The High Court in Johannesburg has upheld a retirement fund’s decision to allocate an entire death benefit to a member’s life partner, rejecting the Pension Funds Adjudicator’s determination that the fund erred by not including his nominated beneficiaries in the allocation.
The application was brought by the deceased’s two sons, who wanted the court to order that the death benefit of R653 288 be shared between them.
The Momentum Provident Preservation Fund awarded the entire benefit to their late father’s life partner (“TR”) after finding that she had depended on him financially, whereas they had not.
The sons complained to the Adjudicator, who, in 2020, upheld the complaint and ordered the fund to reconsider the allocation.
In her determination, the Adjudicator said the court held in Gowing vs Lifestyle Retirement Annuity and others that it is incorrect to assume that once a dependant is identified, the claim of a nominee no longer has to be entertained.
She said the fund was “wrong” to rely on the fact that the sons were not financially dependent on the deceased.
“This confuses the nature of the respective type of a beneficiary. A nominee is not entitled to be considered as a beneficiary because he or she was financially dependent on the deceased. The entitlement flows from the fact that the person concerned was nominated by the deceased. Thus, the complainants’ financial dependency on the deceased is irrelevant, as they are nominees. It is therefore not necessary for the complainants to prove their financial dependency on the deceased,” the Adjudicator wrote.
Fund outlines its reasoning
The fund did reconsider the allocation – and reached the same decision.
In a letter explaining its decision, the fund said it had taken “a basket of factors” into account when deciding on an equitable distribution of the death benefit among the three dependants it identified, as contemplated in section 37C(1)(a) of the PFA.
The sons already qualified as dependants, because they were the deceased’s children, so they could not also qualify as “nominated non-dependent nominees”. The deceased’s nominations were merely an expression of a wish.
The fund said it had received sworn affidavits from the sons stating they were not financially dependent on their father. Furthermore, each of them was bequeathed 40% (R349 915) of the deceased’s estate.
If the amount available for distribution had been more than what was required to meet the financial needs of the only “financially dependent dependant” (TR), the sons could have qualified for inclusion in the allocation. However, the benefit was insufficient to cater for TR’s financial needs and still allow the non-dependent nominees to receive a portion, the fund said.
Two questions of fact
In the High Court, counsel for the sons produced evidence to contest that TR had been the deceased’s life partner and that she had been financially dependent on him – apparently, it had been the other way round.
Acting Judge Chris Todd said he could find no basis on the papers to interfere with or depart from the conclusions reached by the fund in respect of TR’s status as a life partner and a financial dependant. These conclusions had also been accepted by the Adjudicator.
The sons also disavowed their initial assertion that they had not been financially dependent on their father, saying they were unemployed when the fund reconsidered its decision.
In this respect, too, Judge Todd said he could not find a basis for interfering with the fund’s conclusions reached on the facts before it.
Although the sons recanted their assertion that they had not been financially dependent on their father – claiming TR had misled them into making it – they failed to respond to subsequent invitations by the fund to provide evidence of the manner or extent to which they were financially dependent on the deceased, Judge Todd said.
Application of the PFA to dependants and nominees
Turning to the application of the PFA in this matter, Judge Todd restated the principle articulated by the Supreme Court of Appeal in Kaplan and another NNO v Professional and Executive Retirement Fund: the provisions of section 37C take precedence over any nomination of a beneficiary under the rules of a fund. The benefits payable in respect of a deceased member must be dealt with in terms of one or other of the sub-paragraphs in section 37C.
“The decision in Kaplan does not necessarily mean that a nomination should be ignored completely where there are dependants. As the decision of the court a quo in that case made clear, the presence of non-dependent nominees, as well as dependants, falls under sub-section (1)(bA). And in my view, even where nominees are dependants and the situation falls under sub-section (1)(a), the fact of a nomination may still be a relevant consideration in deciding an equitable allocation,” he said.
Sub-paragraph (1)(bA) states: “If a member has a dependant and the member has also designated in writing to the fund a nominee to receive the benefit or such portion of the benefit as is specified by the member in writing to the fund, the fund shall, within 12 months of the death of such member, pay the benefit or such portion thereof to such dependant or nominee in such proportions as the board may deem equitable […]” (Own emphasis added.)
Sub-paragraph (1)(a) states: “If the fund, within 12 months of the death of the member, becomes aware of or traces a dependant or dependants of the member, the benefit shall be paid to such dependant, or as may be deemed equitable by the fund, to one of such dependants or in proportions to some of or all such dependants.”
He said the Adjudicator’s approach was inconsistent with the reasoning of the High Court in the Kaplan matter, which considered the nominees referred to sub-paragraphs (1)(bA) and (1)(b) to be nominees who are not dependants.
Sub-paragraph (1)(b) states: “If the fund does not become aware of or cannot trace any dependant of the member within 12 months of the death of the member, and the member has designated in writing to the fund a nominee who is not a dependant 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 […]
Ultimately, Judge Todd said, it was irrelevant whether the fund could or should have applied sub-paragraph (1)(bA) instead of sub-paragraph (1)(a), because both provisions require an allocation between the potential beneficiaries that the fund “deems equitable” in the circumstances.
He could not find fault with how the fund approached the matter. It carefully considered what weight to attach to the fact that the sons were nominated beneficiaries, and it concluded that it should treat them as dependants as contemplated in sub-paragraph (1)(a).
The fund was required, whether under sub-paragraph (1)(a) or sub-paragraph (1)(bA), to determine an equitable allocation of the benefit.
“In its view, it did so by allocating the benefit to the only dependant who its investigations had established was financially dependent on the deceased, and it made it clear that its decision to allocate the whole benefit to that person was primarily influenced by the consideration that the amount of the benefit was insufficient to compensate her for the loss of support that flowed from the deceased’s demise,” Judge Todd said.
Although the fund could have allocated the benefit differently, the decision that it did reach was not, as the Adjudicator held, irrational or inequitable.
The court dismissed the application, with costs.
Why then have nominee’s at all if a fund manager / trust can decide where my monies goes when I am dead?
Its hard to understand the ruling here without the facts. So if I meet a person for a year and she/he is dependent on me because its hard to find work they can then be classified as a dependent should I die within that year and take a portion of my hard earned money that was supposed 2go to my nominees?
2many cases here if if and when and what…You want a person to inherit….put his/her name as a nominee.
Hi Riaan
I was a trustee of a medium sized (about R1 billion) pension fund for many years and attended many meetings where allocation of death benefits was discussed and decided upon. I can assure you that we did always take the wishes of the deceased member, as indicated by the nomination form, into consideration. However, we were obliged to first consider the needs of the dependents, before nominees who were not (or no longer) dependent on the member. We did also take into account the fact that some dependents may be only temporarily dependent (eg a student in his/her final year of studies or someone who has been retrenched and likely to find another job within a year or two etc) . If there were dependents in financial need and financially independent nominees, we still tried to allocate a small amount, even if only 5% or 10% to the financially independent nominees.
Remember that many members are slack about updating their nomination forms, so if the trustees had to follow rigidly the nomination form, then a child of the member born after the latest nomination form was submitted would lose out simply because their parent hadn’t updated their nomination form before they died. Also, some parents, think that their pension benefits should be divided equally between their children, and don’t think about the fact that a 5 year old will need much more than an 18 year old to support them until they can become financially independent. Finally, remember that the purpose of a pension fund is to firstly provide for the member’s retirement and secondly, if the member dies before retirement, to provide for the members dependents, not to leave a nice nest-egg to the member’s heirs who don’t need it.
Many Thanks Michael for giving an informative response it’s not as simplier or easy as it looks on the outside.
Now what happens if my fathers death benefit funds if the dependents will become dependent on my mother shouldn’t she get all then? Also another thing my half sister on my mothers side is a drug addict, her child too if they were to get money they would use it up in no time so what to do? Everyone that’s dependent gave my dad so much grief now I’ve learned they are to get money too.