CASE NO: NBFIT – 0006/2023
APPLICANT 6 V. NBFIRA
CASE NO: NBFIT – 0006/2023
Sector - Retirement Funds
1. Issue
1.1. Withdrawal of the remaining two-thirds balance of pension benefits after retirement and purchase of annuity, whether permitted by law;
1.2 Applicant retiring under the repealed Retirement Funds Act, 2014 and executing an Annuity Pension Policy Contract thereby purchasing an annuity;
1.3 Annuity Pension Policy Contract providing that the contract expires on the death of the pensioner and that it may not be surrendered or terminated.
2. Summary of Facts
2.1. In the matter between Applicant 6 v. NBFIRA case number NBFIT-0006/2023, the Applicant lodged his appeal against the Non-Bank Financial Institutions Regulatory Authority (NBFIRA) after it refused to allow his appeal against Alexandar Forbes Financial Services Botswana (Alexforbes). The Applicant requested the fund administrator to allow him to encash the entire remaining balance of his pension after commutation of the 33 1/3 percent to venture into farming (rearing cattle and goats, and supply and delivery of food and stock).
2.2. The Fund declined this request on the basis that he had already encashed his one-third benefit amounting to P70, 352.95 on retirement in accordance with the Retirement Funds Act, 2014, the Fund Rules and the Income Tax (Superannuation Funds) Regulations, and had used the remaining two-thirds to purchase an annuity with Botswana Life Insurance Limited (BLIL). He executed an Annuity Pension Policy Contract with BLIL in terms of which he was paid his monthly pension of P1081.34, which he later contended was too little to sustain his family.
2.3. The Authority dismissed his appeal.
3. Issues for Determination by the Tribunal:
3.1. Whether or not there exists a valid and extant Annuity Pension Policy Contract as between the Applicant and BLIL;
3.2 Whether a retired person who has purchased an annuity still has an option to withdraw the remaining balance of the thirds, thereby terminating the annuity policy contract.
4. Relevant Provisions of the Law
4.1. Interpretation Act,
Section 13,
“13. (1) the repeal of an enactment shall not —
(a) ……………………………………..
(b) affect the previous operation of the enactment or anything duly done or suffered thereunder; or
(c) affect any right, privilege, obligation, or liability acquired, accrued, or incurred thereunder; or…”
4.2. Retirement Funds Act, 2014
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;
4.3. Retirement Funds Regulations, 2017
Regulation 28 (1) (a) and (3)
“(1) A pension shall be payable for the lifetime of the-
a) beneficiary if the beneficiary is the member, or
(3) A pension may be outsourced through the purchase of an annuity policy, provided the policy adheres sub regulations (1), (2), (4), (5) and (6), and shall transfer all obligations from the fund in respect of the retiree to the insurer and the fund shall have no further obligations in respect of the retiree.
Regulation 30 (1)
Subject to the provision of sub regulation (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.
4.4. Regulation 2(1)(e) – Income Tax (Superannuation funds) Regulations
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.
4.5 Annuity Pension Policy Contract
Clause 46
“The contract expires on the death of the insured should there be no guarantee period.”
Clause 49
“This policy may not be surrendered or terminated by either party prior to the expiration date, or under any other circumstances unless specifically provided therein.”
5. Tribunal Judgment
The Tribunal dismissed the application for the following reasons:
5.1. Neither the Retirement Funds Act, Regulations nor the Fund Rules permit cancellation of an annuity policy once purchased. As a result, the Applicant’s request for payment of his two-thirds retirement benefit in full could not be upheld.
5.2. The Applicant as a pensioner has no option under the applicable Retirement Funds Act, 2014 and its Regulations to request for any two-thirds retirement benefit encashment. On purchasing the annuity, all obligations of the Fund in respect of the Applicant were transferred to BLIL. Therefore, the governing framework for the relationship between the Applicant and BLIL is the extant Annuity Pension Policy Contract.
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