Lize de la Harpe, Senior Legal Advisor: Sanlam Life & Savings: Regulatory Unit

Distribution of fund death benefits

Section 37C of the Pension Funds Act, 1956 regulates the payment of fund death benefits and its main purpose is to ensure that those persons who were dependant on the deceased member are not left destitute after his/her death, regardless of whether or not the member was legally obligated to maintain them.

For this very reason, section 1 of the Pension Funds Act defines the concept of “dependent” very widely. In essence, section 1 distinguishes between three categories of dependents –

• Legal dependents – persons in respect of whom the member owed a legal duty to support. Legal dependents do not have to prove that the member in fact maintained them – all they need to prove is that they qualify as a legal dependent as defined.

• Factual dependents – persons to whom the member owed no legal duty of financial support but who nevertheless depended on the member financially. There are two essential requirements that have to be met for a person to be regarded as a factual dependant, being a need on the part of the claimant and the regular provision of financial support by the member.

• Future dependents – those persons whom the member did not financially maintain at the point of his death, but whom he would have maintained in future, had he not died. To fall within this category, one would have to prove that the member would have become liable to maintain you, had he not died.

Section 37C imposes three duties on the Board of trustees, the first of which is to identify and trace “dependents” as defined in section 1 and those persons, if any, who have been nominated by the deceased member. The mere 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.

The next step is then to make a benefit allocation on a fair and equitable basis, taking into account all relevant factors and ignoring irrelevant ones.  Lastly, once an allocation is made, the Board must determine an appropriate mode of payment of the death benefit.

At which point do you determine who qualifies as a “dependent”?

Until recently it was accepted that the time at which to determine who qualifies as a dependant for the purpose of allocating a death benefit is the point at which the allocation is made. Accordingly, the person concerned must also still be a beneficiary at the time when the allocation is made.

The above approach was in line with the Supreme Court of Appeal’s judgment in the matter of Fundsatwork Umbrella Pension Fund v Guarnieri and others [2019] JOL 42094 (SCA). The question before the SCA at the time was at what stage a person must be a dependant in order to be entitled to participate in a distribution – the date of the member’s death, or the date upon which the decision in regard to the distribution is made, or the date of the distribution itself? The issue often arises because section 37C affords the Board of the fund twelve months within which to investigate the existence of dependents and circumstances may thus change depending on which date you look at.

The fund argued that the determination had to be made at the date of death of the member and that subsequent changes in circumstances should be ignored. The SCA held the view that, in light of the purpose of section 37C (being to provide some protection for dependents, both existing and potential), the time at which decisions should be taken in that regard is when the determination is made. In the courts view this approach would be the only way in which to ensure that the persons identified as dependents are those whose interests the section seeks to protect. The appeal was dismissed with costs.

Mutsila v Municipal Gratuity Fund and Others – judgment handed down on 5 August 2025

Ms Mutsila’s husband passed away in a workplace accident on 15 December 2012. By virtue of the deceased’s employment, he was a member of the Municipal Gratuity Fund.  The applicant submitted a claim to the Fund, for the death benefit available to the deceased’s dependants, on behalf of herself and her five children.

Ms Masete also submitted a claim to the Fund on the basis that she and her children were dependants of the deceased. In an affidavit filed with the Fund, she submitted documentary proof that she and her two children had been listed by the deceased as beneficiaries of a life policy of the deceased and that the deceased had made regular payments into her bank account.

The Fund identified both the applicant and Ms Masete and their respective children as dependants.

Upon concluding their investigation, the Fund resolved to distribute the death benefit as follows:

• 5% to Ms Masete, together with her two children, and
• 5% to the applicant, with the applicant’s five children together being allocated the balance of 25%.

According to the Fund, Ms Masete and her children’s dependency was established in terms of paragraph (b)(i) of the definition of “dependant” in section 1 of the Pension Funds Act, i.e.: they were persons in respect of which the member was not legally liable to maintain but they were factually dependent on him for maintenance. The applicant and her children’s dependency were determined in terms of paragraph (a) of the definition, as the deceased was legally liable for their maintenance.

The applicant lodged a complaint with the Adjudicator on the basis that Ms Masete was neither married to the deceased nor factually dependent on him, and that Ms Masete’s children were not dependent on the deceased. She also employed the services of a private investigator who discovered that Ms Masete was married to Mr Mphafudi in terms of customary law and that he was the biological father of Ms Masete’s two children (a fact the Fund was not aware of at the time of the allocation). The investigation triggered a custody battle brought by Mr Mphafudi against Ms Masete before the High Court. In the custody proceedings, Ms Masete did not dispute her relationship with Mr Mphafudi and confirmed that he was the biological father of her children.

The Fund requested that the complaint be suspended, pending the outcome of custody battle between Ms Masete and Mr Malema which, in its view, could have a direct impact on the complaint and distribution of the benefit. As such, it did not provide a formal response to the complaint.

The Adjudicator nevertheless continued with her determination and found that the Fund had not conducted a proper investigation as required by section 37C to identify the beneficiaries of the deceased and set aside its decision regarding the allocation of the death benefit.

The Fund launched an application in the High Court seeking a declaratory order that it had conducted a proper investigation and seeking to have the determination made by the Adjudicator set aside. The High Court held that the Fund had a duty to ensure that the information it received was diligently investigated. It was clear to the High Court that the Fund ignored the applicant and her children’s factual dependency on the deceased insofar as they relied on the deceased for housing. It also held that Ms Masete’s factual dependence on the deceased had not been proven – she was neither a spouse of the deceased nor was the deceased the father of her children. As such, the High Court found that the Fund had failed to conduct a diligent investigation and dismissed the Fund’s application with a punitive costs order.

The Fund’s subsequent appeal to the Full Court was dismissed on a similar basis, i.e.: the fact that the Fund had made a distribution before it had properly identified the dependants. According to the Full Court, it was the Fund’s obligation to keep itself abreast of the situation, especially because there was an objection to Ms Masete and her children’s dependency. As such, the Fund was derelict in its failure to conduct a thorough investigation and therefore the distribution of the deceased’s death benefit was not in accordance with the provisions of section 37C.

The Fund appealed the Full Court’s decision to the Supreme Court of Appeal (SCA). It disagreed with the Adjudicator’s finding that it had failed to undertake a proper investigation to determine the deceased member’s beneficiaries when it had not been provided with an opportunity to place evidence before the Adjudicator about the investigation it conducted. The SCA agreed with the Fund’s argument and accordingly set aside the Adjudicator’s decision (and, in effect, upheld the decision taken by the Fund). The SCA held that both the High Court and the Full Court failed to recognize the essential issue in this case, namely, whether Ms Masete and her two children were factually dependent on the deceased. It reasoned that this factual dependency was never challenged and as such reinstated the decision of the Fund.

The applicant then applied for leave to appeal to the Constitutional Court (CC).

Considering the social purpose of section 37C and the fact that the matter involves legislation that affects a large section of the population, many of whom are vulnerable and dependent on support from pension fund members, the CC held that it was in the interests of justice that leave to appeal should be granted.

Two of the issues the CC had to determine were –

1. whether the Fund properly exercised its discretion under section 37C in the allocation and distribution of the death benefit, and
2. at what date a fund should make a determination as to who is a dependant for the purpose of distributing a death benefit in terms of section 37C.

While the fund’s discretion afforded by section 37C is wide, the CC held that the exercise of its discretion is “heavily dependent on the factual circumstances” of a particular case. Only if the fund’s exercise of discretion was unreasonable or improper may the decision be reviewed.

The CC found that the Fund failed to conduct a proper investigation to determine dependency in relation to Ms Masete and her children – at first the Fund simply treated her and her children as wife and children of the deceased and allocated accordingly. When her status as his customary wife was challenged, they simply treated her and her children as factual dependents without any further investigation. In fact, there was no evidence that the Fund carried out any investigations to determine for itself or confirm this declared dependency. Also, there was no allegation in the documents attached by the Fund to its founding affidavit to the effect that the deceased either maintained Ms Masete’s children, paid for their school fees and clothing, or provided them with shelter.

The CC held that the Fund clearly failed to establish the extent of the factual dependency of Ms Masete and her children – and this factor is crucial when a fund makes an equitable allocation and distribution. As such the Fund failed to properly exercise its discretion in this matter.

The CC also considered at which stage a fund must make a determination as to who is a dependant for the purpose of distributing a death benefit.  The applicant argued that the decision as to who is a dependant must be made at the same time as the distribution decision – which is in line with the SCA judgment in Guarnieri. The CC held that a textual reading of section 37C suggested that the determination of dependency is made at the time of death of the member, while giving a fund a 12-month period to conduct a proper investigation.

Put differently: the date of death of a member is relevant to determine who relied on the member for financial support while the member was still alive (who was in fact dependent on the member for maintenance during their lifetime). The objective facts relevant to determine the factual dependency must therefore have existed at the time of the member’s death.

The CC specifically looked at the wording of the definition of a factual dependent and held that the word “was” in paragraph (b)(i) denotes the past tense, i.e.: it refers to a period when the member was alive.  This is supported by the following words “upon the death of the member”, which can only mean as at the date the member died. The fact that the definition also requires proof of dependency on the member for maintenance is, in the CC’s view, a clear indication that the dependency referred to here is historical rather than one existing at the date of the distribution decision.

At paragraph 99 the CC held that “…it would be absurd that someone who was not factually dependant on the member while they were alive can suddenly become a factual dependant after the member’s death. The opposite would also be absurd: that someone who depended on the member for maintenance at the time of the member’s death became disqualified after the member’s death.”

The CC thus held that the SCA (when deciding the Guarnieri matter) erred to the extent that it held that factual dependency should be determined on the date of the distribution decision and not the facts that prevailed on the date of the member’s death. The CC also held that there is no legal basis for the proposition in Guarnieri that a person must still be a “beneficiary” at the time distribution is made – once an individual is identified as a dependant, whether legal or factual, that status as a dependant does not change. If, at the distribution stage, there are changed circumstances that alter the needs of the dependant, the fund may have regard to these circumstances when determining an equitable distribution. Dependency, as at the date of the member’s death is decisive and the Fund must consider the relevant facts at the time of Mr Mutsila’s death to determine his dependants.

The CC accordingly upheld the appeal against the order of the SCA.

Conclusion

The Mutsila matter is a landmark judgment – it is in fact the first time that the Constitutional Court (CC) was tasked with interpreting section 37C of the Pension Funds Act. The key take away of this case can be summarised as follows:

• Dependency must be determined at the time of the member’s death.
• Once an individual is identified as a dependant, whether legal or factual, that status as a dependant does not change.
• If, at the distribution stage, there are changed circumstances that alter the needs of the dependant – for instance, if they inherited or won a large sum of money that rendered them no longer reliant on the deceased member, or passed away, as was the case in Guarnieri – the fund may have regard to these circumstances when determining an equitable distribution.

It is important to ensure that Boards of trustees take note of this judgment.

ENDS