Permanent life partners – can you claim fund death benefits when your partner dies?

Lize de la Harpe, Legal Adviser: Glacier by Sanlam

Introduction 

In a previous edition we discussed domestic partnerships in the context of intestate succession and the Maintenance of Surviving Spouses Act No. 27 of 1990. In this edition we will focus on whether or not a permanent life partner will be able to claim from his/her partner’s death benefits payable in terms of section 37C of the Pension Funds Act No. 24 of 1956. 

Background 

Before going any further, let’s just clarify exactly what we are discussing here: when referring to a domestic partnership/life partners, I am referring to a couple (hetero- or homosexual) who are not spouses to a religious marriage and who have not formalised their relationship in terms of any act (i.e. Marriage Act, Civil Union Act or Recognition of Customary Marriages Act). In short – couples who choose not to marry. 

Many people think that in our law there is some kind of time period after which you will be legally treated as a “spouse”. That is incorrect. There is no such thing as a "common law marriage" in South African law. No matter how long you’ve lived together, your “relationship” will never (legally) convert into any kind of marriage. Although our courts have (in very specific instances) recognised that certain reciprocal duties flow from domestic partnerships - this is not a given.  

Section 37C of the Pension Funds Act 

When a member of a retirement fund dies before reaching retirement age (and if the rules of the particular fund permit) the lump sum benefit which becomes payable (hereinafter referred to as the “death benefit”) must be paid to the member’s dependants and/or nominees. Section 37C of the Pension Funds Act 24 of 1956 (“the Act”) regulates the payment of death benefits. 

Section 37C gives the Board of Trustees discretion, to be exercised fairly and reasonably, insofar as the distribution of death benefits is concerned. The board may not unduly fetter its discretion by following a rigid policy that takes no account of the personal circumstances of each beneficiary and of the prevailing situation. 

Furthermore, section 37C restricts the deceased member’s freedom of testation in relation to the death benefits - such assets do not form part of the deceased’s estate and are required to be distributed in accordance with this section of the Act which gives preference to need and dependency above member’s choice. 

In essence, section 37C imposes three duties on the Board of Trustees, namely to: 

1.  Identify and trace “dependants” (as defined in section 1 of the Act) and those persons, if any, who have been nominated by the deceased member;
2.  Make benefit allocations on a fair and equitable basis; and lastly
3.  Determine an appropriate mode of payment of the death benefit. 

Identifying “dependants” 

There is a duty on the Board to conduct a proper investigation to determine all the “dependants” of the deceased member.  What this means is that the trustees cannot merely follow the beneficiary nomination made by the member during his/her lifetime – the Board must establish who the persons are that fall within the ambit of “dependant” as defined in the Act. 

Section 1 of the Act defines three categories of “dependants”, namely legal dependants, de facto dependants and future dependants: 

1.   Legal dependants – include dependants in respect of whom the member owed a legal duty to support, such as a spouse and children. In order to fall within the ambit of this category one would have to prove that the deceased was legally obligated (i.e. in terms of legislation, common law or a legal obligation) to maintain you; 

2.  De facto (factual) dependants - those persons to whom the deceased owed no legal duty of financial support but who nevertheless depended on him financially. This would include a spouse in respect of whom the marriage or union is not recognised by any law or a financially independent major child. In order to fall within the ambit of this category one would have to prove that the deceased financially maintained you despite not having any legal obligation to do so; and 

3.   Future dependants – these persons whom the deceased did not financially maintain at the point of his death, but whom he would have maintained in future had he not died. This would typically include elderly parents or a fiancé. In order to fall within the ambit of this category one would have to prove that the deceased would have become liable to maintain you had he not died. 

What about permanent life partners? 

Let’s assume that your partner dies unexpectedly.  This can be quite a conundrum if you were financially dependent on one another – since you are now left with all the household expenses (as an example) entirely on your own. This begs the question - does a permanent life partner qualify as a “dependant” in terms of Section 1 of the Act? In short, the answer is yes. But let’s go into more detail. 

Section 1 of the Act reads as follows: 

“dependant”, in relation to a member, means – 

a)     a person in respect of whom the member is legally liable for maintenance; 

b)     a person in respect of whom the member is not legally liable for maintenance, if such person- 

i)     was, in the opinion of the board, upon the death of the member in fact dependent on the member for maintenance; 

ii)    is the spouse of the member; 

iii)   is a child of the member, including a posthumous child, an adopted child and a child born out of wedlock; 

c)     a person in respect of whom the member would have become legally liable for maintenance, had the member not died.

The definition of “spouse” in section 1 of the Act was changed by the Pension Funds Amendment Act No. 11 of 2007 (which came into effect on 13 September 2007). It now reads as follows: 

“spouse” means a person who is the permanent life partner or spouse or civil union partner of a member in accordance with the Marriage Act, 1961 (Act No. 68 of 1961), the Recognition of Customary Marriages Act, 1998 (Act No.68 of 1997) or the Civil Union Act, 2006 (Act No. 17 of 2006), or the tenets of a religion;” 

It is thus clear from the above that permanent life partners do qualify as dependants in terms of section 1(b)(ii) of the Act. This of course does not mean you will automatically receive any part of the death benefit - the fact that someone falls within the definition of “dependant” only entitles him/her to be considered by the Board when making the benefit allocation decision. Once the Board has identified all the dependants, the next stage of the enquiry will be to examine the needs of each dependant so that it can make an equitable distribution amongst them. In doing so, it will consider all the relevant facts (to the exclusion of irrelevant facts) and factors such as: 

1.      The age of the parties;
2.      The relationship with the deceased;
3.      The extent of dependency;
4.      The wishes of the deceased placed either in the nomination forms completed during his lifetime and/or his/her last will; and
5.      The financial affairs of the dependants including their future earning potential.

Once the trustees have established the needs of each identified dependant they will distribute the death benefit according to the level of dependency of each dependant. 

In the matter of Whitcombe v Momentum Provident Preservation Fund and another 2016] 2 BPLR 290 (PFA) the complainant's father was a member of the first respondent pension fund at the time of his death inOctober 2014. Upon his death, a death benefit in the amount of R6 828 086 became available for distribution. The major portion of the death benefit was allocated to the life partner of the deceased, the second largest share was allocated to the deceased's daughter, and the complainant and another son of the deceased received equal amounts. 

Objecting to the distribution of the death benefit, the complainant referred to his father having discussed his will before his death, and indicating that his assets should be equally distributed amongst his children in the event that he passed away.  Alleging that the Board of the fund had not properly verified information provided to it, the complainant sought to have the distribution of the death benefit set aside. 

At paragraph 5.8 the Adjudicator held as follows: 

“On the evidence, there appears to be no doubt that the deceased and Ms Pollock lived together and shared a household and had an emotional and intimate bond. ….. In this regard, this Tribunal is convinced that the board of the first respondent acted correctly in identifying and considering Ms Pollock as a permanent life partner of the deceased who qualifies as a legal dependant of the deceased and eventually allocating a share of the death benefit to her. Therefore, Ms Pollock was correctly identified as a spouse for the purposes of section 37C of the Act. In this circumstance, the complainant’s view that Ms Pollock should not have been considered or at least receive a smaller portion of the death benefit, is misplaced.”

(my emphasis)

More importantly, at paragraph 5.15, the Adjudicator held: 

“The very purpose of section 37C of the Act is to prioritise need and dependency in the distribution of death benefits. Even though Ms Pollock was not mentioned as a beneficiary in the deceased’s will, as indicated above, she was the deceased’s dependant by virtue of being his life partner. However, a death benefit payable to Ms Pollock was limited to the extent of her provable dependency. Therefore, where the board conducted an investigation and determined her extent of dependency, any gratuitous payment made to her on top of what had been determined to be the extent of her dependency on the deceased, which had the effect of reducing the initial allocations made to the deceased’s children who were mentioned in the will, is unreasonable and an improper exercise of a discretion vested in the board. Thus, once Ms Pollock’s financial needs had been established and determined, the only plausible and rational decision for the board to take was to allocate the remaining benefit to the deceased’s children. This is more so as the converse would have been applicable. Had Ms Pollock’s provable dependency exceeded the amount available, the board would have been within its rights to allocate the entire amount to her. It is imperative therefore that where there are other beneficiaries, dependency be limited to provable expenses and not gratuitous payments”. 

Take note of the word “permanent” 

The use of the word “permanent” in the definition of “spouse” in the Act clearly depicts that the legislature intended that parties have an element of permanency to their relationship. The onus of proving permanency will be on the person claiming to be a dependant and will be measured on the facts of the case, not only the duration of the relationship. It will also not be enough to simply allege permanency in an affidavit – one would have to prove dependency. 

In Hlathi v University of Fort Hare Retirement Fund [reported at [2009] 1 BPLR 37 (PFA) it was held that a cohabitant qualifies as a factual* dependant as long as it can be established that he/she and the deceased were in a permanent relationship of mutual dependency or inter-dependency and that they shared a common household. (*it’s important to remember that in this matter the deceased died before the amendment of the definition of “spouse” as discussed above, which as of September 2007 includes permanent life partners). 

In the matter of Makume v Sentinel Mining Industry Retirement Fund [2014] 2 BPLR 244 (PFA) the complainant’s brother was a member of the respondent pension fund until the date of his death in June 2008. In 2007, the deceased had completed a nomination form in terms of which he nominated his mother as the sole beneficiary of his death benefit. The complainant was nominated as an alternative nominee. Although unmarried, the complainant lived with his girlfriend, as well as her child from a previous relationship. Upon his death, the fund’s trustees conducted an investigation regarding the circle of beneficiaries, and identified the deceased’s girlfriend and their child as dependants of the deceased. Accordingly, 60% of the benefit was allocated to the girlfriend, and 20% each was allocated to the deceased’s son, and the complainant. The complaint related to the inclusion of the deceased’s girlfriend and their son in the distribution of the death benefit. She contended that the girlfriend was only the partner of the deceased for a short time, and that the deceased had no legal duty to support the child as he was not his biological child. The issue for determination is whether or not the Board of Trustees of the respondent exercised its discretion properly in the distribution of the death benefit. 

At paragraph 5.6 the Adjudicator held as follows: 

“The issue of dependency in section 37C of the Act is not based on marriage or biological relationship. The purpose of the section is to ensure that those persons who were dependent on the deceased are not left destitute by his death. The respondent has established that Ms Misapitso and Clinton Misapitso were factually dependent on the deceased. Therefore, this Tribunal is satisfied that the board of trustees correctly allocated 60% and 20% of the death benefit to Ms Misapitso and her son.” 

Don’t forget the importance of the rules of the fund 

It’s important to remember that a benefit payable as a pension to the spouse (in other words, benefits other than death benefits as referred to above) is treated differently. Section 37C(1) of the Act reads: 

(1)    Notwithstanding anything to the contrary contained in any law or in the rules of a registered fund, any benefit (other than a benefit payable as a pension to the spouse or child of the member in terms of the rules of a registered fund, which must be dealt with in terms of such rules) payable by such a fund upon the death of a member, shall, subject to a pledge in accordance with section 19 (5) (b) (i) and subject to the provisions of sections 37A (3) and 37D, not form part of the assets in the estate of such a member, but shall be dealt with in the following manner:…” 

In the matter of Paxton v Sentinel Mining Industry Retirement Fund and another [2014] 2 BPLR 290 (PFA) the complainant alleged that he had been in a relationship with a member of the first respondent pension fund at the time of her death. A spouse’s pension and a death benefit became payable following the deceased’s death, and the fund’s board of trustees resolved that the complainant did not qualify for a spouse’s pension in terms of the fund’s rules. Deciding further that he did not qualify to receive a death benefit as a factual dependant of the deceased, the fund allocated the full amount of the death benefit to the second respondent, who was the deceased’s brother and a nominee of her death benefit. 

The fund’s rules provided for payment of a spouse’s pension or a death benefit upon the death of a member. However, in order to qualify for a spouse’s pension, the claimant had to fall within the definition of a “spouse” as defined in the fund rules. In terms of the definition of a “spouse”, the complainant could qualify as the deceased’s life partner and a spouse for the purposes of a spouse’s pension and a death benefit. However, the trustees had the power to determine whether or not the complainant could be regarded as the deceased’s spouse having regard to whether there was cohabitation and other factors which they, in their sole discretion, regarded as being relevant. The trustees also had the power to determine whether or not the complainant qualified as a dependant of the deceased in terms of section 37C of the Act read together with the definition of a “dependant” in section 1 of the Act. 

The crux of this complaint thus lay in the definition of a “spouse” in terms of the rules of the fund in question which stated that the member must have notified the fund of the existence of such a spouse prior to the date upon which a death benefit became due, unless the trustees, in their sole discretion, decided that such notification is not necessary in the particular circumstances. The trustees alleged that the deceased had not notified them that she had been cohabiting with the complainant. The deceased’s family members also disputed the existence of any relationship between the deceased and the complainant, which would qualify him for a spouse’s pension. Based on that evidence, the Adjudicator was satisfied that the complainant was not eligible for a spouse’s pension from the fund in terms of its rules.

(my emphasis) 

Conclusion 

As stated above, the payment of death benefits is regulated by section 37C of the Act read in conjunction with the definition of a dependant in section 1. The objective of this section is to ensure that those persons who were dependent on the deceased member are not left destitute after his/her death, irrespective of whether or not the deceased was legally required to maintain them. 

It is extremely important to keep in mind that the fact that one qualifies as a “dependant” will not automatically entitle you to a portion/all of the death benefit - the fact that someone falls within the definition of “dependant” only entitles him/her to be considered by the Board when making the benefit allocation decision. 

Having regard to the above case law, it’s advisable for a member to make sure their fund is kept informed of the existence of a permanent life partner, thereby assisting the trustees with identifying dependants.