Distributing retirement fund death benefits

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Step 1: Identifying and tracing dependents.

Section 37C of the Pension Funds Act places a clear and onerous duty on the board of trustees to determine the fair and equitable distribution of death benefits of fund members.  The first step is to find and identify dependents.

This article provides an overview of the different types of dependents, as well as nominated beneficiaries.

In order to disburse a death benefit, there is a duty on the board of trustees to conduct a proper investigation to determine all the dependents.  Section 37C excludes freedom of testation and overrides the laws of intestate succession or any other law that may be in conflict with the statutory scheme contemplated in the Section.

This means that trustees can’t simply follow the wishes of a member as ex-pressed in their last will, or follow the beneficiary nomination made by the member during their lifetime—or, very often, dictates by family members that may have their origins in customary law or the common law.

The board must establish who the persons are who fall within the ambit of ‘dependent’ as defined in the Pension Funds Act 1956 (‘the Act’).

Identifying dependents and nominees

Determining dependents and nominees can prove to be a challenging task for trustees, as they need to ensure that all dependents of the deceased member are taken into account in their decision-making processes.

It is the duty of the board of trustees to correctly identify the members’ dependents and nominees in order to ensure the equitable and fair distribution of the death benefit.

The Act defines three categories of dependents:

Legal dependents

This includes dependents in respect of whom the member owed a legal duty to support (meaning a duty that can be enforced in law), such as a spouse and children (including children born out of wedlock and adopted children).  Parents, grandparents, grandchildren, and siblings can fall into this category, subject to certain provisions.

In order to fall within the ambit of this category, the person claiming will have to prove that the deceased was legally obligated, i.e. in terms of legislation (Maintenance Act, 1998, Divorce Act 1979, common law, or a legal obligation) to maintain the person claiming.

Factual dependents

Those persons to whom the deceased owed no legal duty of financial support but who nevertheless factually depended on the deceased for maintenance.  This would include a spouse in respect of whom the marriage or union is not recognised by any law or a financially independent major child.

In order to fall within the ambit of this category, one would have to prove that the deceased financially maintained you despite not having any legal obligation to do so, or where the legal duty to maintenance has ceased to exist.

Future dependents

Those persons whom the deceased did not financially maintain at the point of their death, but whom they would have maintained in future, had they not died.  This would typically include elderly parents, a fiancé, or an unborn child.

In order to fall within the ambit of this category, one would have to prove that the deceased would have become liable to maintain you, had they not died.

It is important to note that not all identified dependents automatically qualify to receive a portion or all of the death benefit.  Once the board identifies a dependent as per the definition ‘dependent’ in the Act, such a dependent is only entitled to be considered by the board when making the benefit allocation decision.

Nominated beneficiaries also do not have an automatic right to claim a death benefit.

Nominated beneficiaries

Apart from dependents, members of retirement funds are able to nominate beneficiaries.  A nominee is someone who cannot, under the Act, be defined as a dependent but has been nominated, in writing, by the member to receive their benefit or a portion thereof.

The member will fill out a nomination form, in which they will name all their financial dependents, as well as anyone else they wish to receive a portion of their pension in the event of their death.  The member specifies what percentage they wish each of their nominees to receive.

While the nomination form expresses the member’s wishes, it is only one of the factors considered by the trustees as part of the process of making an equitable distribution—being nominated in a nomination form entitles the nominee to be considered by the trustees, but does not automatically entitle the nominee to a portion of the benefit.

A nominated beneficiary will automatically receive a portion of the benefit if no dependents have been identified in the 12-month period following the death of a member, and the nominee did not die before the member.

The nominated beneficiary, unlike the dependent, does not need to prove their financial dependency on the member.  A nominee qualifies by virtue of being nominated.

Once all dependents have been identified, it is the duty of trustees to allocate and make benefit payments fairly, equitably, and within a reasonable timeframe.

Written by ATLEHA-EDU

This article is a general information sheet and should not be used or relied on as legal or other professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your legal adviser for specific and detailed advice. Errors and omissions excepted (E&OE)

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