You cannot dictate who should get any death benefits that are paid out by your retirement fund when you die. Rather, the trustees of your fund have a duty to allocate your death benefits to your dependants based on their levels of dependency.
In his latest annual report, John Murphy, the Pension Funds Adjudicator, says the section in the Pension Funds Act that deals with the payout of death benefits is defective. The section poses real financial risks to trustees, who are compelled to make difficult decisions that even a skilled judge would hesitate to make.
In one case, the SA Druggists Provident Fund divided a member's death benefit of R430 000 between his son (R100 000), his former wife (R65 000) and his girlfriend (R265 000). The son, who suffered from cerebral palsy and epilepsy, lived in a state institution.
The ex-wife - the boy's mother - complained to Murphy, saying R100 000 was inadequate to provide for her son's basic needs. Murphy also took issue with the amounts that were distributed by the fund.
He says that by relying on the deceased's view of his son's dependency, the board of trustees failed to exercise its discretion properly.
The fund said it took account of the fact that the former wife shared the duty of supporting their son with the deceased member, and speculated that the purpose of the 20 percent distribution to the ex-wife was to provide for her on-going obligations towards the son.
The fund made the 20 percent distribution with full knowledge of the son's medical condition and, according to the trustees of the fund, reflected the member's view of the extent of his son's dependency on him.
But, Murphy says, the deceased's view was irrelevant because it was the duty of the board to determine the needs of the dependants.
The fund also claimed that too-generous an award to the son would jeopardise the disability pension he received from the government. Murphy says the board misdirected itself on this point.
It is socially desirable that the fund should try to reduce the son's dependence on the state, and this should have been a reason for awarding a greater portion of the benefit to him.
Murphy was also dissatisfied with the distribution to the girlfriend, saying the board had not investigated her circumstances thoroughly.
The fund provided very little information about the girlfriend, to whom it had distributed the bulk of the benefit. It appeared that she was a successful business woman who ran her own travel agency, and that she no longer lived with the member at the time of his death.
The only evidence the board relied on to conclude that the girlfriend was a dependant was that she was dependent on his medical aid.
According to the former wife, however, the girlfriend was on the deceased's medical aid only because her business did not provide such a benefit. Murphy says it does not follow that she was unable to afford her own medical aid.
Murphy says the board relied too heavily on how the deceased member wanted his benefits distributed. While his nomination of how the benefits should be distributed are relevant, it is normally secondary to the issue of dependency.
This is precisely the reason for the particular section in the Pension Funds Act, otherwise members would be free to dispose of their benefits in terms of their wills.
For these reasons, Murphy found that the board failed to exercise its powers properly and he set aside the board's decision because it amounted to maladministration which caused prejudice to the son.