Lize de la Harpe, Senior Legal Advisor: Sanlam Corporate

Introduction

Section 37C of the Pension Funds Act, 1956 regulates the payment of lump sum death benefits that become payable by a retirement fund when a member dies before reaching retirement age.

It is important to start off with reminding ourselves what the primary purpose is of section 37C, being to ensure that those persons who were dependant on the deceased member are not left destitute after his/her death. It is for this very reason that these death benefits do not form part of the deceased estate of the member (other than in the limited exceptions) and the member’s freedom of testation is limited, meaning that the trustees are not bound by a nomination made by the deceased during his or her lifetime.

Section 37C affords the trustees a wide discretion in allocating fund death benefits – which is partly why this section is so fraught with difficulty. Considering the fact that section 37C itself does not offer trustees much guidance, we have to take guidance from case law on the topic.

In this edition we will discuss the recent High Court ruling in the matter of Nomfundo and Another v eJoburg Retirement Fund and Others (20601/2022) [2025] ZAGPJHC 575.

Dependents versus nominees

Section 37C imposes three duties on the Board of trustees, namely to:

1. identify and trace “dependants” as defined in section 1 of the Act and those persons, if any, who have been nominated by the deceased member
2. make benefit allocations on a fair and equitable basis and
3. determine an appropriate mode of payment of the death benefit.

The definition of a “dependant” is set out in section 1 of the Pension Funds Act and in essence refers to three categories of dependants, namely, legal dependants, factual dependants and future dependants. The fact that someone falls within the definition of “dependant” only entitles him/her to be considered by the Board when making the benefit allocation decision – it does not mean he/she automatically qualifies to share in the death benefit payable.

A nominee, on the other hand, is a person designated in writing by the member to receive the benefit, or a portion thereof. The Board cannot blindly follow a beneficiary nomination made by the member during their lifetime – it merely serves as a guide to the Board, with the overriding factor always being dependency. Having said that, the members’ wishes as expressed in nomination form remains one of the most important factors that the Board must consider when distributing fund death benefits.

Nomfundo and Another v eJoburg Retirement Fund and Others (20601/2022) [2025] ZAGPJHC 575 (14 July 2025)

The deceased was a member of the eJoburg Retirement Fund by virtue of her employment. During her lifetime she nominated her mother, Mrs. Ntombi Mbonambi, as the sole beneficiary of the death benefits payable by the fund.

Upon her death, the fund conducted an investigation and identified three potential claimants, being the deceased’s mother (nominee) and two adult sisters.

The fund’s Death Benefits Committee considered the various affidavits deposed to by the claimants and resolved to distribute the entire benefit, amounting to roughly R4m, to Mrs. Mbonambi Senior on the basis that she qualified as a legal dependent, the fact that she was heavily dependent on the deceased and also nominated to receive the benefit. The deceased’s brother did not claim dependency and supported the distribution of the death benefit to their mother.

Aggrieved by their exclusion from the distribution, the two sisters launched a review application aimed at setting aside the fund’s distribution decision to allocate to their mother only and replacing it with an allocation to all three of them equally.

They based their claim on the fact that they believed they were also dependants of the deceased and the fact that their mother had already benefitted from the receipt of proceeds of a life insurance policy. They also alleged that their mother acted improperly and to their detriment by failing to disclose their details to the Master’s Office.

The first applicant admitted in her affidavit that the deceased transferred her money “occasionally” and sporadically contributed to groceries. The second applicant explained that she was unemployed (although her brother pointed out she was being supported by her husband and chose not to find work), and both placed heavy reliance on the fact that they were a very close family.

They argued the fund failed to take into consideration the “the informal nature of the dependency relationship between close adult siblings, and particularly in the African culture”, where, they contended, formal money transfers were not the usual means of providing financial support and where it was thus usual to provide cash and groceries rather than bank transfers. The fund explained that the deceased’s mother was heavily dependent on her daughter hence the daughter’s decision to nominate her mother not only to receive the fund death benefits, but also to benefit from the proceeds of a life insurance policy.

The Court agreed with the fund on the basis that the applicants failed to make out a case for dependency – while they may have received occasional informal support from the deceased, this did not amount to sufficient proof to disturb the nomination of the deceased’s mother. The deceased’s mother as nominee was dependant on the deceased to a far greater extent than her adult siblings ever were as is also supported by the fact that the deceased nominated her mother. This nomination, in the court’s view, further demonstrated the extent to which the deceased regarded her mother as being dependent on her, and the extent to which she did not regard her sisters as being financially dependent on her.

The application was accordingly dismissed.

Conclusion

It is important to ensure that members properly understand the inner workings of section 37C when it comes to fund death benefit distributions. It is equally important for members and beneficiaries to bear in mind that a retirement fund is not bound by a nomination form. As explained above, section 37C offers the board of trustees a wide discretion to distribute the death benefits in accordance with what it considers to be rational, equitable and in compliance with its rules. This is not an unfettered discretion; effecting an equitable distribution requires of the board of trustees to take into consideration all the relevant factors and discard irrelevant ones. A beneficiary nomination form is a substantial factor which the trustees must consider when allocating the benefit and will not lightly be ignored.

ENDS