The appellant (SAMWU National Provident Fund) was a registered pension fund organisation under the Pension Funds Act 24 of 1956 (PFA). The first respondent, Umzimkhulu Local Municipality, was a participating employer in the Fund. The third, fifth, seventh and eighth respondents were employees of the Municipality and members of the Fund by virtue of their employment. The fourth and sixth respondents had left their employment with the Municipality as of 1 January 2014. The employees, with the Municipality's consent, purported to join another retirement fund (the Municipal Employees Pension Fund - MEPF) on 1 January 2014 while still employed by the Municipality. The Municipality ceased making contributions to the Fund in respect of the employees after this date. The Fund instituted proceedings to compel the Municipality to pay arrear contributions and provide prescribed information under s 13A(2) of the PFA. The High Court (Balton J) dismissed the application, finding that rules 3.2.1 and 11.11 of the Fund allowed members to transfer benefits to another fund while still in service. The Fund appealed with leave. A similar case involving Ntabankulu Municipality (decided by Hartle J) reached an opposite conclusion and was heard together with this appeal.
The appeal was upheld with costs, including costs of two counsel. The High Court order was set aside and replaced with an order directing the Municipality to provide prescribed contribution statements within 30 days; granting the Fund leave to supplement its papers for payment of arrear contributions after receipt of statements; and ordering costs against the Municipality, including costs of two counsel where employed. No order was granted against the second respondent (Chief Financial Officer) due to unresolved disputes of fact regarding personal liability.
Rule 3.2.1 of a pension fund, which provides that 'A Member may not withdraw from the Fund while he remains in SERVICE', prohibits elective in-service cessation of membership (not merely withdrawal of benefits), and must be read with rule 3.2.2 which provides for compulsory termination of membership only upon cessation of service. Section 13A(5) of the PFA requires that membership must first be validly terminated in accordance with the fund's rules before a member can demand transfer of benefits to another fund. The phrase 'ceased to be a member' in s 13A(5) must be interpreted to mean termination in accordance with fund rules as defined in s 1 of the PFA, otherwise the provision would be absurd. Section 14 of the PFA and fund rules dealing with 'transfer of business' and 'amalgamation' apply only to bulk transfers of portions of a fund's business to another entity, not to individual voluntary member withdrawals and benefit transfers. Pension fund rules that restrict in-service voluntary withdrawal of membership do not infringe the constitutional right to freedom of association under s 18 where: (a) the compulsory membership has purely financial implications without other dimensions; (b) employees had a choice of fund at the commencement of employment (self-inflicted limitation); and (c) employees remain entitled to join additional retirement funds during their membership. Such rules are not contrary to public policy where they serve legitimate purposes including compliance with tax legislation, long-term investment planning, and protection of member benefits.
The court noted, without deciding, that it would assume in favour of the respondents that they were entitled to mount a collateral constitutional challenge to the fund rules and were not barred by the principle of subsidiarity from doing so, because a just decision required determination of the constitutional merits and the issue was of importance beyond the parties. The court observed that the requirement in the Income Tax Act that membership of a provident fund must be maintained throughout employment is necessary for long-term investment strategy, as Regulation 28 to the PFA requires funds to have asset-liability matching and invest in long-term, often illiquid investments suitable for the fund's specific member profile, liquidity needs and liabilities - this requires long-term stability in membership composition. The court commented that Hartle J's statement that 'moral persuasion' should be brought to bear on the Fund to change its rules to 'bring them into modernity and economic freedom' did not constitute an objective finding that the rules were contrary to public policy, but merely expressed the judge's personal view. The court noted the established principles from AB v Pridwin Preparatory School regarding when courts will invalidate contracts or refuse enforcement on public policy grounds, emphasizing that this power must be used sparingly and only in the clearest cases where harm to the public is substantially incontestable.
This judgment provides authoritative guidance on the interpretation of pension fund rules governing cessation of membership and transfers. It clarifies the distinct functions of s 13A(5) and s 14 of the PFA: the former governs individual member withdrawals and benefit transfers (requiring prior valid termination of membership under fund rules), while the latter governs bulk business transfers and amalgamations. The judgment establishes that pension fund rules may validly prohibit in-service voluntary withdrawal of membership without infringing constitutional rights to freedom of association, particularly where: (1) the restriction has purely financial implications; (2) employees had initial choice of fund; and (3) employees remain free to join additional funds. The decision upholds the principle that fund trustees must observe fund rules and that members cannot unilaterally terminate membership contrary to clear rule provisions. It also confirms that such rules are consistent with Income Tax Act requirements for approved funds and serve legitimate purposes including long-term investment planning and member protection. The judgment reinforces the importance of literal interpretation of clear and unambiguous pension fund rules.
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