• Giselle Gould, Director: Business Development

Light at the end of the section 37C tunnel


A long overdue rethink of section 37C of the Pension Funds Act is finally under way, following a request from the Deputy Registrar to the industry to give suggestions for amendments and submit them to the Financial Sector Conduct Authority (FSCA). It is hoped that the outcome will make decision-making relating to lump death benefits easier for trustees, and reduce the number of decisions challenged by the Pension

Funds Adjudicator.


The process has been marked by a unique collaboration of industry bodies, including Batseta, the Institute for Retirement Funds Africa (IRFA) and the Pension Lawyers Association (PLA), which asked their members for input and then consolidated comments. I was privileged to serve on the Batseta panel relating to its submission.


This article touches on just three elements of a detailed submission.


BENEFICIARY FUNDS


The current situation


The reduction of the age of majority to age 18 by virtue of the Children’s Amendment Act 2007 required the trustees of beneficiary funds to effect lump sum payments at age 18.


Payment of lump sums at this age is not ideal as –


  • A very low percentage of learners achieve matric, or any other NQF level 4 qualification, at age 18;

  • According to Fairheads’ research-based feedback from guardians and caregivers, and from the actual experience:-

  • a large number of beneficiaries have elected to drop out of school once they receive their lump sum at age 18. This has an impact on their continuing education prospects, their future employment opportunities and in turn possible financial support that they might otherwise be able to provide to their families if they did have an education and employment;

  • at the age of 18, very few (if any) of these beneficiaries have the financial knowledge and other skills to properly manage lump sums. There is a very real risk that the beneficiaries receiving these lump sums will spend these funds carelessly and recklessly, with little thought of acquiring the skills to become financially independent;

  • where 18-year-old beneficiaries are counselled to seek financial advice or on how to manage their finances responsibly, less than 10% follow this advice, although this process seemed to be improving over time;

  • when given the option by a retirement fund to place their portion of a death benefit in a beneficiary fund, because they are still at school, beneficiaries seldom exercise this option.


The section makes provision for the payment of a benefit to a beneficiary fund. Payment to the guardian is the default position and arises from the guardian’s legal duty to manage the minor child’s financial affairs and the right to decide how best to use money in the best interest of the child. To deprive a guardian of this right which is a natural consequence of guardianship, a fund must have convincing reasons.


A fund must consider the following factors:


  • The guardian’s personal financial and educational circumstances;

  • Evidence that the guardian has squandered money in the past or been declared insolvent or had a business declared insolvent;

  • Any indication that the guardian intends to use the money for something other than the minor’s benefit;

  • Experience handling large sums of money or any investments;