High Court Provides Clarity Regarding Payments From Retirement Funds into Third Party Bank Accounts

By Carlyle Field, Partner in the Pension Law team

Retirement fund benefits often form the subject matter of civil litigation between individuals, most notably in respect of the distribution of lump sum death benefits upon the death of a member or the sharing of benefits on the divorce of a member and his or her non-member spouse.  In the course of this sort of litigation, boards of trustees of funds are often presented with orders for relief sought (or even just informal requests) where the attorney representing the claimant seeks for the share of the benefit claimed to be paid directly into his or her trust account by the fund.  There can be various reasons for such a request, not least that the attorney wants security they will receive payment of their fees in full upon completion of the matter.

These types of orders or requests have always placed boards of trustees in a difficult predicament.  As a starting point, boards have had to balance the authority that an attorney enjoys in respect of a client’s affairs (usually evidenced by a signed power of attorney) with the relevant wording of the Pension Funds Act which appears to limit that authority.  The Act contains a general prohibition in section 37A against the cession or reduction of a benefit payable by a retirement fund.  Subsection (4) to section 37A explicitly provides that the only scenario in which a benefit may be paid to a third party is where the beneficiary provides sufficient proof that he or she is unable to open a bank account.

This issue has thankfully been resolved by the South Gauteng High Court in the recent judgment of Joyce v Chemical Industries National Provident Fund and Others.  The learned Judge confirmed the legal position that is spelt out in section 37(4) and has already adopted by a number of funds, namely that a benefit payable by a fund can be paid only into the beneficiary’s bank account unless the beneficiary is unable to open a bank account in their own name (which is quite a rare situation).  The judgment explained that “the clear purpose behind these provisions is to safeguard the funds in the hands of the beneficiary; to protect him or her from being unduly induced or tempted or influenced to part with the benefit”. 

The court even went so far as to order that the beneficiary’s attorneys were required to pay the costs of the application on the highest punitive scale (de bonis propriis) on account of the fact that they had demonstrated a lack of care for their client’s interests by effectively delaying the payment of the benefit to her by insisting that the money be paid into their trust account.  This judgment has provided boards of trustees with a sound basis on which to refuse any request that a benefit be paid into the trust account of a beneficiary’s attorney (or to any other third party bank account other than where explicitly permitted in terms of the Act) even where such request has the apparent support of the beneficiary.

For more information on the above contact

Carlyle Field, Partner in the Pension Law team

+27 73 351 8044