The FSCA this week announced it intends to issue a new Interpretation Ruling on how to apply the provisions of the Pension Funds Act (PFA) setting out how a retirement fund benefit must be distributed when a member dies.
The new Interpretation Ruling will replace Interpretation Ruling 1 of 2020, which came into effect on 25 March 2020.
The reason the Authority wants to revoke and replace IR 1 of 2020 is that it incorrectly brought an unclaimed benefit within the ambit of section 37C of the PFA.
An unclaimed benefit is, by definition, an accrued benefit that has already become due and payable to the fund member and remains as such after it has been transferred to an unclaimed benefit fund. Therefore, the payment of an unclaimed benefit is not conditional upon the occurrence of another event, such as the death of the member, Katherine Gibson, the deputy commissioner of the FSCA, said in a communication issued on 14 August.
A member of an unclaimed benefit fund is a “member” as defined in section 1 of the PFA. But an unclaimed benefit does not become payable because such a member has died, as contemplated in section 37C, Gibson said.
The new, proposed Interpretation Ruling is largely the same as IR 1 of 2020. The differences are the amendments that clarify correctly that section 37C does not apply to unclaimed benefits.
A new Interpretation Ruling inserts a paragraph 4.5 that, among things, states an unclaimed benefit is not due and payable because of the death of a member. Where the person entitled to the unclaimed benefit dies after the benefit has become an unclaimed benefit, the benefit is payable to that person’s estate and not in terms of section 37C.
The new Interpretation Ruling amends paragraph 4.6 of IR 1 of 2020, which states:
A paid-up member, a deferred retiree, and a member of an unclaimed benefit fund is a “member” as defined in the Act. Since section 37C is applicable to a “member” under the circumstances set out in that section, it follows that section 37C is applicable to a paid-up member, a deferred retiree, and a member of an unclaimed benefit fund. That changes when a member makes an election (instructs the fund) to withdraw their benefit, because it is the election to withdraw that makes the benefit payable, not the death of the member. The same principle applies to unclaimed benefits.
The amended paragraph (now paragraph 4.7 of the new IR) states:
A paid-up member and a deferred retiree is [sic] a “member” as defined in the Act. Since section 37C is applicable to a “member” under the circumstances set out in that section, it follows that section 37C is applicable to a paid-up member and a deferred retiree. That changes when a member makes an election (instructs the fund) to withdraw their benefit, because it is the election to withdraw that makes the benefit payable, not the death of the member. The same principle applies to unclaimed benefits, in that the fact that it is unclaimed benefits makes it due and payable to the person entitled to it, and not the death of the member.
Paragraph 4.8 of the new Interpretation Ruling states:
Therefore, reference to “any benefit” in section 37C includes:
(a) a paid-up member’s benefit; and
(b) a deferred retiree’s benefit.
It removes “(c) “an unclaimed benefit”, as contained in IR 1 of 2020.
Interested parties can submit comments on the draft Interpretation Ruling, using the comments template, by 26 September 2023 to FSCA.RFDstandards@fsca.co.za.
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