South Africa: Retirement Fund Benefits Cannot Be Bequeathed

The Pension Funds Act, 1956 ("the Act") provides that a benefit payable by a retirement fund on the death of a member does not form part of the deceased estate of that member and accordingly, cannot be disposed of in terms of a will. Instead, such benefits must be dealt with in the manner set out in the Act, which, on occasion, may lead to benefits being disposed of in a way never envisaged by the member.

Benefits upon the death of a member of a retirement fund are paid in the following manner:

• Where the retirement fund becomes aware of a dependant or dependants within 12 months of the member's death, to that dependant or proportionately to such dependants;
• Where the retirement fund does not become aware of any dependants within the 12 month period, and the deceased has nominated a nominee, to that nominee. However, where the deceased's estate is insolvent, before a nominee receives any benefit, an amount equal to the difference between the deceased estate's total liabilities and total assets is paid into the estate;
• Where the deceased member has both dependants and nominees (so designated after 30 June 1989), the board of trustees decides who receives the benefit and in which proportions;
• Where there is no nominee and no dependant can be traced, the benefit is either paid into the deceased estate or to the Guardians Fund.

"Dependant" is defined in the Act and in practice will include the following persons: a parent, sibling, child, grandparent, and grandchild. Moreover, a partner in a same sex union as well as a member's girlfriend or mistress (even where the member is still married) will also be categorised as dependants if the member was in fact supporting such persons prior to this death. The Pension Funds Adjudicator has recently confirmed the decision of an administrator of a pension fund who considered that a deceased member's girlfriend was more dependant on him than his ex-wife and equally dependant on him as his children from his marriage and awarded the benefits from the fund to the member's girlfriend and children, while the member's ex-wife received no benefit. "Dependant" also includes a party to a customary union under Black law and custom as well as a union recognised as a marriage under the tenets of any Asiatic religion. A posthumous, adoptive child and illegitimate child also fall within the category of "dependant".

A member of a retirement fund may nominate a beneficiary or beneficiaries in the event of his death. However, where the member nominates a beneficiary and has dependants, the trustees of the retirement fund are not bound by the beneficiary nominations and are therefore not obliged to pay out benefits in accordance therewith. Instead, the trustees have a discretion to make an equitable distribution of benefits. Accordingly, the effect of the nomination of a beneficiary by a member is essentially to raise the nominee to the level of dependant so that his claim must be considered by the trustees together with those of the dependants of the member. A nominee, however, will not necessarily receive the benefit for which he was nominated.

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The material contained in this article is provided for general information purposes only and does not constitute legal or other professional advice. We accept no responsibility for any loss or damage, which may arise from reliance on information contained in this article.

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