CASE NO: NBFIT – 0004/2022
Applicant 4 V. NBFIRA
CASE NO: NBFIT – 0004/2022
Sector - Retirement Funds
1. Issue
1.1. Withdrawal of the remaining two-thirds balance of pension benefits to clear outstanding liabilities and pay for medical bills.
2. Summary of Facts
2.1. In the matter between Applicant 4 v. NBFIRA case number NBFIT-0004/2022, the Applicant lodged her appeal against the Non-Bank Financial Institutions Regulatory Authority (‘NBFIRA’) after it did not to allow her appeal against NMG Administrators Botswana’s refusal to pay her entire pension benefit. The Applicant had retired from the public service on or around 31 December 2021 due to ill health. She had taken her one-third lump sum pension benefit to aid with her medical expenses. After undergoing surgery, she sought to encash the remaining two-thirds from her pension fund credit to allow her to pay for her recurring medical expenses, build a house and to liquidate some of her loans. Her request was denied by both NMG and the Authority.
3. Issues for Determination by the Tribunal
3.1. Whether the Retirement Funds Act, 2014 permits encashment of the remaining two-thirds of his pension benefit after commutation to pay for loans and medical expenses.
4. Relevant Provisions of the Law
4.1. Retirement Funds Act, 2014
Section 40(1)
The Act at Section 40 sets out different instances under which withdrawals from a member’s pension may be permitted.
Section 40 (1) (a)
“A licensed fund may deduct from a benefit payable to a member, or to his or her dependents or nominees, in the event of the death of the member –
(a) Any amount due on the benefit in terms of the Income Tax Act;
Section 40(1)(d) provides for the payment of debts which reads:
“ In the case of a default on the repayment of any loan by the member in circumstances where his or her membership is not terminated, the amount of the benefit which the member would have received on termination of membership on the date of default, if such a deduction is only effected as a last resort after the board of the fund is satisfied that no other arrangement for the required payment can be made;” [own emphasis]
This section allows a member’s loan to be paid from their pension only where their membership with the fund has not been terminated, therefore it did not apply to the Applicant’s case since his membership to the Fund had been terminated as he had retired.
The Act defines a member as follows:
“means a person who is admitted to the membership of a fund in terms of the rules, but does not include any member or former member who has received all the benefits which may be due to him or her from the fund and whose membership has been terminated in terms of the rules;” [Own emphasis]
4.2. Retirement Funds Regulations
Regulation 30(1)
Subject to the provision of subregulation (2), the rules of a pension fund may provide for the commutation of a pension which is payable to a member on retirement, retrenchment, or resignation or to a former member, or to the surviving spouse, dependents or nominated beneficiaries of a member or former member following the death of the member or former member, of –
(a) all of the pension if the remaining pension after computation of one-third, in case of retirement and retrenchment, or one quarter in case of resignation, is less than such amount as determined by the Income Tax Act; or
(b) one-third in case of retirement and retrenchment or one quarter in case of resignation
4.3. Income Tax (Superannuation Funds) Regulations
The Income Tax Act at Section 32 (13) provides that;
“The withdrawal of a pensioner’s contribution will be determined according to the fund rules as well as the Income Tax (Superannuation Funds) Regulations”.
“Regulation 2(1)(e)
The rules for a fund or scheme may-
(i) allow a member to commute up to 33 1/3 per cent of his pension on retirement…
(vii) where the pension payable to a pensioner, a widow, widower, orphan, or dependant is less than P5,000 per annum, provide for the commutation, with the approval of the Commissioner General, of the entirety of such pension in a single lump sum payment;” [own emphasis]
4.4. Rules of the Fund
Rule 5.4 of BPOPF Rules provides that on retirement a member may commute one-third of their pension and it reads:
“Rule 5.4
On retirement or retrenchment, a member may commute –
(a) all of the retirement benefits if the remaining benefits after computation of one-third is less than such amount as determined by the Income Tax Act; or
(b) not more than one-third of the pension or such a maximum amount as may be determined by legislation from time to time.”
5. Determination
The Tribunal dismissed the application for the following reasons:
5.1. The Applicant retired in December 2021 during the tenure of the Retirement Funds Act, 2014, but the review application was only heard in January 2023 after the 2014 Act was repealed and replaced by the Retirement Funds Act, 2022. The Applicant’s matter was to be regulated by the repealed 2014 Act as the new Act, in terms of the Interpretation Act, does not apply retrospectively.
5.2. The repealed 2014 Act does not allow for members to withdraw from their pension fund credits in order to settle a personal loan not obtained from or through their employer, to build a house nor to pay for medical expenses, nor did the Applicant’s Fund Rules or the Income Tax Act.
5.3. The Applicant’s monthly pension was greater than the prescribed threshold for withdrawal, therefore no law permitted the Tribunal or the Commissioner General, let alone the Authority to sanction commutation contrary to law, therefore no further withdrawals from the pension benefit could be done.
5.4. Once the member has been paid the one-third lump pension benefit, she was obligated to purchase an annuity.
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