Secondary

Retirement

Clarity on beneficiary nominations – Does dependent outrank beneficiary?

The Pension Funds Adjudicator recently ruled that a death benefit was distributed fairly although one of the beneficiaries was not financially dependent on the deceased. “The entitlement stems from the fact that the person concerned was nominated by the deceased and nothing more is required,” said Ms Lukhaimane in her ruling. Lukhaimane told the media that trustees sometimes get confused and demand that nominees submit proof of dependency. According to her the Pension Funds Act is clear: if there are nominees and dependants, then the benefit must be allocated equitably amongst them.

The complaint

Three siblings complained about the distribution of a death benefit by a Retirement Annuity Fund following the death of their father. They were unhappy that their father’s ex-wife had been allocated a portion of the death benefit.

The death benefit from three policies amounted to about R1.3 million. The Retirement Annuity Fund allocated and distributed the death benefit to the deceased’s beneficiaries as follows:

Policy A and B: the 3 siblings and the ex-wife received 25% each
Policy C: the 3 siblings received 33.33% each

The siblings submitted that the ex-wife was not financially dependent on the deceased and as a result requested that the Fund be ordered to allocate the death benefit equal to them.

However, the Fund confirmed that the deceased was survived by three dependants (siblings) and one nominated beneficiary (the ex-wife).

The Fund established that the late member’s ex-wife was, indeed, not financially dependent on him, but nor were his adult children. The ex-wife was the sole beneficiary on two of the three RAs and the deceased’s estate was the beneficiary on the third. Since no one was dependent on the late member, the trustees used their discretion to allocate the benefits equally between the children and ex-wife.

The determination

In her determination, Ms Lukhaimane said the law recognised three categories of dependants based on the deceased member’s liability to maintain such a person namely, legal dependents, non-legal dependants and future dependants.

In principle, a member is legally liable for the maintenance of a spouse and children as they rely on the member for the necessities of life. In the case of non-legal dependants, where there is no duty of support, a person might still be a dependant if the deceased in some way contributed to the maintenance of that person.

“Where the deceased member is survived by a dependant and the deceased has also designated in writing to the fund a nominee to receive the benefit or such portion of the benefit, as is specified by the member in writing to the fund, the fund shall pay the benefit or such portion thereof to such dependant or nominee in such proportions as the board may deem equitable,“ she advised. She added that the board relied on the latest nomination form signed by the deceased as guidance in distributing the death benefit. Had the deceased not wanted his ex-wife to benefit from his retirement savings, he could have signed another nomination form excluding her.

“This Tribunal is satisfied that the death benefit was allocated properly to the dependants of the deceased and there is no reason to set aside the board’s decision,” Ms Lukhaimane ruled and dismissed the complaint.

Ms Lukhaimane shared with the media that trustees of retirement funds will use a member’s beneficiary nomination form as a guideline when it comes to deciding how to distribute the money equitably. “While trustees must ensure that none of your dependants is left without support, they also can’t ignore those you nominate to receive benefits,” she shared.

“When deciding on how to pay out the death benefits many issues come into play, like the size of the benefit, for example. If the benefit cannot even satisfy the dependants’ needs, then obviously the nominees will not get any benefit,” she concluded.

My view has always been that a beneficiary nomination was more of a wish list than a legal indication of how one wants the proceeds of retirement capital distributed after your death. In view of this ruling by the PFA, you may want to suggest to your clients to ensure that their beneficiary nominations are up to date.

Click here to download the PFA case study. In the download there is also reference to a similar case where it was ruled that, although a person was nominated as the sole beneficiary, the board also had to take into account the existence of other beneficiaries and the extent of their dependency on the deceased in order to make an equitable allocation of the death benefit.

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