Section 37c issues arising from the case law
The distribution of death benefits in terms of section 37C of the Pension Funds Act is often tricky terrain for pension fund trustees. This article highlights some interesting issues arising from recent case law around s37C and is based on a presentation done by the writer at the 2019 Pension Lawyers Association conference.
INVESTIGATIONS AND PAYMENTS
Section 37C investigations can be lengthy and complex. The case of Dobie NO v National Technikon Retirement Pension Fund clarified that the 12-month period referred to in s37C does not refer to the general time period for payment, but rather to the period to trace beneficiaries. This is a practical approach, given how time-consuming investigations can be.
Usefully, the High Court has also now clarified in Masindi v Chemical Industries National Provident Fund and others that this 12-month period runs from when the fund learns of the death, not the date of death itself, because the obligation to act cannot be triggered if there is no knowledge of the member’s death.
However, the court also said that retirement funds need to be proactive in their processes and investigations and cannot simply wait to be informed of the death. Some mechanisms available to help funds in this regard include tracking and immediately following up if monthly contribution payments stop, and also checking to see if any members’ deaths are indicated on the Home Affairs database. A proactive approach is encouraged because s37C investigations can be harder and less effective the longer the fund waits to commence investigations.
Circumstances sometimes require a fund to pay out to one or more beneficiaries while continuing the investigation into other potential beneficiaries. In Sithole v NBC Umbrella Retirement Fund and another the Adjudicator accepted that “partial payments” are permissible while investigations continue. Here, payments were made to four out of ten beneficiaries identified, but 12,5% of the benefit was withheld pending further investigation of the remaining six.
The Adjudicator took no issue with this approach but reminded the fund that s7D(1)(c) requires that adequate and appropriate information is communicated to members and beneficiaries informing them of their rights, benefits and duties. Where partial payments are made, “adequate” information would require the reasons for partial payment, the process going forward and the expected timelines to complete payment.
While the mechanism of partial payments can be very useful if there are multiple beneficiaries or family units and lengthy, complex investigations, it can also be risky if information arises or additional beneficiaries are traced later, which may have changed the distribution.
It should therefore be carefully considered.
In Makhubela v Rand Water Provident Fund and another the member’s beneficiary nomination form named three beneficiaries and the member specifically stated that he did not want two of his major children to get any share the benefit. They then challenged their exclusion from the distribution of the R1.7m benefit.
The Adjudicator ruled that “the litmus test … relating to the distribution of death benefits is whether or not
a party was financially dependent on the deceased member and if by his death the party stands to suffer financial prejudice.” The excluded beneficiaries here had not demonstrated dependence, and the member’s express wishes indicated strained relationships with them – both being factors relevant to the distribution decision. The important point demonstrated by this case is that where the member specifically indicates that a person should not receive a share of the benefit, this can be taken as an indication of a bad relationship (which is relevant factor) but this cannot on its own, and without reference to other factors, exclude a beneficiary from consideration.
TESTAMENTARY DISPOSITION VERSUS NOMINATION
It’s often tricky for trustees where the member’s wishes were never communicated directly to the fund, but the Will or some other document states, for example, “I leave my benefit in XYZ fund to my son”. This is not a valid testamentary disposition, but it is a valid nomination?
Section 37C(1)(bA) would suggest not because it states “If a member has a dependent and the member has also designated in writing to the Fund a nominee to receive the benefit…”. Those words indicate that some notification to the fund of the member’s wishes is required.
THE STATUS OF PERMANENT LIFE PARTNERS
The status of permanent life partners and the legal debate around the definition of “spouse” is often a tricky issue for funds to navigate. In terms of the Pension Funds Act, a “spouse” is “a person which is the permanent life partner or souse or civil union partner of a member in accordance with the Marriages Act, the Recognition of Customary Marriages Act, the Civil Union Act or the tenets of a religion.”
There is legal debate around whether permanent life partners are a category of spouse on their own or whether, to be a permanent life partner, the relationship must be recognized by one of the above Acts or religion.
It is arguable that the words “permanent life partner, spouse or civil union partner” indicate that a permanent life partner is a category of spouse on its own (for the purposes of the Act) because persons married in terms of the Marriages Act, the Recognition of Customary Marriages Act, Civil Union Act or tenets of a religion already have legal recognition as “spouse”. Permanent life partners were included in the definition of spouse because without that, they would not be accorded that status and would not qualify for spouse’s pensions.
Their inclusion in that definition therefore elevates their status to that of “spouses” for the purpose of pension related benefits.
In Makgopa v PPS Retirement Fund Ms Makgopa was married to the member by customary rites but the marriage was annulled by the court. She was awarded a share of the death benefit, but this was challenged on the basis that she was not a spouse because the marriage had been annulled. After reassessing, the fund said that it regarded her as a permanent life partner, which fell within the definition of a spouse for the purposes of s37C. That decision was then challenged on the basis that due to annulment she could not be regarded as a “spouse” as defined.