Lize de la Harpe, Senior Legal Advisor, Sanlam Corporate
Introduction
When a member of a retirement fund dies before reaching retirement age (and if the rules of the particular fund permits) the lump sum death benefit which becomes payable must be paid to the member’s dependants and/or nominees. Section 37C of the Pension Funds Act 24 of 1956 (“the Act”) regulates the payment of these death benefits.
Section 37C of the Act is fraught with great difficulty and must be carefully followed by the Board of trustees, especially when it comes to conducting proper investigations to identify and trace dependents. A recent High Court judgment has again highlighted this point.
The object of Section 37C
Section 37C of the Act gives the Board of trustees a discretion, to be exercised fairly and reasonably, insofar as the distribution of death benefits is concerned. The objective of this section is to ensure that those persons who were dependant on the deceased member are not left destitute after his/her death, irrespective of whether or not the deceased was legally required to maintain them.
Section 37C imposes three duties on the Board of trustees, namely to:
- 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,
- Make benefit allocations on a fair and equitable basis, and lastly
- Determine an appropriate mode of payment of the death benefit.
Section 37C(1) stipulates time frames for five different scenarios for payment of death benefits, being a 12 month period. It is a common misconception that the fund’s duty to pay is always contingent on the expiry of this 12-month time period. This is not correct – the duty to pay is not dependent on the expiry of the 12-month period, but rather on whether the Board is satisfied that it has investigated and considered the matter with due diligence and is in a position to make an equitable allocation.
The relevant question will therefore always be whether the Board took all reasonable steps to identify and trace possible dependants, so as to allow them to distribute the benefit in the most equitable manner to the correctly identified dependants.
South African Retirement Annuity Fund v Pension Funds Adjudicator and Another (4544/2023) [2024] ZAMPMBHC 52 (7 August 2024)
In the recent judgment in the matter of South African Retirement Annuity Fund v Pension Funds Adjudicator & Viljoen the High Court was tasked with confirming when the 12-month time line as set out in section 37C starts to run.
In essence, Mr Viljoen (the member) died in December 2019. The member had not nominated a beneficiary to receive the death benefit and died intestate. At the time the Fund was informed of his death, no executor has been appointed to his estate, which is estimated to be below R250 000. The Fund only learned about the death of the deceased member for the first time on 28 March 2022, when the Second Respondent (his wife) submitted a claim to it.
The Fund held the view that section 37C mandates it to investigate and trace all the deceased member’s dependants and to pay them the death benefit due to them; in this instance, it did not attempt to trace them. The reason for not doing so is that in its view that duty only arises if the Fund learns of the death within 12 months of the death of a member. Since in this case the Fund only learned of the death after the 12 months had lapsed, it decided not to investigate, but to rather pay the death benefit into his estate.
Aggrieved by this, Mrs. Viljoen – the member’s only dependent – lodged a complaint to the Pension Fund Adjudicator (PFA). After considering the facts, the PFA ruled that the Fund’s duty to trace the dependants started at the time the Fund was made aware of the deceased member’s death, not at the time of the member’s actual date of death. As such, the Board’s decision to pay the death benefit into the deceased’s estate was set aside and it was ordered to pay the death benefit to the deceased’s spouse. The Fund appealed the decision of the PFA.
The High Court held that a logical interpretation of the section 37C with regards to the 12-month period must be applied, i.e.: that the period starts to run once the Fund becomes aware of the members death. Any other interpretation would (in the words of the learned judge) “be absurd” as it is near impossible for a fund to know of the death on the day the member dies.
The High Court held as follows at paragraph 21:
“[21] The interpretation advanced by the Applicant would not only defeat the purpose of the Legislature in enacting section 37C(1) of the Act; but would also fail in ensuring that the Fund carries out its mandate to trace the dependants and investigate their dependency on the deceased member. The Fund could simply sit back instead of being proactive, until the twelve months is over; only for it to claim that it did not investigate because it only became aware of the death after twelve months had lapsed. There are no safeguard measures through which the Fund can be held accountable for doing nothing to investigate while years go by without any further contribution from a member who, by anyone’s judgment, it would mean that he has died or ceased to work. The lacuna in the Act, real or perceived, cannot be used as a means to condone the failure by any party to heed the mandate given by the same statutory provision. If this is allowed, the statute shall become self-destructive for failing to police adherence to its provisions.”
The High Court accordingly upheld the determination of the PFA and ordered the Fund to comply with the PFA’s order as within 60 days from the date of the order. The application was dismissed with costs.
Conclusion
The Viljoen case again highlights the importance of the trustees understanding of section 37C in order to ensure the Board properly distributes the death benefit which has become payable at a member’s death. Failure to do so not only harms dependents who rely on these funds, but also amounts to maladministration of the fund.
ENDS
