A former housekeeper will receive the full R1.89-million death benefit from her late employer’s retirement annuity after the Office of the Pension Funds Adjudicator (OPFA) found that the retirement fund reached the correct practical outcome, but for the wrong legal reasons.
In setting aside the fund’s decision and substituting it with its own order, the OPFA applied the Constitutional Court’s recent judgment in Mutsila v Municipal Gratuity Fund and Others.
The determination provides a practical illustration of how retirement funds should approach section 37C of the Pension Funds Act (PFA) following that landmark ruling, particularly where a dependant dies before a death benefit is allocated. Although the executor ultimately failed to change the allocation, the complaint succeeded in exposing a material flaw in the fund’s application of section 37C.
The facts
EP Davies-Cooke died on 21 September 2024. She had employed Boniswa Joyce Tu as her housekeeper for 31 years. After Tu retired, Davies-Cooke continued paying her R3 500 a month to assist with groceries and other living expenses.
Less than two weeks later, on 3 October 2024, Davies-Cooke’s husband, David Cooke, died. The couple had no children, and Davies-Cooke had nominated Cooke to receive the retirement annuity death benefit. Both spouses also left Tu a legacy of R200 000 in their respective wills.
When the Allan Gray Retirement Annuity Fund investigated the death benefit, it concluded that Tu was Davies-Cooke’s sole factual dependant and allocated the entire benefit of R1 890 631.03 to her.
The executor of Davies-Cooke’s estate challenged that decision before the OPFA.
Why the executor objected
The executor did not dispute that Tu had received financial support from Davies-Cooke before her death. However, she argued that the bequests from the two estates effectively replaced that financial support and that Tu should therefore not receive the entire death benefit.
She also contended that the fund had relied on the wrong provisions of section 37C.
Death benefits payable by retirement funds do not automatically form part of a deceased member’s estate or pass according to a will or nomination. Instead, section 37C requires trustees to identify the member’s dependants and exercise an equitable discretion when allocating the benefit, reflecting the provision’s social purpose of protecting those who depended on the deceased for maintenance.
Section 37C provides different mechanisms depending on whether the member leaves dependants, nominees or both.
- Section 37C(1)(a) applies where one or more dependants are identified. The board must allocate the benefit among those dependants in proportions it considers equitable.
- Section 37C(1)(b) applies where no dependants are found within 12 months and the member nominated a person who is not a dependant.
- Section 37C(1)(bA) applies where there are both dependants and a nominee who is not a dependant.
The executor argued that because Davies-Cooke had nominated Cooke to receive the death benefit, the fund should have applied either section 37C(1)(bA) or section 37C(1)(b), rather than section 37C(1)(a). Alternatively, if Tu remained a dependant, the benefit should have been shared between Cooke’s estate and Tu.
Why that argument failed
Deputy Pension Funds Adjudicator Naheem Essop rejected that argument.
Although Cooke had been nominated by Davies-Cooke, he was also her spouse and therefore a dependant as defined in the PFA. A person who qualifies as a dependant is treated as such for purposes of section 37C, notwithstanding that they have also been nominated by the member.
Essop therefore held that section 37C(1)(a) was the correct statutory provision, even though the fund had misapplied it. Sections 37C(1)(b) and (bA) apply only where the nominee is not a dependant.
Where the fund went wrong
Although the fund relied on the correct sub-section, it misapplied it.
The trustees treated Tu as Davies-Cooke’s sole dependant because Cooke had died before they made their allocation decision. On that basis, they concluded that no equitable allocation between dependants was required.
Essop found that this approach could not stand in light of the Constitutional Court’s judgment in Mutsila.
Before Mutsila, there was uncertainty about when dependency had to be assessed under section 37C, particularly where circumstances changed between the member’s death and the fund’s allocation decision. In Fundsatwork Umbrella Pension Fund v Guarnieri and Others (2019), the Supreme Court of Appeal held that dependency should be assessed at the time the fund made its distribution decision.
The Constitutional Court rejected that approach in Mutsila. It held that whether a person qualifies as a dependant must be determined at the date of the member’s death. Later events remain relevant, but only when the fund decides what constitutes an equitable allocation of the benefit.
In doing so, the Constitutional Court clarified that section 37C involves two distinct enquiries. The fund must first identify the class of dependants as at the date of the member’s death. It must then decide how the benefit should be distributed equitably, taking subsequent developments into account where relevant.
Applying Mutsila, Essop held that Cooke remained a legal dependant even though he died before the fund completed its investigation. The fund therefore erred in treating Tu as the sole dependant and in failing to undertake the equitable allocation required by section 37C(1)(a).
Read: Trustees now have ‘clear guidance’ on dependency and benefit allocations
Why Tu still received the entire benefit
The finding that Cooke remained a dependant did not mean he was automatically entitled to a share of the benefit.
Having identified both Cooke and Tu as dependants, Essop then considered what allocation was equitable. In doing so, he took into account Cooke’s death shortly after Davies-Cooke, the bequests received by Tu, her position as the surviving factual dependant, and the social purpose of section 37C.
He concluded that although Cooke remained within the class of dependants, an equitable allocation to him was nil, while the entire benefit should be allocated to Tu.
Why the matter was not sent back
Having found that the fund’s legal reasoning was flawed, Essop considered whether the matter should be remitted to the trustees for a fresh decision.
He concluded that this would serve no useful purpose because all the material facts were before the OPFA, the correct legal framework was clear following Mutsila, and remitting the matter would merely delay payment to Tu.
Essop therefore set aside the fund’s decision and substituted it with his own order allocating the full death benefit to Tu.
Practical implications
The determination demonstrates how retirement funds should apply section 37C following the Constitutional Court’s decision in Mutsila.
Trustees must identify dependants as at the date of the member’s death and only then consider subsequent events as part of the equitable allocation. A dependant who dies before the investigation is completed does not fall out of the class of dependants, although that death may ultimately justify allocating no portion of the benefit to that dependant.
