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PFA: Beneficiaries do not qualify for insured death payouts after retirement age

21 October 2011 Pension Funds Adjudicator
Dr Elmarie de la Rey

Dr Elmarie de la Rey

In two similar matters that have come before the Pension Funds Adjudicator, beneficiaries have failed in their attempts to get retirement funds to pay insured death benefits as the rules precluded such payment when a member died after retirement date.

In the first complaint, the three children of a deceased man have failed in their effort to get a retirement fund to pay a lump sum insured death benefit of nearly R2-million.

Dr Elmarie de la Rey, the acting Pension Funds Adjudicator, found that the rules of the fund did not provide for such payment when a member died after the normal retirement date.

G J Sadie had been employed by Somta Tools (Pty) Ltd since 8 February 1984. He was a member of Alexander Forbes Retirement Fund (first respondent), administered by Alexander Forbes Financial Services (Pty) Ltd (second respondent).

After he reached the normal retirement age of 65 years in September 2008, he continued

working for the company and was a member of the first respondent until he passed away on 26 April 2010.

His three children Mrs Angela Lagan, Mrs B Bossert and Mr CG Sadie (complainants)

were beneficiaries of his death benefit totalling R1 359 417.32 and this amount was equally distributed, with each child receiving R 452 685.97.

However, the children were unhappy with the payment received. They submitted in their

complaint that a benefit statement dated 31 March 2010 reflected the deceased’s current fund

contributions as R1 342 859.34 and his current life cover as R1954 859.34.

They stated the first respondent paid them only the deceased’s fund credit. The

complainants submitted that since the deceased passed away while still employed, the death

benefit pay out should also include the lump sum insured death benefit.

The second respondent submitted that in terms of the special rules applicable to the employer, both the member and employer made contributions to the fund. These contributions were allocated towards an insured death benefit, an insured disability benefit, fund expenses and the balance was applied towards retirement funding.

The deceased reached the normal retirement age of 65 years in September 2008 and was no longer eligible for cover under the insured benefit policies from that date. Accordingly the contributions made to the fund were applied towards fund expenses and retirement funding only.

Further, Amendment No. 2 to the special rules became effective on 1 October 2009, and special rule 14 provided that the death benefit payable in respect of a member who died after reaching normal retirement date was only the fund credit.

Therefore, no insured death benefit was due to the deceased’s beneficiaries. The fund credit plus the insured portion were only payable in the event that a member died on or before the normal retirement date in terms of rule 13 of the special rules.

In her determination, Dr De la Rey said Section 13 of the Act provides that the registered rules of a fund are binding on the fund. The fund may only pay out to its members those benefits provided for in its rules.

In the case in question, payment of the insured death benefit was restricted to members who

died before attaining the normal retirement age of 65 years.

Since the deceased had passed the age of 65 years at the time of his death, his beneficiaries

were not entitled to payment of the insured death benefit,” Dr De la Rey said, whilst

dismissing the complaint.

In the second similar complaint, EC Haasnoot (complainant) said Fundsatwork Umbrella Provident Fund (first respondent) and Momentum Group Ltd (second respondent) had not paid her the risk portion of the death benefit after her husband had passed away.

JP Haasnoot was employed by Premier Fishing SA (Pty) Ltd until 28 July 2009. He was a member of the first respondent. When he passed away on 28 July 2009, he was still employed and a member of the first respondent.

The complainant said she was paid a lump sum death benefit of R172 935.62 which comprised only the deceased’s fund credit.

The complainant requested the respondents to also pay out the risk portion of the death benefit to her because the deceased died while still in service. However, the respondents refused.

The complainant said the deceased fell in the category of late retirement since he was fully employed by the employer at the time of his death. Since the deceased died while in service, the death benefit payable to his beneficiaries should be his retirement savings plus group life insurance cover.

The second respondent submitted that in terms of the special rules, normal retirement age was defined as 64 years. The deceased remained in service after the normal retirement age and hence, in terms of general rule 10.1.2.1, he was within the late retirement provisions.

The employer had agreed that the deceased would remain in service until 31 August 2009 at which point his service would be terminated on the basis of a late retirement. On 28 July 2009 the deceased passed away and a lump sum death benefit became available for distribution

The second respondent states that rule 10.4 regulated the payment of a death benefit. The deceased retirement savings account amounted to R179 894.54.

In terms of rule 10.4.2 the deceased may have been entitled to a risk insurance benefit provided that he died before the last day of the month in which he attained his insurance benefits age, and in terms of the special rules, this date was defined as 64 years.

As the deceased had passed this age at the time of his death, his beneficiaries were accordingly not entitled to the risk portion of the death benefit.

In dismissing this complaint, Dr De la Rey found that the cessation age of the

insurance benefit was defined in the rules of the first respondent as the age specified

as such in the special rules in respect of death benefits or disability benefits.

In turn, the special rules defined risk benefit termination age as 64 years. Thus the first

respondent was only obliged to pay the insured portion if the deceased died before the last

day of the month in which he attained his insurance risk benefit age of 64 years, i.e. before 28

February 2009.

He passed away on 28 July 2009. Thus, he had passed the age of 64 years at the time of his

death and his beneficiaries were not entitled to the risk portion of the death benefit..

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