PROVIDENT FUND: Negligent Provident Fund Resolves By Paying Up
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Funds Adjudicator by admitting liability for failure to switch its members’ assets to a
money market portfolio after being instructed to do so, and paying compensation.
The Probe Corporation Retirement Fund complained to acting PFA Dr Elmarie de la Rey that the failure by Fundsatwork Umbrella Provident Fund (first respondent) and Momentum Group Ltd (second respondent) to disinvest the fund values of the complainant’s active members, had resulted in financial loss.
Probe Corporation (SA) (Pty) Ltd which was the members’ employer, decided to terminate its participation in the first respondent with effect from 30 November 2006 because it wanted to join its newly-created occupational fund, namely Probation Corporation Retirement Fund.
The board of the complainant then instructed the respondents to transfer the benefits totalling R3 002 062.56 held in the first respondent to the complainant with effect from 1 December 2006.
As the transfer took some time to be approved, the board of the complainant obtained an investment statement from the second respondent, which showed an asset value of R3 493 659.66 as at 6 November 2007.
On 7 November 2007 the board of the complainant instructed the second respondent to move the members’ assets held in the first respondent from an investment portfolio to a cash portfolio to ensure that the transfer values were not subject to market volatility. The second respondent confirmed receipt of the complainant’s instruction on 12 November 2007.
The section 14 transfer was approved by the Financial Services Board on 25 September 2008 and consequently the members’ benefits were transferred to the complainant’s bank account on 28 October 2008.
The cash transferred to the complainant on 28 October 2008 was R2 786 072.11, which was less than the transfer value of R3 493 659.66 as at 6 November 2007.
The board of the complainant was dissatisfied with the transfer value of R2 786 072.11 it received from the respondents on 28 October 2008. It submitted that an investment statement it received from the respondents showed an asset value of R3 493 659.66 as at 6 November 2007.
Therefore, the complainant requested the Office of the PFA to order the respondents to pay the correct transfer value and also to show how the payment was calculated.
In response, the first respondent advised that its investigation revealed that the second respondent did not fulfil its duty and responsibility regarding the investment switch instruction it received from the complainant’s financial advisor on 12 November 2007 to switch all active members’ assets to the Momentum Money Market Single Manager Portfolio.
The first respondent further advised that, regarding the section 14 transfer, there were 35 active members on 1 December 2006. Three of the members resigned and were paid their benefits before the switch instruction on 12 November 2007. Two of the members resigned and were paid their benefits after the switch instruction on 12 November 2007. Only 30 members were eventually transferred to the complainant on 28 October 2008.
According to the first respondent, 27 of the 30 active members on 28 October 2008, and one out of the five members that had exited the first respondent between the effective date of the section 14 transfer and 28 October 2008, were prejudiced when their assets were not switched to the Momentum Money Market Single Manager Portfolio on 15 November 2007 as requested by the complainant.
Therefore, a total of 28 members were prejudiced given the significant drop in the equity market during the course of 2008.
The first respondent submitted that the second respondent had agreed to the reconstruction of the 28 members’ retirement savings accounts in order to determine the shortfall and it was concluded that an additional amount of R935 484.13 was due and payable to the complainant in respect of the 27 active members.
An amount of R17 677.34 was due and payable to the one member who exited the first respondent between the effective date of the section 14 transfer and 28 October 2008.
The first respondent confirmed that both payments were effected on 8 July 2009 and, therefore, requested that the complaint against it and the second respondent be dismissed since they had fulfilled their obligations with respect to the complainant.
In determining the matter, Dr De la Rey had to consider whether or not the respondents’ failure to switch the fund’s assets caused financial loss to the affected members of the complainant.
The acting PFA found that the respondents had admitted liability for the failure to
switch all active members’ assets to the Momentum Money Market Single Manager
Portfolio in accordance with the complainant’s instruction following the internal
The respondents had paid a shortfall of R935 484.13 to the complainant in respect of
the 27 active members. An amount of R17 677.34 was paid to one member who
exited the first respondent between the effective date of the section 14 transfer and
28 October 2008.
“The facts show that the respondents have properly compensated the affected
members for the financial loss incurred by not only paying the balance between the
transferred value and transfer value as at 6 November 2007, but also paying the late
“It follows that the respondents have properly compensated the complainant for the
damages its members suffered. In the result, the complaint is resolved,” said Dr De
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