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

David Hurford, Chief Executive Officer

In a recent article published on EBnet, Yolande Van Tonder, Senior Assistant Adjudicator at Office of the Pension Funds Adjudicator explains when a Pension Fund Death Benefit should be paid into a Beneficiary Fund.

“We fully support the view of the adjudicator that a beneficiary fund should not be a default position for payment of Section 37C death benefits due to minor beneficiaries”, says David Hurford, Chief Executive Officer, Fairheads Benefit Services.

Boards of pension funds must apply their minds and determine whether it is in the best interest to pay out a lump sum to the minor’s legal guardian, or whether a better outcome for the child could be achieved by paying the benefit to a beneficiary fund.

It is precisely this deliberation which we believe needs further consideration. Questions must be asked about how the guardian intends to manage the benefit so that the best possible outcome can be achieved.

Perhaps an example best illustrates this. A mother of a disabled child recently complained to the PFA’s office about benefits being placed in the beneficiary fund. The PFA held that the board had not applied their mind to whether it was in the best interest to pay the benefit to the beneficiary fund and applied a default policy position (ie that a disabled dependent’s money should be paid to a beneficiary fund). As a result, the determination of the board was set aside. The board of the fund agreed to pay out the benefit to the guardian, but that it would take some weeks to effect the payment. As a matter of course the beneficiary fund service provider made contact with the guardian to see if there was any immediate financial need which could be addressed. During this conversation, it was determined that the mother’s intention was to buy a car to take her son to hospital for his monthly visit. On further questioning, it was determined that the mother did not know how to drive, did not have a driver’s license, was to purchase the car through the informal economy and would be unlikely to register it in her name (or insure it). Further, we determined that her new boyfriend of a few months was a driving force behind the complaint to the adjudicator.

Given these additional facts, it would seem prudent to work with the mother to find a solution to her need – to get her child to the hospital each month. This could have been done by arranging patient transport, which the beneficiary fund would have paid for. In parallel, the beneficiary fund could also have paid for driving lessons for the guardian, assisted with the costs of obtaining a driver’s license, helped and guided her to find and purchase a reliable vehicle through a reputable dealer, ensuring registration in the mother’s name, and paid for the insurance of the vehicle.

So while we agree that a beneficiary fund may not be an appropriate mode of payment in all instances, boards of funds must interrogate the circumstances and intentions of the guardian before making their determination.

ENDS