For many pensionable employees, a pension represents years of sacrifice, savings, investments and planning for a secure, if not comfortable, retirement. It is therefore understandable that members of retirement funds often assume that their pension benefits are completely protected from creditors and other claims. While Botswana’s Retirement Funds Act, 2022 (“the Act”) generally safeguards retirement savings, Section 52 of the Act recognises circumstances in which deductions may lawfully be made from a member’s pension benefit. The provision seeks to strike a balance between protecting retirement savings and ensuring that legitimate financial obligations are met.
Section 49 of the Act provides strong protection against the reduction, transfer, or cession of pension benefits. However, Section 52 of the Act creates specific exceptions that permit deductions under prescribed circumstances. These exceptions include outstanding loan obligations, mortgage repayments, maintenance orders, divorce settlements, medical expenses, tax liabilities, and other deductions authorized by law.
What makes Section 52 of the Act particularly important is that it is supported by the PFR12 – Pension and Provident Fund Benefit Payment Rules, issued by the Non– Bank Financial Institutions Regulatory Authority (NBFIRA), which provide detailed procedures for retirement funds when processing deductions from member benefits.
Deductions for Defaulted Loans and Credit Card Facilities
One of the most notable provisions relates to personal loans and credit card facilities. Under Section 52 (1) (c) and Rule 7.3.1 of PFR12, where a member defaults on a qualifying loan or credit card facility, the deductible amount is the total amount outstanding at the time the member becomes a deferred member. This includes the principal debt and all associated charges and fees. Furthermore, any amount deducted must be paid directly to the financial institution concerned.
This provision demonstrates that retirement savings cannot be used as a shield against lawful debt obligations. However, the deduction process is regulated to ensure transparency and fairness to all parties involved.
Defaulted Mortgage Loan Relief as a Last Resort
Another important feature is Section 52 (1) (d), which refers to the treatment of mortgage loans. According to PFR12 Rule 7.3.2, trustees may deduct amounts from a member’s retirement benefits to settle outstanding mortgage loan obligations when the member retires on medical grounds or becomes a deferred member.
Importantly, the Act and the Rules emphasize that such assistance should be treated as a last resort. Rule 7.3.7 specifically provides that deductions for mortgage loans or qualifying medical expenses may only be made once and only after other options have been exhausted.
To prevent abuse of this provision, trustees must also verify that the member has never previously received similar assistance under the current or repealed retirement funds legislation.
Strict Verification Requirements
The Act and the Rules place considerable responsibility on Boards of Trustees before approving mortgage-related deductions. Rule 7.3.6 requires trustees to consider evidence such as:
These requirements ensure that members only access pension funds for mortgage relief when there is genuine financial hardship and no reasonable alternative source of funding is available.
Deductions for Medical Expenses
Section 52 (1) (h) of the Act is perhaps the most accommodating aspect of Section 52 due to its recognition of severe health challenges. The Act allows deductions from retirement benefits to pay for the treatment of terminal illnesses and chronic diseases. However, the Rules impose strict safeguards to preserve retirement savings.
Rule 7.3.7 and Rule 7.3.8 limit medical expense deductions to a maximum of 50 per cent of a member’s accrued benefits. This ensures that while members can obtain urgently needed medical treatment, they do not completely deplete their retirement savings.
The Act and the Rules further require trustees to treat such deductions as exceptional measures and not as routine withdrawals from pension savings.
Trustees Must Act Prudently
The Act and PFR12 Rules reinforce the critical role of Boards of Trustees in protecting members’ retirement savings. Rule 7.3.10 requires that members seeking financial relief must choose only one form of assistance, whether for mortgage repayment, medical expenses, or another qualifying deduction under Section 52 of the Act. This limitation prevents multiple withdrawals that could jeopardize retirement security.
The policy objective is clear: retirement funds exist primarily to provide income in old age, therefore access to benefits before retirement should occur only in exceptional and carefully controlled circumstances.
Balancing Protection and Accountability
The combined effect of Section 52 of the Retirement Funds Act, 2022 and Rule 7.3 of the PFR12 – Pension and Provident Fund Benefit Payment Rules is the creation of a balanced framework. On the one hand, members’ retirement benefits enjoy extensive protection. On the other, the law recognizes that legitimate financial obligations, severe medical emergencies, and certain housing-related hardships may justify limited deductions.
Importantly, the Act and Rules ensure that deductions are not automatically granted. Instead, Boards of Trustees must evaluate applications carefully, verify supporting evidence, and ensure that any deduction complies with the law and serves the long-term interests of members of retirement funds.
Conclusion
Notably, section 52 of the Act is not about weakening pension protection. Rather, it is about providing a responsible and humane framework for dealing with exceptional circumstances. Through the detailed requirements introduced by Rule 7.3 of PFR12, Botswana’s retirement fund system seeks to preserve members’ retirement savings while providing relief where genuine hardship exists.
As retirement planning becomes increasingly important, fund members should familiarize themselves with these provisions and appreciate that while retirement benefits are strongly protected, they may be accessed in limited circumstances where the law considers such deductions necessary, reasonable, and in the best interest of members.
