Your retirement fund must ensure that death benefits are distributed to minor children in the most appropriate manner.
John Murphy, the Pension Funds Adjudicator, has found that a pension fund's payment of such benefits into a trust was unlawful.
The South African Commercial, Catering and Allied Workers' Union (SACCAWU) had placed about R63 000 worth of benefits, due to four dependents of a deceased member of the fund, into a trust. Each child was allocated about R16 000.
Murphy's decision to overturn this move, highlights the importance of pension fund trustees carefully considering all available options before outsourcing the payment of a benefit to a trust company.
Murphy made an interim ruling in June and then gave the fund time to consider an appropriate, alternative method of making payments to the children.
An alternative allowed under the law is for a fund to hold the benefit in its own portfolios and pay it out to the beneficiaries in instalments.
The fund's response to Murphy's interim ruling was, among other things, that the fund lacked the capability and accounting facilities to administer the funds as part of the provident fund.
"The fact that the fund does not have the necessary accounting structures and administrative arrangements to pay a benefit in terms of the Pension Funds Act does not in law provide a ground to deny a beneficiary this mode of payment," Murphy says.
Naleen Jeram, the assistant adjudicator who investigated the complaint, says the law imposes various duties on pension fund trustees, and by choosing this expensive way of paying the children, the trustees were not acting in their best interests and were in breach of their duties. It was not right that the children should carry the costs of the trust administration. Within the fund, such expenses could have been paid out of the employer's contribution as the fund's rules allow.
Interim order confirmed
After hearing the fund's arguments, Murphy has decided that his interim ruling is still valid, and that the trustee's unlawful decision to place the minors' benefits in a trust, should be set aside.
He ordered the fund to open an account or portfolio for the full benefit allocated to each child, including interest. The fund has also been instructed to make payments to the mother and guardian of the children, for their use, within four weeks of the determination.
The children's mother, and wife of the deceased member, had complained to the adjudicator that the money due to her children should have been paid to her as thier guardian. However, she was not financially competent to handle money on the children's behalf.
In this case, Murphy came to the conclusion that the expenses charged by the trust company in relation to the capital amount in this case outweighed the advantages of placing the benefits with a trust company. It was found that the fees levied by Syfrets Trust, which managed the money on behalf of the dependents, included:
- A 1.5 percent trust acceptance fee based on the capital amount and subject to a minimum of R500;
- A two percent distribution fee on the capital should the trust be terminated. A minimum distribution fee of R100 applies;
- A two percent fee on any amounts advanced by the trust, subject to a minimum of R50. For instance, for educational or medical expenses for the children.
- Trust fees include a one percent a year capital management fee on the value of the capital investments and cash deposits, as well as 7.5 percent a year on all income and revenue received by the trust;
- A tax fee based on the income of the trust is charged for completing and submitting the trust's income tax returns; and
- A master's fee of R100 on registration of the trust.
Murphy says he is satisfied that it is in the children's best interests that the benefits be held within the fund's portfolios and paid out from there. If this had been done initially all the costs already incurred would have been avoided and the children would have had more money.
The fund may wish to recover money unlawfully paid to the trust company, Murphy says.
Since the fund has been placed under provisional curatorship following allegations of mismanagement, Murphy has given the curator, Tony Mostert, an opportunity to submit arguments before making his ruling final.