Rule amendments should not have binding effect before registration

Introduction

On August 2, 2023, the South African Constitutional Court issued a significant judgment in the case of Mudau v Municipal Employees’ Pension Fund and Others. The case centered around a dispute arising from a withdrawal benefit claim made by Mr. Pandelani Midas Mudau against the Municipal Employees’ Pension Fund (the Fund). This registered pension fund's amendment of withdrawal benefit rules sparked a legal battle over retroactivity, constitutional rights, and the interpretation of the Pension Funds Act (the PFA).

Background and Facts

Mr. Mudau, a former employee of Vhembe District Municipality, resigned in May 2013 and became entitled to a withdrawal benefit from the Fund. The Fund had two versions of withdrawal benefit rules: an old rule and an unregistered amended rule. The old rule granted a benefit of three times the member's contribution plus interest, while the unregistered amended rule stipulated a benefit of one and a half times the contribution plus interest, applying retroactively from April 1, 2013.

The Fund later sought to register the amended rule with retrospective effect, prompting Mr. Mudau to dispute the benefit he received under the unregistered amended rule. He argued that the unregistered rule should not have been applied to his benefit calculation as it had not been registered when he resigned.

Legal Proceedings

Mr. Mudau lodged a complaint with the Pension Funds Adjudicator, who ruled in his favor, ordering the Fund to pay him based on the old rule. However, dissatisfaction with this decision led to multiple appeals and court proceedings. The Supreme Court of Appeal ultimately ruled that the amended rule could apply retrospectively to Mr. Mudau's benefit calculation.

Constitutional Jurisdiction and Key Issues

Mr. Mudau appealed to the Constitutional Court (CC), asserting that his constitutional rights were implicated and that the case raised points of law of general public importance. The CC granted leave to appeal, highlighting the importance of addressing the effect of unregistered rule amendments and the scope of the retrospectivity of pension fund rules.

The Court's Decision

In a unanimous judgment, the CC ruled that the unregistered rule could not be applied to Mr. Mudau's benefit calculation. The Court cited the precedent set in the Mostert case, stating that amended rules should not have binding effect before registration. The Court emphasized the significance of applying the rule in existence at the time of Mr. Mudau's employment termination.

Furthermore, the CC held that the legal proceedings should be determined in accordance with the law applicable at the time of the claim's lodgment. Since the unregistered rule was not in effect at that time, the Court concluded that Mr. Mudau's claim should be determined under the old rule.

The Court's ruling emphasized the broader implications of its decision for the pension fund industry and the interpretation of the PFA.

Conclusion

The case illustrates the complex legal issues surrounding pension fund rule amendments and their retrospective application. The CC's decision clarifies the principle that rule amendments should not have binding effect before registration and emphasizes the importance of considering the law applicable at the time of claim lodgment. This case has broader implications for pension fund regulations and the rights of members, setting a precedent for future disputes and legal interpretations in the field of pension funds.

Full citation:

(The above refers to Mostert N.O. v Old Mutual Life Assurance Co (SA) Ltd)