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PFA orders death benefit allocations to be set aside after sons complain

21 November 2013 Ms Muvhango Lukhaimane, PFA

The Pension Funds Adjudicator Ms Muvhango Lukhaimane has ruled that death benefit allocations be set aside in two separate matters that came before her and ordered that thorough investigations be carried out into the circumstances of all potential beneficiaries.

This follows complaints by the sons of the two deceased provident fund members that their financial dependency on their fathers had not been properly considered.

In the first matter, KC of Ga-Rankuwa brought the action against Retirement Online Provident Fund (first respondent) and Sanlam Life Insurance Limited (second respondent) over the distribution of a death benefit allocation of his father who passed away on 15 July 2011.

The deceased was employed by CBI Electric from 4 September 2003 until his death. A gross death benefit of R867 507, 32 became payable to his eligible dependants and beneficiaries by the first respondent in terms of Section 37C of the Pension Funds Act.

The deceased was survived by his wife Mrs MV and three children from a previous relationship, viz. KN (31 years), K (28 years) and the complainant (26 years). At the time of his death, the deceased was staying with his wife and stepson, PM, a grade 10 learner.

The deceased did not complete a nomination form. Thus the first respondent’s board resolved to allocate R694 005 of the benefit to the deceased’s wife, R112 776 to PM and R60 725 to the complainant. No death benefit was allocated to KN and K.

The complainant was dissatisfied with the percentage of the death benefit he received from the first respondent. He submitted that he forwarded all the relevant documents supporting his monthly allowance as provided to him by the deceased. However, he said, the board ignored his needs. He said he wanted money for grocery and school fees which he said he had not received since July 2011.

The complainant sought an order that the board should allocate 40% of the death benefit to him.

In its capacity as the administrator of the first respondent, the second respondent submitted that the investigations by the board of the first respondent revealed that the deceased was survived by his wife and three major children.

The board accordingly applied the basket of factors to be considered in the distribution of
death benefits. At the date of his death, the deceased was staying with his wife and a stepson.

The deceased and his wife were financially dependent on each other and shared all the
household expenses, including bond repayments towards two properties. The deceased
wife was 39 years old when he passed away.

Furthermore, the investigations revealed that the deceased was providing financial
support to PM and the complainant. The complainant was completing his final year
in mining engineering and he received a monthly amount of R2 500.00 from the deceased
to cover his study and living expenses.

The deceased’s two other children (KM and K) were working and were not financially dependent on the deceased. KM and K withdrew their claims and they were not considered by the board.

The board allocated seven percent of the death benefit to the complainant based on his age, dependency, and probability of future income as an engineer after completing his studies at the end of 2013.

In her determination, Ms Lukhaimane said the complainant submitted that he should be paid a benefit amounting to 40% of the death benefit. It needed to be determined whether or not the first respondent’s board had acted reasonably and equitably in allocating seven percent of the benefit to the complainant.

She said the payment of death benefits by a pension fund organisation was regulated by
Section 37C which gave the board discretion to be exercised fairly and reasonably insofar as the distribution of death benefits was concerned.

The main object of Section 37C was to ensure that those persons who were dependent on
the deceased during his lifetime, irrespective of whether or not the deceased was legally
required to maintain them, were not left destitute and without financial support after his
death.

Section 37C imposed three primary duties on the board when it embarked on the distribution
of a death benefit. They needed to first identify and trace all the dependents and nominated beneficiaries of the deceased. Secondly, the board must effect an equitable distribution of the death benefit, and finally the board must determine an appropriate mode of payment of the benefit.

Ms Lukhaimane said the board’s investigations revealed that the deceased left behind his
wife and her son. The deceased also had three children prior to his marriage to his wife.
Only one of his children received financial support from him. Although the remaining two
children submitted that they received financial support from him, they withdrew their claims for the death benefit. The board submitted that the deceased’s wife was 39 years old and employed.

However, the board did not disclose where she was employed and her salary.

"It is not clear which factors were taken into consideration by the board in allocating approximately seven percent of the death benefit to the complainant, 80% to the deceased’s wife and 13% to PM.

"The complainant is still studying and submitted that the death benefit awarded to him does
not take into account his reasonable maintenance needs given the extent of his dependency on the deceased.

"Therefore, the board of trustees fettered its discretion by not taking into account all the relevant factors in the distribution of the death benefit,” said Ms Lukhaimane.

In the second matter, the complainants, Mr AJ, Mr SJ and Mr JL, all major sons of the late Mr A who passed away on 27 February 2012, were unhappy with the distribution of benefits by OVK Aftreefonds Number 2 (first respondent) and ABSA Consultants & Actuaries (second respondent).

Following the death of the deceased, a death benefit in the amount of R1 282 833.80 became available for distribution to his dependants in accordance with the provisions of section 37C of the Pension Funds Act by the board of the first respondent. The deceased’s beneficiary nomination form dated 10 January 2012 reflected the following beneficiaries:

JF (surviving spouse) 60%
AJ (complainant and major son) 10%
SJ (complainant and major son) 10%
JL (complainant and major son) 10%
WC (minor son) 10%

The board of trustees of the first respondent identified the above persons to be considered for the death benefit.

However, the board decided to distribute the death benefit as follows:

 
WC (minor son)                             10% of the benefit
The three complainants                 R50 000 each of the benefit
Mrs JF (surviving spouse)             the balance of the benefit

The board made payment of the full benefit allocated to the minor son of the deceased and a portion of the benefit allocated to the surviving spouse.

The complainants objected to the above mentioned board’s proposed distribution and requested it to allocate 10% of the benefit to each complainant.

Following a meeting that to discuss the complainants’ financial dependency, the board advised them that should they fail to provide it with evidence of their financial dependency on the deceased, it will distribute the death benefit in the following manner: WC (minor son) - 10% and JF (surviving spouse) - 90%.

The complainants said that not a single motivation was advanced by the board as to why the surviving spouse had been awarded a greater benefit. They submitted that the deceased’s nomination form of January 2012 was proof that all the beneficiaries nominated were dependent on him until his death in February 2012.

They added that since no circumstances existed to deviate from the nomination by the deceased, a proper execution of the board’s discretion should have resulted in the board following the will of the deceased as expressed in his nomination form.

The complainants requested the Office of the Pension Funds Adjudicator to order that each complainant be awarded 10% of the benefit as intended by the deceased: alternatively to confirm that each one of them would receive R50 000.00 as per the initial decision of the board.

The second respondent in its capacity as the administrator of the first respondent said the board decided to validate its thought process and referred the matter to it to assist in its capacity as consultant to the first respondent.

It reviewed the case in totality to ensure that the decisions of the trustees were indeed correct. The board decided in the interim to revoke the original distribution decision taken on 28 November 2012 to avoid creating benefit expectations amongst some or all beneficiaries of payments.

The second respondent submitted that the information obtained from the deceased’s former spouse, the surviving spouse and minor son was at its disposal. It reviewed the information and was satisfied with what was presented. It then requested, on behalf of the board, that the complainants should also submit evidence of financial dependency, if applicable, through their legal representative.

The second respondent further submitted that given the fact that this information was not forthcoming, it then requested the complainants and their legal representative to attend a meeting during which the financial dependency of the complainants would be discussed.
The meeting was conducted and the complainants and their legal representative, the second respondent’s representative and the employer’s human resources manager were present.

The employer’s human resources manager was mandated by the board to investigate the financial dependency status of the complainants on its behalf. The discussions revealed that only one of the three complainants, viz. SJ, could potentially be financially dependent.

The human resources manager irrespectively requested all three complainants to provide the board with proof of financial dependency, should they be of the view that they were indeed financially dependent on the deceased.

The second respondent submitted further that it agreed with the employer’s human resources manager to inform the board that based on these discussions, no further payments should be made until such time as written proof quantifying the dependency status of the three complainants was obtained.

The board decided to withhold further benefit payments until the earliest of the date of delivery of such information or expiry of the 12-month period allowed in which to investigate death claims

This had subsequently been followed up on a number of occasions with the complainants’ legal representative, without success.

The second respondent submitted that the board still awaited proof of financial dependency regarding the complainants.

The current information at the disposal of the board indicated that the only financial dependents on the deceased were the surviving spouse and minor son.

Should no evidence of financial dependency be provided by the complainants prior to the expiry of the 12-month waiting period, the board would distribute the death benefit as follows: WC (minor son) - 10% and JF (surviving spouse) - 90%.

In her determination, Ms Lukhaimane said the board accepted that the complainants were nominees in terms of the beneficiary nomination form.

She said that in the present matter, equity required that the needs of all the deceased’s dependants must be considered with reference to all the relevant considerations that have to be taken into account by the board.

In circumstances where the needs of one beneficiary are far greater than the needs of other beneficiaries, the board would be acting reasonably in allocating a greater portion of the death benefit or even allocating the entire death benefit to one beneficiary provided all the above mentioned relevant considerations are taken into account.

"The board initially decided to distribute 10% to the minor son, R50 000.00 to each complainant and the balance to the surviving spouse.

"The complainants objected to this proposed distribution and requested the board to allocate 10% of the benefits to each one of them.

"The board subsequently revoked its earlier distribution decision. The board then requested the complainants to furnish evidence of financial dependency on the deceased, failing which, it will allocate 10% of the benefit to the minor son and 90% to the surviving spouse.

"The board has not provided this Tribunal with critical factors it took into account in awarding the greater portion of the death benefit to the surviving spouse. The board has also not explained what led to the change in its original decision.

"It appears that the board’s decision was made without these critical factors. It follows that the board did not conduct a proper investigation regarding the level of dependency, the age of the dependants, the wishes of the deceased, current financial affairs and future earning capacity of the dependants,” said Ms Lukhaimane.

In both matters, she found that the respective boards had fettered their discretion by not taking into account all the relevant factors in the distribution of the death benefit allocations.

In both cases, she ordered that the death benefit allocations be set aside.

The boards of the respective funds were ordered to conduct thorough investigations into the circumstances of all potential beneficiaries and all other relevant factors that must be taken into account when distributing a death benefit, and re-exercise their discretion in terms of the Act.
 
The funds were also ordered by Ms Lukhaimane to inform the complainants in both matters as well her of their decisions.

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