Former Absa employee loses battle over pension fund withdrawal
A former Absa employee, Hermann Matthysen Shaw, recently lost his bid to access a portion of his R7.3 million pension fund after retiring in April 2022.
Shaw’s case, which reached the Financial Service Tribunal (FST), stemmed from financial difficulties he experienced post-retirement, leading him to request a withdrawal from his living annuity—an option that was ultimately denied.
A Career Spanning Decades
Shaw began his career at Absa in January 1989, dedicating over three decades to the financial institution before retiring in April 2022. At the time of his retirement, his pension fund was valued at R7.3 million.
As part of his retirement plan, Shaw opted for an in-fund pension or a living annuity, which provided him the flexibility to manage his investments and draw periodic income from the fund. According to pension fund rules, retirees are allowed to withdraw up to one-third of their pension fund as a lump sum, with the remaining balance invested in a living annuity.
Initial Lump Sum Withdrawal
Upon retirement, Shaw was eligible to withdraw up to R2.3 million—one-third of his pension fund value. However, he chose to take only R800,000 at the time, leaving the remaining amount invested in the living annuity.
Financial Struggles and Withdrawal Request
Not long after retirement, Shaw found himself in financial distress and sought to withdraw an additional R650,000 from his living annuity. The request was denied, prompting him to turn to the Pension Funds Adjudicator (PFA) for relief.
Shaw argued that he was facing significant financial hardship and should be allowed to access the additional funds. However, his application to the PFA was dismissed.
Appeal to the Financial Service Tribunal
Dissatisfied with the PFA’s ruling, Shaw escalated the matter to the Financial Service Tribunal (FST). He based his appeal on several claims:
- Lack of Clarity on Withdrawal Options: Shaw alleged that during retirement consultations, the information provided by Absa regarding his pension withdrawal options was unclear.
- Pressure During COVID-19: He claimed that he was pressured to sign retirement fund documents during the pandemic, which contributed to his confusion.
- Significant Financial Hardship: Shaw argued that his dire financial circumstances warranted the release of additional funds.
Shaw also maintained that he was unaware he could withdraw the full R2.3 million upon retirement and would have done so had the options been properly explained.
Absa’s Defence
Absa countered Shaw’s claims with substantial evidence, including phone calls, emails, and video meetings via MS Teams. The communications reportedly outlined his options, including the irrevocability of choosing a living annuity.
One key email explicitly stated that Shaw would not be able to make further withdrawals from the living annuity once he retired. Absa further argued that allowing Shaw’s request would violate the Income Tax Act, the Pensions Fund Act, and the fund’s rules.
The Tribunal’s Decision
After reviewing the evidence, the FST upheld the PFA’s decision, concluding that Shaw’s claims of unclear communication and pressure during COVID-19 were unsubstantiated. The tribunal also emphasized that Shaw had been adequately informed of his retirement options and the implications of choosing a living annuity.
The FST agreed with Absa’s stance, noting that the bank had adhered to the applicable laws and regulations governing pension funds. As a result, Shaw’s application was dismissed.
Implications of the Ruling
The case highlights the importance of retirees fully understanding their pension fund options before making decisions. While living annuities offer flexibility in managing investments, they come with strict rules regarding post-retirement withdrawals.
Shaw’s situation serves as a cautionary tale for individuals approaching retirement to seek comprehensive financial advice and carefully consider the long-term implications of their choices.
Conclusion
Despite Shaw’s efforts to access additional funds from his pension, the tribunal found no fault in Absa’s handling of the matter. The ruling underscores the importance of transparency in financial planning and adherence to the laws governing pension funds.
While Shaw’s appeal was dismissed, his case sheds light on the challenges retirees may face when navigating complex financial decisions and the need for thorough retirement planning.
