Does Your Pension Form Part Of Your Deceased Estate When You Pass Away?

  1. Section 37C of the Pension Funds Act 1956 (“the Act”) states that any benefit payable by a pension or provident fund (“the Fund”) upon the death of a member, shall not form part of the assets in the estate of that member. Instead, the Fund receives applications for death benefits from dependants of the member and/or traces dependants of the member and will be required within twelve months of the death of the member to pay such benefit to the proven dependants. Section 37C goes further and affords the Fund the power to make payment to one of the dependants, or in proportions to some/all of the dependants as may be deemed equitable by the Fund.
  2. In short, what this means is that pension fund proceeds do not form part of a deceased’s estate and will not be distributed as stated in a last will and testament of the deceased, unless after the passing of twelve months the Fund has failed to identify any dependants of the deceased and there were no beneficiaries nominated, in which event the funds will be paid directly into the deceased’s estate. Furthermore, even in cases where the deceased has nominated a beneficiary, the trustees of the Fund will use this as a guideline only and will still have the final say on who receives the pension benefits of the deceased.
  3. In the recent decision by the South Gauteng High Court, in Swart N.O and Others v Lukhaimane N.O and Others [2021] ZAGPPHC 124, the broad powers of the trustees of the pension fund were highlighted.
  • The deceased nominated his wife (“the Respondent”) and a trust (of which his two major sons (“the Applicants”) were the beneficiaries) in equal shares as the nominated beneficiaries of his pension benefits. The Fund, using the powers conferred to it in terms of Section 37C of the Act, awarded 100% of the deceased’s pension benefits to the Respondent. The Fund justified its decision stating that the Respondent, as a dependant, was unemployed while the Applicants were employed, and furthermore, the Applicants, as well as the Respondent, had received payments from the life insurance policies that the deceased had. The Fund had concluded that the payment received by the Applicants had met their maintenance requirements.
  • The Applicants approached the Pension Funds Adjudicator (PFA) to have the decision of the Fund set aside. The PFA, after investigating the decision of the Fund, concluded that the Fund had not conducted a proper investigation in terms of Section 37C of the Act. Consequently, the PFA found that the Fund had unduly fettered its discretion. The PFA made specific reference to the fact that the Fund failed to properly investigate the matter, more specifically the fact that the Respondent had remarried, had submitted a R10 million claim against the estate for maintenance, and was employed. The Fund further failed to investigate the financial position of the trust, as well as the maintenance requirements of the Applicants and Respondent. The matter was referred back to the Fund for reconsideration. The Fund, after having investigated the facts of the matter in more detail, made exactly the same decision as before and awarded 100% of the deceased’s pension benefits to the Respondent.
  • The Applicants then approached the High Court. The Applicants sought a decision setting aside the decision of the Fund in terms of Section 8(1)(c)(ii)(aa) of the Promotion of Administrative Justice Act, and that it be substituted by an order that 50% of the pension benefit must be awarded to the trust. The Court stated that this relief can only be awarded in exceptional circumstances, as the normal practice when setting aside the decision of an administrator of a Fund is to send the matter back to the administrator for reconsideration. The Court ruled that it is not in a position to substitute the decision of the Fund, and the Court rather decided to order the Fund to fully investigate the matter and review its own decision. The Fund specifically had to investigate the parties’ actual maintenance requirements, the solvency of the trust and whether the trust is able to cover the maintenance requirements of the Applicants, together with the actual maintenance requirements of the Respondent taking into consideration her state of employment, remarriage and the fact that she had received R4.3 million from the deceased’s estate.
  1. Considering the above, it can be seen that the powers conferred onto a Fund in terms of Section 37C of the Act to allocate the pension benefits of a deceased to the dependants of the deceased cannot, except in exceptional circumstances, be altered by the Pension Funds Adjudicator or by a Court, as the Court only has the power to set aside the decision of the Fund and order the Fund to re-evaluate its decision. Section 37C of the Act overrides the freedom of testation, as even in cases where the deceased nominated the beneficiaries of his pension benefits, the decision still lies with the Fund.

The content of this article is to provide general guidance and understanding on the subject matter and should not be construed as providing full legal advice on the topic. Detailed specialist advice should be sought for specific situations.

 

Anica Theunissen                                                       Dylan Roothman

BCom; LLB; LLM (Estate Planning)                              LLB

Director                                                                        Candidate Attorney

Fiduciary and Commercial Law                          E-mail: ca8@sstlaw.co.za 

E-mail: Anica@sstlaw.co.za                                  Phone: 012 361 9823

Phone: 012 361 9823