When should a Pension Fund Death Benefit be paid into a Beneficiary Fund?
16 Sep, 2022

When should a Pension Fund Death Benefit be paid into a Beneficiary Fund?

Yolande Van Tonder, Senior Assistant Adjudicator at Office of the Pension Funds Adjudicator

Boards of pension funds must often decide between whether to pay a benefit that is due to a minor beneficiary directly to their guardian or whether the benefit should be paid into a beneficiary fund. The payment to the guardian is often made as a lump sum whereas a payment into a beneficiary fund will result in the guardian receiving monthly payments deducted from the lump sum that is invested by the beneficiary fund.

The discretion afforded the board of management of a fund to make payment of a death benefit to a beneficiary fund is provided for in terms of section 37C of the Pension Funds Act. As with all discretion, the board of a fund must have a rational basis for its decision. In other words, the decision that it makes must stem from the information that has been placed before it.

In terms of the Children’s Act, a parent who acts as guardian of a child must administer and safeguard the child’s property and property interests. The payment of the minor child’s benefit to her or his legal guardian should be done in the ordinary course of events unless there are cogent reasons for depriving the parent of the duty to take charge of her minor children’s financial affairs and the right to decide how the funds due to the minor should be utilised in the best interests of the minor child.

The following four factors need to be considered when determining whether to pay to the guardian, namely:

– the amount of the benefit;

– the qualifications (or lack thereof) of the guardian to administer the monies;

– the ability of the guardian to administer the monies; and finally

– the benefit should, as far as it may be practical, be utilised in such a manner that it can provide for the minor until he attains the age of majority.

The Childrens Act requires that in all matters concerning the care, protection, and wellbeing of a child, the standard that the child’s best interest is of paramount importance and must be applied. Section 7 of the Children’s Act provides for factors that must be taken into consideration when determining the best interests of the child which includes the capacity of the parents, or any specific parent, or of any other caregiver or person, to provide for the needs of the child.

In instances, where the board has decided to depart from the ordinary route of effecting payment of the benefit directly to the minor’s legal guardian, it will have to show the existence of good grounds giving rise to an apprehension that the guardian will fail to fulfil her or his duty (Ramanyelo v Mineworkers Provident Fund, [2003] 7 BPLR 4894 (PFA) at paragraph 14 and 15).

There have been very few reported cases dealing with the circumstances under which a guardian should be deprived of the right to administer monies on behalf of her or his minor children. In Van Rij NO v Employers’ Liability Assurance Corporation Ltd 1964 (4) SA 737 (W), the mother of the minor child had been appointed as his curator ad litem as the whereabouts of the father were unknown. The then Supreme Court made a damages award in favour of the minor child but the Court was not satisfied that the guardian was competent to handle monies on behalf of the minor child. Accordingly, it appointed a trust company to handle the proceeds on behalf of the minor child, until he attained the age of majority. The approach of the Court was that since the guardian was not competent or qualified to administer the proceeds of the award, the benefit was placed with a trust company. This approach of determining when to deprive a guardian of the right to administer monies on behalf of a minor child was approved by the Appellate Division in Woji v Santam Insurance Co Ltd 1981 (1) SA 1020 (A).

Therefore, there is a duty on the board of management of a fund to investigate the guardian’s capacity to administer the money on behalf of the minor child before it decides to pay the benefit into a beneficiary fund. It is only in cases where there is reason to believe that it would not be in the best interest of the minor child to pay the benefit to his/her guardian, that the fund may decide to pay the benefit into a beneficiary fund.



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