When a member of a retirement fund dies before reaching retirement age, the lump sum benefit which becomes payable (the “death benefit”) must be paid to the member’s dependants and/or nominees.
Section 37C of the Pension Funds Act, 1956 regulates the payment of death benefits. The primary objective of section 37C is to ensure that those persons who were dependent on the deceased member are not left destitute after his/her death, irrespective of whether or not the deceased was legally required to maintain them.
Section 37C imposes three primary duties on retirement fund trustees, namely to:
1. Identify and trace “dependants” (as defined in section 1 of the Act) and those persons, if any, who have been nominated by the deceased member,
2. Make benefit allocations on a fair and equitable basis, and
3. Determine an appropriate mode of payment of the death benefit.
Trustees have a duty to conduct a proper investigation to determine all the “dependants” of the deceased member. Once they have identified all the dependants, the next stage of the enquiry would be to examine the needs of each dependant so that they can make an equitable distribution amongst them. What is equitable is case specific, and relates to the needs of each identified dependant.
Does section 37C(1) leave room for applying principles of contract law?
Section 37C(1) specifically provides that regardless of the provisions of any other law, including the common law, and notwithstanding the rules of a registered fund, all death benefits payable by a fund must be dealt with in terms of this section – thus making it clear that the legislature intended the regulation of death benefits to override all else, including all other laws.
As such, death benefits do not form part of the deceased estate of the member (subject to exceptions) and the common law (including law of contract) does not apply.
A settlement agreement is a written agreement entered into between parties in full and final settlement of a valid dispute. The practice of making settlement agreements is well established and has existed for a long time in South Africa.
Whether or not the terms of such an agreement are enforceable against a board of trustees for the purposes of section 37C has been considered by the Pension Funds Adjudicator.
In the matter of Brummer v CSIR Pension Fund and Another (2005) 10 BPLR 797 (PFA) the member was survived by two dependants, being his girlfriend (complainant) and his mother (second respondent). The deceased had not completed a nomination form.
The trustees of the fund, in the exercise of their discretion, decided to allocate and distribute the death benefit payable in terms of an agreement concluded between the two dependants.
After payment of the agreed amount, the girlfriend lodged a complaint alleging that she was financially dependent on the deceased at the time of his death and that she had entered into the settlement agreement as a result of misrepresentations made by the deceased’s mother. She therefore wanted the fund to pay her 100% of the death benefit as the deceased’s sole dependant.
The fund, in turn, submitted that the trustees distributed the deceased’s death benefit in compliance with the terms and conditions of the agreement entered into independently between the two dependants. They had furthermore concluded that neither the complainant nor the second respondent qualified as a dependant as defined in the Pension Funds Act.
In hearing the complaint, the Adjudicator referred to section 37C and stressed the fact that all death benefits payable in respect of a deceased member must be dealt with in terms of one or other of the sub-paragraphs of section 37C. As such, the trustees’ reliance on the agreement concluded between the complainant and the second respondent was fundamentally flawed – even where the trustees have concluded that the deceased had no dependants (and no one was nominated as a beneficiary), in which case the death benefit should have been paid to the deceased’s estate.
The Adjudicator held as follows at paragraph 14:
[14] Taking all the factors into consideration I am of the view that the trustees improperly fettered their discretion by relying upon the terms and conditions of the settlement agreement for purposes of distributing the deceased’s death benefit. In my view the trustees’ reliance on the said agreement was an abdication of their duties to properly apply their minds to relevant considerations in determining the proper allocation and distribution of the deceased’s death benefit…”
The trustees’ allocation was accordingly set aside and the matter was referred back to the board.
In the matter of Matene v Noordberg Group Life Assurance Scheme 2 (2001) 2 BPLR 1610 (PFA) the dependants entered into a settlement agreement with the fund confirming the distribution of the death benefit and acknowledging that they would have no further claims against the fund, its trustees and the employer. Despite the agreement, a complaint was raised.
One of the arguments raised by the fund in response to the compliant was that the agreement signed by all parties sets out their agreement regarding the allocation made by the trustees.
The Adjudicator disagreed and pointed out that section 37C was mandatory in the sense that any death benefit payable by a pension fund must be dealt with in the manner prescribed by this section. The mere fact that the parties had entered into a settlement agreement confirming the distribution of the trustees did not override the legal duties imposed by section 37C.
The allocation was accordingly set aside.
Conclusion
Section 37C places a duty on the fund’s board of trustees to identify the dependants of a deceased member and also vests the board with discretionary powers on the proportions and manner of distributing the proceeds of a death benefit. As with the exercise of any discretionary power, the board is required to give proper consideration to relevant factors and exclude irrelevant ones from consideration. The board may therefore not unduly fetter its discretion – the mere fact that the parties have entered into a settlement agreement confirming the distribution of the trustees does not override the legal duties imposed by section 37C.
