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A pension fund must consider personal factors

09 December 2016 Muvhango Lukhaimane, PFA
Muvhango Lukhaimane, Pension Funds Adjudicator.

Muvhango Lukhaimane, Pension Funds Adjudicator.

A pension fund must take into account the personal circumstances of beneficiaries when distributing the proceeds of a death benefit, says Pension Funds Adjudicator, Muvhango Lukhaimane.

She said the board of a pension fund may not unduly fetter its discretion by following a rigid policy that takes no account of the personal circumstances of each beneficiary.

Her comments came in the wake of a complaint by A Marais against Sasol Pension Fund (first respondent) and Alexander Forbes Financial Services (Pty) Ltd (second respondent) over the allocation of a death benefit following the death of his father MJ Marais who was a member of the first respondent on 19 July 2015.

The deceased and his former spouse, Ms V Marias, were divorced on 10 May 2007.

Upon the death of the deceased, his fund credit in the amount of R2 958 348.14 was used to purchase his co-habiting partner, Ms Needham, a monthly pension in the amount of R14 581.90. The deceased’s insured portion (three times annual salary) was in the amount of R1 063 853.64. From the insured portion, an amount of R735 641.77 was used to pay the deceased’s former spouse in terms of the divorce order. From the balance in the amount of R328 211.87, an amount of R60 000 was paid to Ms Needham as an advanced payment. The remaining balance in the amount of R268 211.87 was allocated to the complainant and his sister in equal portions.

The complainant was aggrieved with the board’s decision to allocate a portion of the deceased’s death benefit to his co-habiting partner. He submitted that the deceased’s co-habiting partner was not financially dependent on him and, therefore, not entitled to a portion of the death benefit.

The deceased and Ms Needham entered into a cohabiting agreement which provided that each party would remain the owner of his/her own assets and would be responsible for his/her own liabilities.

The complainant submitted that the circumstances of the cohabitation and the financial dependency of Ms Needham were not considered by the board of the first respondent.

The first respondent submitted that its rules defined a qualifying spouse as a member’s legal spouse or partner. This included a union under customary law, union recognised as a marriage under any religion or a person who cohabited with the member and shared a reciprocal duty of support as if they were married.

Therefore, the board was of the view that Ms Needham qualified as a factual dependant and also a qualifying spouse. Further, Ms Needham’s financial needs were considered to be greater than those of the deceased’s children.

The first respondent said the complainant and Ms B Marias were both employed and were not financially dependent on the deceased. The board considered the financial position of each beneficiary and concluded that Ms Needham was financially worse off than the deceased’s children as she now had to pay for all the household expenses without the deceased’s contribution.

The first respondent submitted that the board considered the beneficiaries’ ages and future earning potential and concluded that the deceased’s children were significantly younger than Ms Needham. Moreover, they also had a greater future earning potential compared to her.

The board considered the fact that the deceased’s children were both his nominated beneficiaries. Although they were nominated beneficiaries, Ms Needham had a greater need than the children. As a result, a greater portion of the death benefit was allocated to her. The deceased’s children were allocated a portion of the death benefit as they were legal dependants and nominated to receive a portion of the death benefit.

In her determination, Ms Lukhaimane said although the deceased and Ms Needham were cohabiting, they entered into a cohabiting agreement which provided that each party had their own assets and liabilities and that no universal partnership existed between them. Therefore, the extent of dependency was non-existent beyond the provision of daily necessities, if at all.

“As such, Ms Needham was not worse off given the extent of her dependency on the deceased. The board misdirected itself by not pegging Ms Needham’s benefit to her actual financial dependency that she can prove, which based on the cohabitation agreement would significantly be lower than what was allocated to her (if at all).

“The deceased’s children were his nominated beneficiaries and not financially dependent on him. The board considered their ages and future earning potential and resolved to allocate them a portion of the death benefit.

“However, the deceased’s children were majors and his nominees. This is a case in point where a board has misdirected its investigation efforts and seeks to prejudice nominees by not limiting the extent of a beneficiary not nominated by the deceased to their actual loss of maintenance.” Ms Lukhaimane said.

She ordered the board to reconsider the allocation of the death benefit, bearing in mind the cohabitation agreement between the deceased and Ms Needham and her very limited financial dependency, if any, on the deceased.

“Just as a spouse married in community of property cannot rely on her marriage regime to claim 50% of a death benefit that must be allocated in terms of section 37C of the Act, a person in the position of Ms Needham cannot claim financial dependency beyond that which she has lost as it would be more than what she is lawfully entitled to.

“The decision of the board of the first respondent is hereby set aside. The first respondent is ordered investigate the allocation of the death benefit in respect of Ms Needham in terms of section 37C of the Act, considering the extent of her financial dependency in terms of the cohabitation agreement.

“The first respondent is ordered to proceed with the distribution of the death benefit, within two weeks from completing its investigation,” said Ms Lukhaimane.

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