Death Benefit Distributions: When Will Payment Be Made?

By Rebecca Jansch, Partner in the Pensions & Employee Benefits team

The distribution of lump sum death benefits payable by retirement funds is a contentious issue that forms the topic of many complaints lodged with the Pension Funds Adjudicator.

In the 2015 / 2016 Annual Report, the Adjudicator’s office reported that the allocation and distribution of death benefits was the topic of the second highest number of complaints finalised by the Adjudicator’s Office. It was further reported that the complaints mostly related to unreasonable delays in the finalisation of investigations by retirement funds prior to distributing death benefits.
Many members of retirement funds are under the erroneous view that in distributing a death benefit payable on the death of a member, the board of the fund to which the member belonged will be bound by the nomination form submitted by the member. This, however, is not the case and retirement funds, in distributing lump sum death benefits, are tasked with the onerous duty of locating persons financially dependent on the member; following which an investigation must be conducted to determine the manner in which the benefit should be distributed to best reverse the financial consequences of the member’s death.

Section 37C of the Pension Funds Act gives the board of the fund twelve months from the date of the member’s death to conduct its investigation. While this may seem like a long period of time information regarding a member’s personal affairs including multiple spouses; girlfriends/ boyfriends; illegitimate children may not always be forthcoming. Further, where the board of the fund does not properly conduct its investigation, prematurely distributing the benefit, they open the fund up to risk. Take, for example, a situation where the deceased member fathered a child which his wife was not aware of. If the Fund does not locate that child and consider him or her in the distribution of the benefit, that child may have a claim against the fund. Where the fund incorrectly distributes a death benefit it is obviously very difficult for the fund to reclaim amounts that have already been paid to beneficiaries of the deceased member.

On the basis that the Act provides a retirement fund twelve months in which to conduct its investigation, a claimant recently instituted proceedings in the South Gauteng High Court claiming that late payment interest on the lump sum death benefit should commence running twelve months from the date of the death of the deceased member. The fund in that matter argued that they only became aware of the death of the member some five months after his death and therefore that the fund could not be bound to pay late payment interest on the lump sum death benefit from the date of the member’s death. The High Court agreed with the Fund, stating that it was only logical that the twelve month investigation period to trace the dependants of a deceased only commences once the Fund has obtained knowledge of the death of the deceased.
While the office of the Pension Funds Adjudicator has stressed the importance of finalising section 37C investigations within the allocated period of twelve months (now clarified as commencing on the date that the fund becomes aware of the death of the member), the need to finalise the investigation quickly must be appropriately balanced against the board of the fund satisfying itself that all potential beneficiaries have indeed been located so that they may be considered in the distribution.

For more information on the above contact

Rebecca Jansch, Partner in the Pension & Employee Benefits department

+27 79 503 6171

rjansch@wylie.co.za