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Death Benefits – To be a dependant or not?

Section 37C of the Pension Funds Act 24 of 1956 governs the distribution and payment of lump sum benefits payable on the death of a member of a pension fund, provident fund, pension and provident preservation fund and retirement annuity fund. These benefits are informally known as “death benefits”. In one of the recent Financial Tribunal cases the question under review was whether a particular Fund exercised its discretion as envisaged in terms of section 37C(1)(c) of the Pension Funds Act. Was the decision of a Fund to allocate the deceased death benefit into the estate account justified?

The application for reconsideration

In this case Mr N challenged the determination of the PFA which recommended that his late wife’s death benefit be placed in her estate. Mrs N, the deceased, was a member of a Provident Fund, until she passed away on 24 June 2016. At the time of her death, the parties were still married to each other. The death benefit amounted to almost R4 million, and therefore would become due to her beneficiary/ies in terms of section 37C of the Pension Funds Act.

However, the Fund advised that by virtue of section 37C(1)(c) of the Act it had exercised its discretion correctly and that it was entitled to pay the death benefit into the deceased’s estate as:

  • the deceased and Mr N were estranged at the time of her death;
  • divorce proceedings had already commenced;
  • Mr N was not financially dependent on the deceased;
  • the deceased did not have any other dependants or nominees; and
  • the deceased did not complete a beneficiary nomination form.

In the light of the above, the PFA held the view that the Fund had performed a reasonable investigation, followed the proper process, and furthermore exercised its discretion by considering all the relevant factors.

The Tribunal’s findings

The Tribunal was of view that the PFA did not consider all the facts provided by Mr N, based on the following:

  • The PFA’s determination was dated 6 April 2019.
  • The complaint was lodged with the PFA on 7 September 2018.
  • Subsequent to the complaint, but before the PFA made its decision on 19 November 2018, Mr N responded to the Fund’s decision and pointed out that certain facts were not taken into consideration:
    • Mr and Mrs N decided not to follow through with the divorce;
    • Evidence, in the form of telephonic records, exists that the parties were reconciling.

Therefore, Mr N’s argument was based on the definition of “dependant” and that he was entitled to the death benefit by virtue of him being a “spouse” of the deceased.

The Tribunal pointed out that “the Act now recognises three classes of spouses, namely permanent life partners, spouses and civil union partners. It is also evident that for a spouse to be recognised for the purposes of the Act, it must be proved that he or she is a spouse of a deceased member in accordance with the Marriage Act 68 of 1961, the Recognition of Customary Marriages Act 120 of 1998 or the tenets of a religion, or a civil union partner in terms of the Civil Union Act 17 of 2006”.

Consequently, the Tribunal was of the view that the PFA had not fully investigated the circumstances regarding the said allegation by Mr N that the parties were to reconcile. Whether or not there is any merit on this aspect, the Tribunal cannot decide, but the PFA should have considered this factor or could have referred it back to the Fund to consider.

The Tribunal also highlighted that as the spouse, Mr N is not automatically entitled to a percentage of the death benefit/full benefit. The starting point should have been to acknowledge that Mr N was a legal dependant. The Fund still has a discretion to determine whether Mr N was entitled to the benefits.

As a result the Tribunal’s decision was that the matter be remitted to the Office of the Pension Fund Adjudicator for reconsideration.

Click here to download the Tribunal’s case documents.

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