Although the beneficiary nomination form serves as a guide, retirement funds are required by law to check that the needs of a deceased member’s dependants are taken into account when distributing a death benefit, whether they are nominated beneficiaries or not. However, a nominee does not need to prove dependency to be allocated a portion of the benefit.
The benefit a retirement fund pays on the death of a member is made up of their accumulated retirement savings plus a life insurance payout if the member belonged to a group life scheme. Distribution of the money can be a headache for funds and is frequently a matter of contention among relatives of deceased members.
Complaints about death benefits made up 6.6% of the complaints handled by the office of the Pension Funds Adjudicator, Muvhango Lukhaimane, in its 2022/23 financial year, according to its annual report released last week.
This was the third most frequent complaint, behind complaints about withdrawal benefits (50.5%) and those pertaining to the non-payment of retirement fund contributions by employers (33.6%).
Two cases published in the annual report highlight the problems retirement funds face in distributing death benefits.
Two siblings versus nominated ex-fiancé
Mr A died leaving two siblings and a nominee. The nominee had been Mr A’s fiancée but their relationship had ended four years before Mr A’s death. Shortly before his death, Mr A had approached his human resources department to replace his ex-fiancée with his sister as a nominee, but his failing health had prevented him from completing the form.
Mr A had also, apparently, impregnated a woman many years previously and said he wished to contribute towards the child born from this relationship. However, the woman’s whereabouts were unknown.
The fund resolved that the death benefit should not be paid to allow a “reasonable time” for the unknown child to come forward. If the child did not come forward, the benefit should be shared equally between the two siblings, as they were more likely to be dependent on Mr A than his ex-fiancé.
The ex-fiancé contested the decision, arguing that the benefit was rightfully hers, as she was the sole nominee.
Among other things, the adjudicator held that:
• The fund had conducted a substantial investigation into the whereabouts of the alleged minor child and mother and could not trace them.
• Even if the minor child existed, there was no dependency on the deceased.
• It was not clear what the fund meant by allowing a “reasonable time” to lapse, but the fund should adhere to the 12 months referred to in the Pension Funds Act.
• In order for the siblings to qualify as dependants, they had to satisfy the conditions under which Mr A would have become legally liable for their maintenance. Two factors must be present: a sibling must be indigent and must be unable to claim maintenance from their parents or children. These required further investigation by the fund.
• In respect of the ex-fiancée, the fact that she was a nominee did not necessarily mean that she should receive a portion.
• If it was shown that the siblings were dependants, then there would have to be an equitable distribution between the siblings and the nominee.
Life partner versus nominated ex-spouse
The complainant, the ex-wife of the deceased member, Mr B, claimed that during their marriage her husband was financially irresponsible and that she had taken out a retirement annuity policy in his name, paid the contributions and made it paid up before their divorce.
She said that in their divorce settlement, they had agreed that if Mr B predeceased her, the benefit would be paid to her. She claimed that since she paid for the policy, was the nominee on the policy, was named in his will and was recorded in the divorce settlement as a beneficiary, she should have been awarded the death benefit.
Mr B had a life partner with whom he had been in a relationship for 18 months before his death. They were engaged to be married.
On making the distribution decision, the retirement fund submitted that, although Mr B had been married to the complainant for 21 years, she was not financially dependent on him at the time of his death, nor was there a maintenance order in her favour following their divorce. Mr B’s children had submitted affidavits stating that they were not financially dependent on him.
On the other hand, Mr B’s partner had shared a household with him and they shared expenses. As such, she fell within the definition of “spouse” as a permanent life partner.
Based on certain assumptions, the life partner’s dependency on Mr B was calculated by the fund to be R657 094. Considering that the amount available for distribution was only R91 761, the fund allocated 100% of the benefit to the life partner.
The adjudicator held that:
• The permanent life partner qualified as such and the period of their relationship did not matter. She was entitled to be considered for an allocation.
• The board was not bound by a will or a nomination form completed by the deceased. The form served merely as a guide to assist the board to exercise its discretion.
• Considering that the complainant and her children were majors who were not dependent on Mr B at the time of his death and that the permanent life partner shared household expenses with him, the board did not act irrationally in allocating 100% of the benefit to the life partner.
The complaint was dismissed.
PERSONAL FINANCE