Section 37C of the Pension Funds Act

April 1,2019

SECTION 37C OF THE PENSION FUNDS ACT

Section 37C of the Pension Funds Act 24 of 1956 (“the Act”) governs the distribution and payment of lump sum benefits payable on the death of a member of a pension fund, provident fund, pension and provident preservation fund and retirement annuity fund. These benefits are commonly known as “death benefits”. They do not form part of the assets in a deceased member’s estate. Instead, section 37C places a duty on the trustees of the fund to allocate and pay the benefit in a manner that it deems fair and equitable.

This duty requires that the trustees identify the dependants and nominated beneficiaries of the deceased member, effect an equitable distribution of the benefit amongst the said dependants and nominated beneficiaries, taking into account relevant factors. Even though the member usually completes a nomination form, such nomination is not binding on the trustees, as the benefit must be distributed strictly in accordance with section 37C. Section 37C overrides any other laws to the extent that these laws are contradictory to its provisions. In the court case, Makume v Cape Joint Retirement Fund [2007] JOL 19999 (C), the High Court found that a death benefit was not subject to the matrimonial property regime of the deceased member. The court held that the wording of section 37C leaves no room for an interpretation that half of the benefit accrues to the surviving spouse automatically by virtue of her marriage to the deceased being in community of property.

Section 37C caters for the following four scenarios – Where the deceased is survived by:

  1. Dependants only (no nominees) – sub-section (a)
  2. Nominees only (no dependants) – sub-section (b)
  3. Dependants and nominees – sub-section (bA)
  4. No dependants and no nominees – sub-section (c).

In terms of the Act, the following persons will be considered a dependant:

(a) a person in respect of whom the member is legally liable for maintenance

Persons falling into this category are referred to as legal dependants because the member was legally obliged to maintain these dependants financially. The most common examples of legal dependants are a minor child, an adult child who is still studying, a grandchild, parent or grandparent in need of support. A former spouse in receipt of maintenance in terms of a divorce order will also be considered a legal dependant for the purposes of this section.

(b) a person in respect to of whom the member is not legally liable for maintenance, if such person –

(i) was, in the opinion of the board, upon the death of the member in fact dependent of the

member for maintenance

Persons falling under this category are those who were in fact financially dependent on the deceased member at the time of his death in that they received some form of regular financial support from the member. Once-off payments are not sufficient to establish dependence. Any support that has a monetary value falls within the scope of financial support. This includes rent-free accommodation, groceries and assistance with medical expenses.

(ii) is the spouse of the member

Spouse includes a permanent life partner, spouse or civil union partner of a member in terms of the Marriages Act, the Civil Union Act or the Recognition of Customary Marriages Act.

(iii) is a child of the member, including a posthumous child, an adopted child or a child born out of wedlock

(c) a person in respect of whom the member would have become legally liable for maintenance had the member not died

This category refers to future dependants i.e. people that the member would have become legally liable to maintain had he not died. Examples of possible future dependents include elderly parents, a fiancée, and an applicant who has lodged an application for maintenance in terms of the Maintenance Act.

The board must establish if the member nominated any person to receive a portion of his benefit. While the Act does not define a nominee, it is clear that the nomination must be in writing and the nominated beneficiary must be a person who does not qualify as a dependant of the member.

A nomination must –

  1. specify who the nominated beneficiary is;
  2. be in writing;
  3. be communicated to the fund; and
  4. specify the portion of the benefit that is allocated to the nominee.

Where a member nominates a dependant to receive a portion of his death benefit, the trustees must treat that person as a dependant and not as a nominated beneficiary.

If there are dependants and nominees, the nominated beneficiary does not automatically qualify for a portion of the death benefit. The trustees have to take all relevant factors into consideration in deciding on the allocation between the dependants and the nominated beneficiaries.

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    I find that they are a caring company! They really go out of their way to give great service, like sending their consultants across the country to see clients to do their Wills. More important is when our client passed they appoint a caring case manager and will AGAIN go and see the families / beneficiaries to assist with explaining the process, completing forms and gathering info.

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