What may a retirement fund deduct from a pension?

The Financial Institutions and Markets Act, 2021 (FIMA) introduced welcome clarity regarding deductions that may be made from retirement fund benefits. At the same time, it reinforces an important principle that trustees should bear in mind: A retirement fund may make deductions from a member's or pensioner's benefit only where FIMA and its rules expressly authorise the deduction. This principle protects retirement benefits and ensures that trustees do not become involved in collecting debts or making payments that fall outside the scope of the Act. A Limited Statutory Exception Section 277 of FIMA lists the deductions that a retirement fund may lawfully make from benefits. These include, amongst others: amounts required by law to be deducted, such as taxes; deductions authorised by court orders where applicable; amounts recoverable by the fund in circumstances specifically permitted by FIMA, such as housing loan related deductions; and medical aid fund subscriptions paid or payable by arrangement with the member or beneficiary. The inclusion of these specific deductions is significant. It indicates that Parliament intended to create carefully defined exceptions to the general rule that retirement benefits should be paid in full to the member or beneficiary. Medical Aid Contributions – A Special Case FIMA expressly authorises retirement funds to deduct medical aid contributions from pension payments where this is done by arrangement with the pensioner or beneficiary. This recognises that many pensioners rely on this convenient payment facility to ensure that their medical aid membership remains in force. Importantly, the statutory authority applies specifically to medical aid fund subscriptions. It should not be interpreted as creating a general authority for retirement funds to make other payments on behalf of pensioners. What About Other Deductions? Trustees are occasionally asked to deduct and pay amounts such as: life insurance premiums; household or motor insurance premiums; personal loan repayments; retail or credit accounts; funeral policy premiums; charitable donations; or other recurring contractual payments. Unless such deductions are specifically authorised elsewhere in FIMA or by another applicable law, retirement funds should exercise great caution before agreeing to provide these services. Unlike medical aid contributions, these payments do not appear to be expressly recognised under FIMA. Why This Matters At first glance, providing additional payment facilities may appear to be a helpful service to pensioners. However, every additional deduction introduces legal and operational risks. Questions may arise regarding: the retirement fund's authority to make the deduction; liability if a payment is made late or incorrectly; disputes regarding changes in the amount payable; administrative costs; and whether trustees are acting within the powers granted to them by the Act and the rules of the fund. Trustees should therefore be cautious about extending payment services beyond those expressly contemplated by FIMA. Practical Recommendation Boards of trustees should review all deductions currently made from pension payments and satisfy themselves that each deduction is supported by a clear legal authority. Where the deduction relates to medical aid contributions, the fund should ensure that: the board has approved the facility; each participating pensioner has provided written authority; appropriate administrative procedures are in place; and complete records of deductions and payments are maintained. RFS View FIMA protects retirement benefits by establishing the principle that deductions may only be made where authorised by law. While the Act expressly permits deductions for medical aid fund subscriptions, retirement funds should be cautious about extending similar payment facilities for other purposes unless a clear legal basis exists. Good governance requires trustees to ask a simple question before introducing any deduction from a pension: Where does FIMA authorise this? If no clear statutory authority can be identified, the safest course is not to make the deduction until appropriate legal advice has been obtained.