Your retirement fund trustees must apply their minds properly when distributing your pension benefits if you die before retirement, Deputy Pension Funds Adjudicator Muvhango Lukhaimane says.
In a determination in which she overturned a death benefit distribution, Lukhaimane found that the trustees of the Cape Retirement Fund had failed to establish the dependency of all the individuals to whom the benefits were paid, as well as the extent to which they were dependent on the deceased, which resulted in an inequitable distribution of the benefits of Ms T Sixaxeni, who died in March 2011.
Lukhaimane says the Pension Funds Act restricts a deceased fund member’s freedom of testation in relation to the benefits payable by the fund in the event of his or her death. This means that if you die before retirement, you cannot decide to whom your accrued pension fund benefits must be paid.
The guiding principle is that pension fund assets do not form part of your estate. It is a requirement that are they distributed in accordance with a statutory scheme that gives preference to the needs of your dependants over and above your choice of who should receive the benefits, Lukhaimane says.
The Pension Funds Act places a duty on a board of trustees to identify the beneficiaries of a deceased member. The Act also gives the board discretionary powers to decide the proportions in which the proceeds will be distributed and how they will be distributed, Lukhaimane says.
However, in exercising its discretionary powers, a board of trustees does not have complete freedom to do as it wishes.
“The board is required to give proper consideration to relevant factors and exclude irrelevant ones from consideration. The board of trustees 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,” Lukhaimane says.
When making an equitable distribution among the deceased’s dependants, Lukhaimane says the trustees must consider:
* The age of the dependants;
* The dependants’ relationship with the deceased fund member;
* The extent to which they depended on the fund member;
* The wishes of the deceased as stated on a beneficiary nomination form and/or a last will; and
* The financial circumstances of the dependants, including their future earning potential.
Sixaxeni’s mother complained to the deputy adjudicator that the trustees of the Cape Retirement Fund had not adhered to the beneficiaries whom her daughter had nominated and the amounts that they had been allocated.
A key issue was the allocation to Sixaxeni’s nieces and nephews.
Lukhaimane determined that the board of trustees:
* Committed errors in that the nieces and nephews’ financial dependence on the deceased was not established. The extent of the nieces and nephews’ dependence on the deceased was also not considered.
* Failed to consider the future earning capacities of the parents of the nieces and nephews, and the duty on these parents to maintain them. The fact that the parents were unemployed or had low incomes did not automatically mean that their children were dependent on their deceased aunt.
* Did not take into account the various state grants that the beneficiaries received.
* In awarding Sixaxeni’s 10-year-old child, who was in the care of her grandmother, a lower amount than the nieces and nephews, did not take into account that the child had only one parent, even though the father of the child was paying maintenance every month.
In failing to do the above, the board of trustees failed to effect an equitable distribution.
Lukhaimane ordered that:
* The allocation of higher amounts to Sixaxeni’s nieces and nephews be set aside; and
* The trustees reconsider, within six weeks of her determination, the allocation and distribution of Sixaxeni’s death benefit, with due regard to the factors mentioned in her determination, and, within eight weeks of her determination, submit their decision to her.