Death benefits: how greed may creep in
Understanding how trustees choose beneficiaries can go a long way in alleviating confusion
The Pension Fund Adjudicator has strongly condemned the conduct of a woman from Musina in Limpopo as greedy when she requested the trustees grant her the full payment of her life partner’s death benefit.
In addition to his life partner, the deceased was survived by his mother and four biological children.
The member had saved R1.6m and the trustees of his fund, PSQ Wealth Retirement Annuity Fund, distributed the benefit as follows: The life partner received 80%, the two children each received 5%, and 10% went to the mother. The other two children were left empty-handed.
The life partner argued that she was 57 and almost retired. She also argued that the two children who benefited were still young and employed and that her deceased partner’s mother had six children who all still supported her in various ways.
The woman further argued that the mother had been awarded R625,632 from another retirement annuity the member had with Discovery, while the two children each received R154,000, amounting to 5% apiece of the total R3m benefit. What she failed to declare was that she received 69% of the Discovery Retirement Annuity Fund.
“It is clear the complainant was not left destitute because of the death of the deceased … it demonstrates the greed of some dependents,” Pension Fund Adjudicator Muvhango Lukhaimane wrote in her 2017/2018 annual report.
Apart from the greed, the case has shone the spotlight on the important role of the board of trustees of a fund and how nominated beneficiaries cannot take it for granted that they are automatically entitled to a portion of the death benefit.
In her determination, Lukhaimane said it was the board’s responsibility when dealing with the payment of death benefits to conduct a thorough investigation to determine the beneficiaries, and then to “decide on an equitable distribution and finally to decide on the most appropriate mode of payment of the benefit payable”.
In terms of Section 37C of the Pension Funds Act which regulates the payments of death benefits, the board of trustees must:
- Identify dependents and those the deceased member has nominated to receive the benefits;
- Make the benefit allocations on an equitable basis; and
- Determine an appropriate mode of payment of the death benefit.
Section 37C also refers to a 12-month waiting period from the date of death and identifies three types of dependents:
- Legal dependents – there is a legal duty to support such a person (spouse, children);
- Factual dependents – where the deceased had no legal obligation to support these people but did so anyway;
- Future dependents – persons where if the deceased did not die, would have been supported (fiancé, elderly parents).
The office of the adjudicator says in the report: “In making their decision, trustees need to consider all relevant information and ignore irrelevant facts. Further, the trustees must not rigidly adhere to a policy or fetter their discretion in any other way.”
You cannot include your pension benefits in a will as they do not form part of an estate.Pension Fund Adjudicator Muvhango Lukhaimane
Lukhaimane told Money that a fund is not bound by the 12-month period. “What they [the board of trustees] need to do is carry out a proper, thorough and diligent investigation. If they complete it within 12 months, they can pay and if they need more than 12 months, they should take their time.
“The issue is that if a person complains and we find that there was an undue delay, then the fund must explain why they have taken a longer than necessary period to finalise the investigation. Due to multiple family units, family disputes, etc. funds often need a longer period to investigate. However, in some cases, especially where retirement annuities are concerned, funds often commence with the investigation quite late."
The Musina case highlights that the retirement annuity trustees mentioned that the deceased’s nomination, “read together with his will, conflicted with the complainant’s allegation that the deceased wanted her to have the annuities as they discussed before he passed away”.
So the question then arises: what can you do to minimise complications in the event of death? Lukhaimane emphasises that the fund has the discretion as to how to distribute the death benefit and therefore the more information they have the better.
“Where there’s a death benefit, even though it is just a guide to the fund, complete a nomination form that takes into consideration all your dependents, that is, those people that you are legally obliged to look after and those that you are actually looking after,” she said.
Lukhaimane also cautions that spouses who are no longer married but the parties are still supporting each other, must note that they may get nothing from a death benefit if they cannot prove that they were still being supported. “The mere existence of a marriage is also not enough,” she says.
Also note that you cannot include your pension benefits in a will as they do not form part of an estate, Lukhaimane warns.