral
citation:
National
Tertiary Retirement Fund v Registrar Pension Funds
(221/08)
[2009] ZASCA 41
(31 March 2009)
Coram:
HARMS
DP, STREICHER, CLOETE, JAFTA JJA and BOSIELO AJA
Heard:
9
MARCH 2009
Delivered:
31
MARCH 2009
Summary:
Pension
Funds Act 24 of 1956
– amendment of rules – benefits payable upon
retirement reduced – reduction affecting benefits payable upon
cessation of
membership prior to retirement – amendment not
inconsistent with
s 37A
and
s 14A
– no discretion to
refuse registration conferred on registrar by
s 12(1)(b).
______________________________________________________________
_______
ORDER
_____________________________________________________________________
On appeal from:
High Court, Pretoria (Rasefate AJ sitting as court of first instance)
The following
order is made:
1 The appeal is
upheld with costs including the costs of two counsel.
2 The order by
the court below is replaced with the following order:
‘
(i) The
decision by the Board of Appeal is reviewed and set aside.
(ii) The
following order is substituted for the order by the Board of Appeal:
“
(a) The
appeal is upheld with costs including the costs of two counsel.
(b) The
registrar is directed to register, in terms of
s 12
of the
Pension
Funds Act 24 of 1956
, amendment number 31 to the appellant’s
rules.”
(iii) The costs
of the application including the costs of two counsel are to be paid
by the registrar.’
_____________________________________________________________________
JUDGMENT
_____________________________________________________________________
STREICHER JA
(HARMS DP, CLOETE, JAFTA JJA and BOSIELO AJA concurring)
[1] The
appellant is a pension fund which applied to the Registrar of Pension
Funds, the respondent, for the approval and registration
of an
alteration to its rules. When such approval and registration was
refused the appellant appealed to the Board of Appeal established
in
terms of s 26(1) of the Financial Services Board Act 97 of 1990
(‘the FSB Act’). The Board of Appeal dismissed the
appeal. The
appellant thereupon applied to the Pretoria High Court for an order
reviewing and setting aside the decision of the
Board of Appeal and
replacing it with an order directing the respondent to register the
alteration of the appellant’s rules.
The Pretoria High Court, per
Rasefate AJ, dismissed the application. It is against this dismissal
of its application that the appellant,
with the leave of the court
below, now appeals to this court.
[2] The
appellant is registered as a pension fund in terms of s 4 of the
Pension Funds Act 24 of 1956 (‘the Act’). It was established
with
effect from 1 December 1994. The employers participating in the
appellant are all higher educational institutions previously
known as
‘Technikons’. Members of the Associated Institutions Fund
(‘AIPF’) and the Temporary Employees Pension Fund (‘TEPF’)

were given the option to join the appellant with effect from its
inception on 1 December 1994. In terms of specific regulations
under
the Associated Institutions Pension Fund Act 41 of 1963 only the
funding portion of the actuarial reserve values of the members
and
pensioners of the AIPF and the TEPF who elected to join the
appellant, were transferred to the appellant. This resulted in
these
members having only 60,8 cents in the Rand value of their actuarial
reserve transferred. Although only the funded portion
of the
actuarial reserves were transferred the full value of the actuarial
reserves were taken as the opening balances of the AIPF
and TEPF
members in the appellant. The deficit so created, referred to as the
pure deficit, was eliminated by the appellant in
2002.
[3] The pure
deficit was not the only deficit which arose upon the transfer of the
AIPF and TEPF members. In terms of rule 4.1 of
the appellant’s
rules a member who retires from service on his or her normal
retirement date must receive a pension vesting on
the following day
secured by his or her member’s share at that date, less the amount
of any lump sum benefit paid in terms of
rule 4.5. A member’s share
consists, among others, of an opening balance comprising the member’s
nett actuarial liability in
the previous fund, the member’s and the
employer’s contributions in terms of the rules and investment
earnings transferred
from the Reserve Account, less certain debits to
that account, such as attributable valuation losses and lump sum
payments in terms
of rule 4.5. However, rule 4.6 provides certain
guarantees to the members who transferred from the AIPF and the TEPF.
The relevant
portion of the rule reads as follows:
‘
4.6(1) A
Member, who was a Member of the Associated Institutions Pension
Fund, . . . shall be guaranteed the following
minimum
benefits when he or she retires on his or her Normal Retirement Date,
. . .
(a) A
Pension of 1/50
th
of the Member’s Average Final Salary per year of Pensionable
Service; and
(b) A
gratuity of 7,25% of the Member’s Average Final Salary per year of
Pensionable Service; provided that such gratuity shall
never be
greater than one-third of the Member’s total benefit at retirement
(or up to the whole thereof if allowed by income
tax legislation).
(2) A
Member, who was a Member of the Temporary Employees Pension Fund,
shall be guaranteed the following minimum benefits when
he or she
retires on his or her Normal Retirement Date . . .:
A
pension of 2,75% of the Member’s Average Final Salary per year of
Pensionable Service.’
[4] On 31
December 2003, the effective date of the appellant’s last statutory
actuarial valuation, 2 979 members who had
transferred to the
appellant on 1 December 1994 from the AIPF and the TEPF qualified for
the guaranteed benefits. There is a substantial
difference between
the value of the guaranteed benefits and the relevant members’
shares of the appellant (‘the guaranteed
benefit deficit’). The
deficit was partly caused by the investment performance of the Fund
having been lower than expected and
salaries having been increased at
rates higher than the increase in the rate of inflation. Whether the
appellant will in future
have sufficient assets to pay for these
guarantees is dependent on investment returns and salary increases.
[5] Yet a
further deficit was created when the Act was amended by the
introduction of s 14A in terms of the
Pension Funds Second
Amendment Act 39 of 2001
which came into effect on 7 December 2001.
Whereas the guaranteed benefits in terms of
rule 4.6(1)
and (2) apply
upon retirement,
s 14A
makes provision for minimum benefits to a
member who ceases to be a member prior to retirement. Subsection
(1)(a) thereof provides:
‘
Every
registered fund shall provide the following minimum benefits:
(a) The
benefit paid to a member who ceases to be member of the fund prior to
retirement in circumstances other than liquidation
of the fund shall
not be less than the minimum individual reserve; . . ..’
The minimum
individual reserve of the AIPF and TEPF members is, in terms of
s 14B(2)(a)
, to be determined with reference to the guaranteed
benefit.
[6] At a meeting
held in November 2002 between the appellant and the committee of the
employers participating in the appellant,
being Technikon principals,
it was decided that every Technikon should take financial
responsibility for the portion of the guaranteed
benefit deficit in
respect of the members of the appellant who were its employees. All
the technikon employers, except one, signed
agreements with the
appellant giving effect to the decision. They agreed to make good the
shortfall between the guaranteed minimum
retirement benefit and the
normal retirement benefit of any of their employees who qualified for
the guaranteed benefits as and
when those employees retired. The
exception referred to was the Border Technikon which has only one
employee who qualifies for
the guaranteed benefits.
[7] The new
benefits in terms of
s 14A
became payable by the appellant on
early withdrawals as from 1 January 2005. As a result a deficit of
about R69 million arose in
the appellant (‘the minimum benefit
deficit’). From discussions by the appellant with the participating
employers it became
clear that they were not in a financial position
to fund the additional minimum benefit deficit.
[8] As a result
of these deficits the appellant resolved to amend its rules so as to
provide that the ‘guaranteed benefits’
would remain payable on
the retirement of a member only if the employer of the member pays
the portion of the guaranteed benefit
applicable to that member. The
amendment had the effect of reducing the benefits payable by the
appellant upon the retirement of
a member and because the minimum
benefits upon early withdrawal are to be determined by reference to
the guaranteed benefits, those
benefits were also reduced. According
to the appellant it is unable itself to meet the guaranteed benefits;
the rules of the appellant
do not require the participating employers
to fund the deficit and the amendment is the result of the appellant
having secured
a contractual commitment from the employers to fund
the benefit as and when affected members retire. The only
alternatives would
be, so the appellant contends: (a) an amendment
which deletes any entitlement whatsoever to the guaranteed benefit;
or (b) the
liquidation of the Fund.
[9] The
appellant thereupon submitted the resolution to the respondent for
approval and registration in terms of s 12 of the
Act. The
section provides as follows:
‘
12(1) A
registered fund may, in the manner directed by its rules, alter or
rescind any rule or make any additional rule, but no
such alteration,
rescission or addition shall be valid-
(a) if
it purports to effect any right of a creditor of the fund, other than
a member or shareholder thereof; or
(b) unless
it has been approved by the registrar and registered as provided in
subsection (4).
(2) .
. ..
(3) If
any such alteration, rescission or addition may affect the financial
condition of the fund, the principal officer shall also
transmit to
the registrar a certificate by the valuator or, if no valuator has
been employed, a statement by the fund, as to its
financial
soundness, having regard to the rates of contributions by employers
and, if the fund is not in a sound financial condition,
what
arrangements will be made to bring the fund in a sound financial
condition.
(4) If
the registrar finds that any such alteration, rescission or addition
is not inconsistent with this Act, and is satisfied
that it is
financially sound, he shall register the alteration, rescission or
addition and return a copy of the resolution to the
principal officer
with the date of registration endorsed thereon, and such alteration,
rescission or addition, as the case may
be, shall take effect as from
the date determined by the fund concerned or, if no date has been so
determined, as from the said
date of registration.’
[10] It is not
in issue that the amendment was done in the manner directed by the
appellant’s rules. But the respondent refused
to approve the
amendment for the following reasons:
(i) The
amendment would have the effect of reducing the minimum benefits
payable to those members who resign from the Fund.
(ii) If the
responsibility for the retirement benefit is passed on to the
employers, the members would be at the mercy of their
employers and
would no longer have the protection of the respondent.
(iii) Not all
participating employers agreed to take on the additional
responsibility.
(iv) The effect
of the amendment had not been explained to members.
(v) The
respondent was not satisfied that the employers appreciated that if
the amendment were to be registered there would be a
surplus at the
surplus apportionment date which would not be available to employers
but would have to be paid to former members.
(vi) The
respondent did not believe that the employers realised that should
the appellant be put into liquidation after 1 January
2005, then, in
terms of s 30(3) of the Act, they would be responsible for paying
into the appellant enough money to cover the minimum
benefit
forthwith.
[11] The
appellant thereupon lodged an appeal against the respondent’s
decision with the Board of Appeal established in terms
of s 26
of the FSB Act. In terms of s 26(2), any person aggrieved by a
decision by the executive officer of the Financial
Services Board,
under a power conferred or a duty imposed upon him by or under the
FSB Act or any other law, may appeal against
such decision to the
Board of Appeal. The executive officer of the Financial Services
Board is also the Registrar of Pension Funds
(the respondent)
1
.
Accordingly any person aggrieved by a decision of the respondent
under a power conferred or a duty imposed upon him by or under
the
Act, may appeal against such decision to the Board of Appeal.
[12] In a second
statement the respondent elaborated on his reasons as follows:
(i) What the
legislature had in mind is that a fund should be self-contained and
should be able to meet its obligations as and when
they arise,
without having to rely on promises made by or contracts concluded
with third parties, such as employers, whose financial
position is
not subject to scrutiny by the Registrar.
(ii) The
amendment effectively removes the existing guarantee to members by
the Fund and replaces it with a conditional guarantee,
conditional
upon a payment by a third party to the Fund.
(iii) Where a
rule amendment erodes the right of a member to receive such payment
on retirement by making an existing unconditional
guarantee
conditional upon payment by a third party who may or may not be
contractually obliged to make such payment to the Fund,
this
amendment is inconsistent with the
Pension Funds Act.
[13
] The
provisions of the Commissions Act 8 of 1947, particularly the
provisions relating to witnesses and their evidence, applied
to the
Board of Appeal
2
and it could, after the hearing of the appeal confirm, set aside or
vary the decision against which the appeal was brought, order
that
the decision of the Board of Appeal be given effect to or refer the
matter back for consideration or reconsideration by the
respondent in
accordance with such directions as the Board of Appeal laid down.
3
The Board of Appeal was therefore ‘not restricted at all by the
[respondent’s] decision and [had] the power to conduct a complete

rehearing, reconsideration and fresh determination of the entire
matter that was before the [respondent], with or without new evidence

or information’.
4
[14] The Board
of Appeal dismissed the appeal. It held that s 12 of the Act
conferred a wide and equitable discretion on the respondent
to refuse
the registration of rule amendments. When deciding whether or not to
approve a rule amendment in terms of s 12(1)(b)
the respondent
must take cognisance of the purpose of the Act namely to ensure that
pension funds are operated fairly, properly
and successfully. It held
furthermore that the rule amendment is inconsistent with the Act and
that the respondent was for that
reason entitled to refuse to approve
and register it. The rule amendment is inconsistent with the Act
because it reduces the benefits
provided for, contrary to the
provisions of s 37A and s 14A and takes away from the Fund
the responsibility to pay the
guaranteed benefits. Having so taken
away the responsibility to pay the guaranteed benefits the
responsibility is transferred to
the employers of the members,
thereby depriving the members of the protection of the respondent.
[15] An
application by the appellant to the court below for an order
reviewing and setting aside the decision of the Board of Appeal
was
dismissed. The court below held that the respondent exercises a
discretion in terms of s 12(4) when deciding whether or
not to
approve a rule amendment. It has to make a value judgment as to
whether the rule amendment is not inconsistent with the
Act. The
respondent is also ‘enjoined to consider, evaluate and satisfy
himself of the financial soundness of the proposed rule
amendment’.
[16] The court
below correctly did not endorse the finding by the Board of Appeal
that s 12(1)(b), in requiring the approval
of the respondent,
conferred a broad and equitable discretion on the respondent to
refuse to register a rule amendment. In terms
of s 12(4) the
respondent ‘shall’ register the alteration if he finds that it is
not inconsistent with the Act and if
he is satisfied that it is
financially sound. The respondent is thus obliged, in these
circumstances, to register the alteration.
A finding on the part of
the respondent that an alteration is not inconsistent with the Act
and satisfaction on the part of the
respondent that the alteration is
financially sound would therefore constitute his approval of the
alteration. I agree with the
appellant that if the legislature
intended to confer a broad and equitable discretion on the respondent
it would have made that
intention clear and would have given an
indication as to the factors to be taken into account in exercising
that discretion, as
was done in the case of s 14(1)(c). The
section deals with the amalgamation of a business carried on by a
registered fund
with the business of another person and provides that
it shall have no effect unless ‘the registrar is satisfied that the
scheme
. . . is reasonable and equitable and accords full
recognition’ to a number of factors mentioned in the section.
[17] It follows
that what the respondent and, on appeal to it, the Board of Appeal
had to consider was whether it was satisfied
that the amendment was
financially sound and whether it was not inconsistent with the Act.
Financial
soundness of the amendment
[18] The court
below considered the rule amendment to be offensive to the notion of
financial soundness because it creates a surplus
which stands to be
shared by past members who have no claim to the funds. It said: ‘The
expending of already contributed funds
in this way through an
artificially created surplus, in the face of a deficit situation
cannot, in my view, clothe the rule amendment
with financial
soundness: These are funds which would otherwise have been applied to
the deficit. The Registrar correctly refers
to the scheme as creating
financial soundness at a cost, and it is a situation that does not
accord with the dictionary meaning
of soundness . . ..’
[19] In terms of
s 12(4) it is the respondent and on appeal, it is the Board of
Appeal, that has to be satisfied that the rule
amendment is
financially sound. The respondent was satisfied that that was the
case although he thought that it had been achieved
at a cost. That
finding of the respondent was not disturbed on appeal to the Board of
Appeal and could not be interfered with by
the court below simply on
the basis that it is considered to be wrong on the facts.
5
In any event the fact that the rule amendment creates a surplus
cannot render the rule amendment financially unsound. Counsel for
the
respondent was specifically instructed on appeal to accept that it
was financially sound.
Inconsistency
with the Act
[20] The Board
of Appeal held that the requirement in s 12(4) that the
alteration of the rules should not be inconsistent with
the Act meant
that the alteration should be in agreement with the whole Act ie ‘its
object, purpose and policy as gathered from
a comparison of its
several parts, as well as from the history of the Act and from the
circumstances applicable to its subject
matter to ensure that pension
funds are operated fairly, properly and successfully’. The
alteration can only be inconsistent
with the Act if it conflicts with
the terms of the Act. Naturally the terms of the Act are to be
properly interpreted and when
that is done ‘a court is entitled to
have regard not only to the words used by the Legislature but also to
its object and policy’.
6
The only sections of the Act which came up for discussion in this
regard were s 37A and s 14A.
[21] The Board
of Appeal held that the rule amendment was inconsistent with the Act
because it reduces the benefits provided for
in the rules of the
appellant contrary to the provisions of s 37A of the Act.
Section 37A(1) and (2) read as follows:
‘
(1) Save
to the extent permitted by this Act . . . no benefit provided for in
the rules of a registered fund . . . shall, notwithstanding
anything
to the contrary contained in the rules of such a fund, be capable of
being reduced, transferred or otherwise ceded, or
of being pledged or
hypothecated, or be liable to be attached or subjected to any form of
execution under a judgment or order of
a court of law, or to the
extent of not more than three thousand rand per annum, be capable of
being taken into account in a determination
of a judgment debtor's
financial position in terms of section 65 of the Magistrates' Courts
Act, 1944 (Act 32 of 1944), and in
the event of the member or
beneficiary concerned attempting to transfer or otherwise cede, or to
pledge or hypothecate, such benefit
or right, the fund concerned may
withhold or suspend payment thereof: Provided . . ..
(2)(a) If
in terms of the rules of a fund the residue of a full benefit, after
deduction of any debt due by the person entitled
to the benefit,
represents the benefit due to that person, such reduction shall for
the purposes of subsection (1) be construed
as a reduction of the
benefit.
(b) The
set-off of any debt against a benefit shall for the purposes of
subsection (1) be construed as a reduction of the benefit.’
[22] The court
below did not agree with the Board of Appeal that the rule amendment
is inconsistent with the Act because it reduces
the benefits provided
for in the rules of the appellant. Referring to the provision in
s 37A that no benefit provided for
in the rules of a registered
fund shall be capable of being reduced, it held that such a reduction
by way of a rule amendment in
terms of s 12(1) is excluded by
the words preceding the prohibition ‘save to the extent permitted
by this Act’. The court
below also agreed with the submission
advanced by the appellant that the combination of ‘reduced’ with
‘transferred or otherwise
ceded, or of being pledged or
hypothecated, or be liable to be attached or subjected to any form of
execution under a judgment
or order of a court of law’ indicated
that what the legislature had in mind was not a reduction effected by
a rule amendment,
but a reduction in consequence of factors external
to the rules.
[23] Before us
the respondent, correctly in my view, did not attack these findings
by the court below. Prior to the enactment of
s 37A an amendment
of the rules with the approval of the registrar was permissible and
not qualified so as to exclude a reduction
in benefits provided for
in the rules of the Fund. The legislature must have been aware of
that position when it qualified the
provisions of s 37A with the
words ‘save as permitted by this Act’ and would have made it
clear if it also wanted to exclude
a reduction of benefits provided
for in the rules of a pension fund by way of an alteration in terms
of s 37A. Moreover, there
may well be circumstances where a
reduction of benefits may be required in the interests of all the
members of a pension fund and
it is highly unlikely that the
legislature could have intended to prohibit a rule amendment in terms
of s 12 in these circumstances.
[24] However,
the court below proceeded to hold that it was difficult to conceive
how a rule amendment which had the effect of removing
the
responsibility to pay a pension benefit from of the appellant and out
of the reaches of the Act, could still remain consistent
with the
Act. Having found the rule amendment to be inconsistent with the Act
the court below held that the Board of Appeal had
correctly dismissed
the appeal against the respondent’s refusal to register the rule
amendment. As was submitted by the respondent
this finding of the
court below is inconsistent with its finding that rule 12 (1)
permitted a reduction in benefits provided for
by way of a rule
amendment. If a pension fund, consistent with the Act, can amend its
rules so as to diminish or delete benefits
provided for by the rules
of the fund, it cannot be inconsistent with the Act to retain those
benefits but to make them conditional
on funding from the employer.
[25] The
respondent submitted that the Board of Appeal correctly held that the
rule amendment is inconsistent with the Act in that
it also reduces
the benefit to which the members are entitled in terms of s 14A
whereas such a reduction is, according to the submission,
not allowed
by the section. As stated above, the section provides that the
benefit paid to a member who ceases to be member of
a registered fund
prior to retirement, in circumstances other than liquidation of the
fund, shall not be less than the minimum
individual reserve. In terms
of s 14A(2) the minimum individual reserve shall, subject to certain
qualifications, not be less than
the fair value equivalent of the
present value of the member’s accrued deferred pension ie the
discounted value of the guaranteed
pension. The section does not
provide that the guaranteed value as at date of retirement may not be
reduced. It simply provides
that the discounted value of the
guaranteed pension is, subject to the qualifications mentioned, the
minimum benefit that may be
provided to a member who ceases to be a
member prior to retirement. The rule amendment does not purport to
provide otherwise.
[26] The rule
amendment is not inconsistent with any other provision of the Act. It
follows that the dismissal of the appeal against
the respondent’s
refusal to register the rule amendment by the Board of Appeal on the
ground that it was inconsistent with the
Act was materially
influenced by errors of law and must be reviewed and set aside in
terms of s 6(2)(d) of the Promotion of
Administrative Justice
Act 3 of 2000 (‘PAJA’). In terms of s 8(1)(c)(ii) of PAJA a
court may in exceptional circumstances
substitute administrative
action with the action that should have been taken. This is such a
case. Had the Board of Appeal not
made these errors of law it would
have held that the rule amendment should have been registered by the
respondent. In the circumstances
it would serve no purpose to refer
the matter back to the respondent as the respondent urged us to do.
Moreover, the rule amendment
was submitted to the respondent more
than four years ago and the registration thereof should not be
delayed any further.
[27] In the
result the following order is made:
1 The appeal is
upheld with costs including the costs of two counsel.
2 The order by
the court below is replaced with the following order:
‘
(i) The
decision by the Board of Appeal is reviewed and set aside.
(ii) The
following order is substituted for the order by the Board of Appeal:
“
(a) The
appeal is upheld with costs including the costs of two counsel.
(b) The
registrar is directed to register, in terms of
s 12
of the
Pension
Funds Act 24 of 1956
, amendment number 31 to the appellant’s
rules.”
(iii) The costs
of the application including the costs of two counsel are to be paid
by the registrar.’
___________________
P E STREICHER
JUDGE OF APPEAL
APPEARANCES:
For appellant: O
L Rogers SC
A M Breitenbach
Instructed by:
Thyne Hunter
Esterhuizen Inc, Johannesburg
McIntyre &
Van der Post, Bloemfontein
For
respondent: I V Maleka SC
Ms S Yacoob
Instructed by:
Rooth Wessels
Motla Conradie Inc, Brooklyn
Naudes Inc,
Bloemfontein
1
Section 3 of the Act.
2
Section 26(7) of the FSB Act.
3
Section 26(10).
4
Nichol and Another v Registrar of Pension Funds and Others
2008 (1) SA 383
(SCA) at para 22.
5
Section 6
of the
Promotion of Administrative Justice Act 3 of 2000
.
6
Dadoo Ltd and Others v Krugersdorp Municipal Council
1920 AD
530
at 558.