The legislature has tried to encourage people to save for their future and provide adequately for their retirement. To this end, taxpayers are given certain incentives, and these incentives involve a tax concession both to employers who may provide for their staff’s retirement funding, and to employees themselves. Those who are self employed are also catered for, and where they contribute to retirement annuities – an individual pension plan – they too are entitled to some relief.
The incentive to save for retirement is given in some measure to relieve the burden on the State to support people in their old age when they are no longer able or willing to work, and to their dependants (spouses and children) if they die. The relief is provided by way of a deduction from income in the hands of the employer and the employee and, when members of pension schemes receive their benefits, a portion of that benefit is exempt from income tax.
In return for these tax concessions, taxpayers are prevented from dealing with those pension benefits as they wish, and in order to preserve the funds for the purpose for which these benefits are intended, pension benefits are protected against any creditors these members may have, and, further from their own foolishness.
Section 37, protects these benefits in four separate and distinct ways.
Section 37A protects the members from their creditors and their own financial waywardness. It prevents them from ceding these benefits or pledging or alienating them except in certain very limited circumstances; section 37B protects the member’s benefits in the event of insolvency; section 37C protects dependants from creditors in the event of a member’s death, and section 37D is the section which allows benefits to be attached in limited instances.
This section provides that a member’s benefits may not be pledged by the member, and further that a member’s benefits may not be attached by any creditors, or by trustees of their insolvent estates.
Where a member tries to pledge or alienate such benefit that attempted hypothecation will be ignored by the fund, and, the fund may withhold or suspend payment of any benefit due. The fund may even pay that benefit to a dependant, or hold it in trust for any dependant. A member is thus protected from his own folly.
There are limited occasions when the benefit can be attached by creditors.
- Where the debt is in respect of a properly constituted housing loan, and the conditions of section 19(5) of the Pension Funds Act have been properly complied with.
- Where the employee has caused loss or damage to the employer – where the employee has misappropriated money, for example, and the employee has fully consented to the employer taking the benefits of his or her pension fund to compensate the employer or where the employer has taken a judgment against the employee in a court of law.
- The Receiver of Revenue levies taxes on the benefits paid to the employee on withdrawal from the fund and he may also levy arrear and other taxes on the amounts withdrawn.
- A maximum amount of R 3000 only may be taken into account in section 65 (of the Magistrate’s Court Act) proceedings.
Two further exceptions have been created, and these are where the court in a divorce action has ordered the fund to make payment of a percentage of the member’s benefit to the spouse when he or she leaves the fund, and an aggrieved party may attach benefits of a member in respect of maintenance payments.
The section also prevents the benefits of member from being reduced so a fund may not amend its rules in order to reduce the benefit of a member. This is contained in the section.
Where a member is insolvent, and his estate is placed under the custody and control of his trustees, any lump sums due to the member do not fall to be dealt with as part of the insolvent estate. Any pension benefit that is payable as an annuity is also not part of he member’s insolvent estate.