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Pension Fund Act rules versus testamentary beneficiary nominations – Tribunal clarifies dispute

A member of a pension fund died without having nominated any beneficiaries. The trustees allocated the proceeds to his two daughters, but this was disputed by one of the nominees as beneficiaries under his will. The case was referred to the Pension Fund Adjudicator, who ruled that the fund should pay the proceeds of his pension benefits to his will beneficiaries, and not his daughters, from whom he was estranged, based on the fact that they were not dependents of the deceased.

The Tribunal disagreed with this PFA ruling, stating that it in erred in holding that the daughters were not his legal dependents.

The deceased had, at the time of his death, two daughters from whom he was estranged. They were not dependent on him. His wife predeceased him and he was cared for by his sister-in-law’s children.

He did not designate a nominee but left his estate to the sister-in-law’s children in his will.

It is not alleged that the heirs were dependents (as defined) of the deceased and they were not designated nominees of the deceased in terms of his pension benefits. They are accordingly not beneficiaries in relation to the death benefits. The estate may be a beneficiary under para (c) of sec 37 of the Pension Funds Act, but only under that paragraph in view of the express wording, namely that the death benefit does “not form part of the assets in the estate of such a member”.

Notwithstanding anything to the contrary contained in any law or in the rules of a registered fund, any benefit . . . payable by such a fund upon the death of a member, shall, . . . not form part of the assets in the estate of such a member, but shall be dealt with in the following manner:

(a) If the fund within twelve months of the death of the member becomes aware of or traces a dependent or dependents of the member, the benefit shall be paid to such dependent or, as may be deemed equitable by the fund, to one of such dependents or in proportions to some of or all such dependents.
(b) If the fund does not become aware of or cannot trace any dependent of the member within twelve months of the death of the member, and the member has designated in writing to the fund a nominee who is not a dependent of the member, to receive the benefit or such portion of the benefit as is specified by the member in writing to the fund, the benefit or such portion of the benefit shall be paid to such nominee.
(c) If the fund does not become aware of or cannot trace any dependent of the member within twelve months of the death of the member and if the member has not designated a nominee or if the member has designated a nominee to receive a portion of the benefit in writing to the fund, the benefit or the remaining portion of the benefit after payment to the designated nominee, shall be paid into the estate of the member.

The death benefit could only have accrued to the estate under para (c), if, inter alia, “the fund does not become aware of or cannot trace any dependent of the member.”

Once the estate becomes the beneficiary the death benefit becomes part of the estate which means that it must be used to pay taxes, costs of administration, the master’s fees, secured creditors, other creditors, legatees and then heirs.

The Fund says that the two daughters of the deceased fall within the terms of the definition of “dependent” in spite of the fact the deceased was “not legally liable for [their] maintenance”. This explicit qualification is something overlooked in the determination. The PFA accordingly erred in holding that the daughters were not his legal dependents.

The Tribunal ordered that the determination be set aside and referred the matter back to the PFA for reconsideration.

To read the detail of this Tribunal case, click here.

We have seen a number of rulings recently on how funds should determine the distribution of proceeds. This may be a good time review your own knowledge of this matter which is of critical importance to your clients:

Pension fund death benefit – Rights of dependants, nominees and children clarified

Clarity on beneficiary nominations – Does dependent outrank beneficiary?

Death Benefits – To be a dependant or not?

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