A landmark judgment by the Constitutional Court this month provides much-needed clarity and authoritative guidance to retirement fund trustees on how to exercise their discretion under section 37C of the Pension Funds Act (PFA), says Deirdre Phillips, a partner at law firm Bowmans.
Phillips, a specialist in employee benefits, discussed the judgment in Mutsila v Municipal Gratuity Fund and Others and its implications during a webinar this week.
The Court clarified that dependency must be assessed at the date of the fund member’s death, not when the fund decides how to distribute the death benefit. This overturned the precedent set by the SCA in Fundsatwork Umbrella Pension Fund v Guarnieri and Others (2019), which found that dependency must be determined at the date on which the distribution decision is made. Furthermore, the person concerned must still be a “beneficiary” at the time the distribution is made.
The unanimous judgment re-institutes the commonly accepted understanding prior to Guarnieri of when dependency must be determined.
Read: Apex court clarifies timing of dependency test for death benefit payouts
Read: Funds must fully verify dependency before allocating a death benefit
The judgment is the first time the Constitutional Court has interpreted and applied section 37C of the PFA, which governs the equitable distribution of death benefits to dependants of deceased members of retirement funds governed under the Act.
Phillips said section 37C is probably one of the most contested sections of the PFA and is at the centre of most of the complaints to the Pension Funds Adjudicator. The section provides trustees with scant guidance on how they should exercise their discretion when allocating a death benefit. “But now finally and thankfully, we have the apex court giving us its views on how 37C should be applied,” she said.
She said the judgment does not apply retrospectively; only to death benefit distribution decisions made from 8 August 2025, when the Constitutional Court handed down the judgment.
The Court’s decision is a welcome development for retirement funds, Phillips said. Trustees already have an onerous responsibility when investigating dependency and deciding how to allocate a benefit. Guarnieri meant that they also had to ensure that to whom the benefit was allocated was still a beneficiary when the benefit was paid.
Legal and factual dependency
According to the judgment, legal dependants are those who qualify automatically by virtue of their relationship to the deceased, such as a spouse or a child (including biological, adopted, or extramarital children). The fund has no discretion in recognising these individuals as dependants; the law mandates their status.
However, the mere fact of being a legal dependant does not guarantee that the person will receive a portion of the death benefit. Instead, it entitles them to be considered for an equitable allocation.
Factual dependency is not automatic and must be established based on evidence. The court set a twofold threshold:
- the person must have required support from the deceased (in other words, there was a genuine need for support); and
- the deceased must have regularly provided that support. Occasional or casual support (such as giving pocket money) does not suffice.
The fund has discretion in determining who qualifies as a factual dependant, based on the facts and evidence available.
Status of legal and factual dependants
The Court found that section 37C, by design, does not prioritise legal dependants over factual dependants. Phillips said that according to the Court, once a person is identified as a dependant (legal or factual), they are placed on an “equal footing”. This means the law does not create a hierarchy or preference for legal dependants over factual ones in the allocation of death benefits.
The Court made it clear that no dependant – legal or factual – has a right to insist on a specific portion or to receive a larger share based solely on their status. The only right a dependant has, once identified, is to an equitable allocation of the death benefit.
Phillips said the Court emphasised the importance of a lawful, procedurally fair, and reasonable allocation process, ensuring that all dependants are treated fairly and without discrimination.
The Court stated that changed circumstances after the member’s death do not automatically disqualify someone as a dependant.
Allocating the death benefit
The Constitutional Court’s findings require funds to follow a structured, diligent, and fair process in allocating a death benefit.
- Active investigation of dependants
The first stage is that the fund’s board must “actively investigate” all potential dependants. This means the board cannot simply rely on information provided by third parties or the dependants themselves but must test and verify the information provided.
The board is required to use the 12-month period after a member’s death to trace, identify, and assess all possible dependants. The investigation to identify the dependants must be thorough and diligent.
Phillips said a fund cannot simply rely on an affidavit submitted by a potential beneficiary. The Court held that a sworn affidavit does not, in and of itself, mean it is credible evidence.
- Equitable allocation
The second stage involves making an equitable allocation of the death benefit among the identified dependants. The court set out that this allocation must be based on a range of relevant factors, which include:
- The age of the dependants (whether they are minors or adults).
- The nature of their relationship with the deceased.
- The extent of their dependency (such as financial support, payment of school fees, housing, food).
- The wishes of the deceased (including any will or nomination form).
- The current financial position of the dependants and their future earning capacity.
- The value of the death benefit at the time of allocation.
The Court emphasised that all relevant factors must be considered, and irrelevant factors must be ignored. The fund’s discretion must be exercised in a manner that is fair, reasonable, and based on the actual circumstances of the dependants.
Phillips said the judgment does not state that a fund must take a dependant’s changed circumstances into account when making its allocation decision. The fund may take changed circumstances into account, potentially adjusting the share allocated to a dependant (for example, reducing it from 10% to 5% or even to nothing), but the person’s status as a dependant is determined at the date of death.
- Mode of payment
The third stage concerns the mode of payment of the allocated death benefit. The fund must decide to whom and how the payment will be made. This could involve paying a cash lump sum, transferring the benefit to a beneficiary fund (particularly in the case of minors), or making payments in instalments.
Phillips said this stage is about ensuring the payment method serves the best interests of the dependants, particularly vulnerable ones such as minor children.
