March 8, 2021

1 of 2021

Nomination of beneficiary form is a guide and may assist in excluding estranged legal dependants

Reconsideration of Adjudicator determination

Wolmarans (Complainant) v Sanlam Umbrella Provident Fund (the Fund)

The reconsideration concerns the distribution of a death benefit following the death of a Fund member. The Complainant was the deceased’s niece and she was dissatisfied with the trustees’ decision to allocate the deceased’s death benefit to his estranged major children. The deceased did not complete a nomination of beneficiary form, his wife predeceased him and he had nominated the Complainant and her brother to receive his estate in terms of his Will.

The Adjudicator had initially found in favour of the Complainant and in line with the deceased’s wishes as set out in his Will. The Fund, dissatisfied with the Adjudicator’s decision, lodged an application for reconsideration with the Financial Services Tribunal (Tribunal) on the basis that the deceased’s children fell within the definition of dependants in the Pension Funds Act, even though the deceased was not legally liable for their maintenance. The Tribunal found in favour of the Fund and held that the Adjudicator had erred in finding that the deceased’s major children were not his legal dependants. The Tribunal set aside the Adjudicator’s determination and remitted the matter back for reconsideration.  (The Tribunal’s ruling was discussed in In Perspective 2/2020)

The Fund’s argument was that the deceased’s children qualify as his legal dependants and that factual dependency is not a prerequisite to qualify as a legal dependant. It added that the deceased did not nominate any other person to receive his benefit. As such, the board of management allocated the benefit to the deceased’s children on the basis that they were the deceased’s legal dependants.

The Complainant felt that the deceased’s major children were estranged from him, they did not take care of the deceased whilst the deceased lived with a disability and they were not financially dependent on him.

The Adjudicator this time held that the deceased’s children fall within the definition of legal dependants. She found that death benefits do not form part of the deceased’s estate and as such cannot be paid in terms of the law of succession.  The Adjudicator emphasised that it is important to complete and update a nomination of beneficiary form, even though it is only one of the factors which the board of management need to consider. In instances like this one, where a member had an estranged relationship with his legal dependants and it was the member’s wish that they be excluded from the allocation of his death benefit, then the member should have made it clear in his beneficiary nomination form by nominating the beneficiaries that should be considered and exclude the ones that he did not wish to benefit, especially if they were not financially dependent on the deceased. As a result, the Adjudicator dismissed the complaint and found that the Fund made an equitable distribution of the death benefit.

Major children fall within the definition of legal dependants and factual/financial dependency is not a prerequisite to qualify as a legal dependant. A nomination form must be completed and updated, as it can be used as a guide to exclude an estranged legal dependant, where such legal dependant was not nominated to receive a benefit.

Distribution of death benefit

Duty of the board of management of a fund to finalise investigation and distribute the death benefit

Ntantiso (Complainant) v Sanlam Umbrella Provident Fund (the Fund) 

The Complainant was the ex-wife of the deceased. She and the deceased had one child, Ncumisa, who was still a minor. The board of management of the Fund resolved to allocate 27% of the death benefit to Ncumisa, 58% to Thembelani, the deceased’s major son, and 5% to the deceased’s mother. The board of management decided to retain 20% of the death benefit in the Fund until twelve months had lapsed from the date of the deceased’s death, and such amount would be paid to the major son, if there was no other financial dependant found.

Objecting to Ncumisa being allocated so much less than the deceased’s major son, the Complainant stated that Ncumisa was 14 years old and had a long way to go in so far as schooling and maintenance were concerned. She contended that the board should allocate the death benefit to Ncumisa and the deceased’s son in equal shares.

The Fund submitted that the deceased had nominated his major son, Thembelani, to receive 100% of the benefit. The deceased was paying maintenance of R1000 per month for Ncumisa in terms of a maintenance order and Thembelani also claimed maintenance of R600 per month from the deceased.

As regards Ncumisa, the board took into account the fact that the total amount of the death benefit is R677 922 and the value of her maintenance claim, as per the needs assessment, is R212 818. This explains the different allocation made to Ncumisa and Thembelani. Although Thembelani is a major son, he was not only a dependant but a nominee in terms of the deceased’s beneficiary nomination form. It is trite law that the board is not bound by a nomination form, as it only serves as a guide to the board of management in the exercise of its discretion. However, a dependant’s claim is limited to the loss of financial support he can prove whilst a nominee benefits from altruism.

The Adjudicator found that the Complainant failed to show that the board did not consider the financial needs of Ncumisa and her age.

The Adjudicator determined that the decision of the board of the Fund regarding the allocation of the deceased’s death benefit was equitable and in accordance with section 37C of the Act.

Retaining 20% of the benefit

The Adjudicator questioned the board’s decision to retain 20% of the death benefit in the Fund for twelve months, until another beneficiary came forward to claim it. It was the board’s duty to investigate and identify beneficiaries and it could not expect a beneficiary to come forward and claim a benefit.

The Adjudicator ordered the board to verify if there was no other beneficiary and to complete the allocation of the retained portion of the benefit to the identified beneficiaries.

A minor child need not necessarily be allocated a bigger portion of a death benefit if the minor’s maintenance needs have been catered for and the major child also had maintenance needs and was the sole nominee. It cannot be justified to withhold a portion of a death benefit while expecting beneficiaries to come forward and claim the benefit. The board must complete their investigation and allocate the benefit to the identified beneficiaries.

Tribunal case

Children qualify as legal dependants

Pretorius (Applicant) v Pension Funds Adjudicator and Liza Pension Fund (Fund)

The Applicant, the deceased member’s life partner, brought an application for reconsideration against the decision of the Adjudicator, wherein the Adjudicator had reversed the decision of the board of management of the Fund to allocate the deceased’s death benefit. The deceased had completed a nomination of beneficiary form, wherein he had nominated his life partner and his two major children to receive his death benefit in equal shares. The Fund, after investigation, allocated the benefit to the deceased’s life partner and two children; however, not in the percentages as nominated by the deceased. Instead, the fund allocated the bulk of the benefit to the deceased’s life partner, contrary to the instructions of the deceased as set in the nomination of beneficiary form. The Adjudicator reversed the decision of the board of management and replaced it with her own decision, on the basis that the board of management had failed to perform a proper investigation in terms of section 37C.

The deceased was living with his life partner at the time of his death. The deceased had, in his Will, given the Applicant a usufruct to use and enjoy the property in which they had lived in, in the event that he should predecease her. His Will further stated that the Applicant inherit 50% of his estate and the remaining 50% be given to his daughters. The deceased had nominated the Applicant to receive his annuity until her death. The deceased’s died before his retirement and thus the annuity was never purchased, but instead a death benefit became payable upon his death. The Applicant and deceased shared household expenses equally.

The Fund was on the verge of allocating the entire death benefit to the Applicant. However, the deceased’s children lodged an application to the Fund and requested that they be considered to receive a portion of the death benefit.

The deceased’s children requested that the board of management allocate the death benefit equally amongst them and the Applicant, as set out in the nomination of beneficiary form. They contended that the deceased was not married to the Applicant and that the Applicant was not living with the deceased and was not dependent on him for support. The board of management were happy to adhere to the nomination of beneficiary form; however, the Applicant was dissatisfied with this.

The Applicant submitted proof of her dependency on the deceased, while the deceased’s children could not provide proof of their dependency on the deceased, and they provided assertions of the deceased giving them money on an ad hoc and erratic basis.  Based on the trustees’ report, the Tribunal found that it would have expected that the deceased’s children not be allocated a portion of the death benefit as the children failed the test for dependency. There was no evidence of their factual dependency and according to the trustees, as adult children, who did not rely on their father for maintenance, they could not be regarded as the deceased’s dependants in terms of the definition of dependant in the Act.

The Tribunal held that the trustees’ haste to initially allocate 100% to one nominee, i.e. the Applicant, before considering other nominees was indicative of bias against those nominees.

The Act does not qualify the word “child” and must therefore be understood in its ordinary meaning. A child means one’s offspring irrespective of such offspring’s age. A person qualifies as a dependant of a member by the mere fact that one is a child of such member and age is not required to qualify as a dependant.

The Tribunal found that the trustees’ decision to initially exclude the deceased’s children and then allocate small portions to them without giving reasons for the reallocation, amounted to the trustees’ inability to make decisions based on law and simple logic.

The Tribunal held that the deceased’s children qualified as both dependants and nominees and held that as nominees they did not have to prove that they depended on the deceased for support.

Where the major child of a member has not been nominated by the member and there are other nominees, such child will not be eligible to share in the allocation, unless he or she can demonstrate that he or she has suffered damages in respect of maintenance. The deceased’s daughters were nominated and therefore qualify to be allocated a portion of the death benefit.

The Tribunal found that the Adjudicator’s decision, wherein she held that the board of management had not done a proper investigation, could not be faulted as the board had based its decision on the wrong legal conclusions.

Powers of the Adjudicator

The Tribunal also dealt with the powers of the Adjudicator and referred to section 30E of the Act which empowers the Adjudicator, after investigation, to make any order which a court of law may make. The Tribunal stated that a high court has the power to reverse the decision of a decision maker and substitute it with its own decision, where the decision maker is impugned by bias or incompetence. The Tribunal held that irrationality in decision making is a ground for a court to intervene and substitute the decision of the decision maker with its own. In this case, the Tribunal held that the Adjudicator had the power to replace the decision of the board of management with that of her own, as the board of management had acted irrationally by showing bias against the deceased’s children.

The Tribunal found that the board of management were both incompetent and biased against the deceased’s daughters. The irrationality shown by the board of management entitles the Adjudicator to intervene and substitute the board’s decision with her own. Therefore, the Tribunal found that the Adjudicator was well within her powers to intervene and reverse the decision of the board of management and replace it with her own.

As a result, the Tribunal dismissed the application.

A major child need not prove financial dependence for him/her to be considered in the allocation of a death benefit. A major child who has not been nominated, where there are other nominees, will not be eligible to share in the allocation. A nominee need not provide proof of dependency for them to be considered. An unexplained allocation to beneficiaries can be viewed as bias by the board of management and therefore incompetence. It is important that the fund do proper investigations and provide reasons and explanations for their allocation. The Adjudicator has the power to substitute the decision of the board of management with her own decision where there is proof of bias and incompetence by the board of management.

Section 37D

Criminal case must be accompanied by compensation order

FundsatWork Umbrella Pension Fund (the Fund) and Petra Diamonds v Matjiani and the Pension Funds Adjudicator (the Adjudicator)

The Fund and the Employer lodged an appeal with the Tribunal against the determination of the Adjudicator, wherein she ordered that the member’s benefit that was withheld by the Fund, be paid to him with interest.

Matjiani was employed by Petra Diamonds (“the Employer”) from January 2012 up to his resignation in January 2019. After his attorneys made enquiries, he was informed by the Fund that it withheld payment of his benefit as criminal proceedings had been instituted against him, relating to theft and fraud by the Employer. The amount sought in damages exceeded his benefit in the Fund.

Mr Matjiani lodged a complaint with the Adjudicator and stated that the SAPS case was opened based on “unsubstantiated allegations from a disgruntled employer”.  The Employer stated that the facts of the case was that the member had received bribes to award contracts to a specific supplier and had inflated prices on invoices, with the sole purpose of receiving money in return, resulting in a loss of R1m for the Employer.

The Fund felt that it was entitled to withhold the benefits, as charges of theft and fraud had been laid with the SAPS and based their argument on the case of Highveld Steel and Vanadium v Oosthuizen.

The Tribunal held the following:

In the Highveld Steel case, the employer had instituted civil action against its employee in which it claimed damages.  It cannot be used as authority in this case, as the Employer in this case did not institute a civil claim. The Tribunal added that it is also not authority for the contention that the mere opening of a criminal case at a police station will suffice for the purposes of section 37D.  The Highveld Steel case can only serve as authority where the employer has instituted civil proceedings for recovery of compensation from the employee, where the fund will have a discretion to withhold the benefit after carefully balancing the interests of the fund and employee.

The Fund is therefore not entitled to withhold the member’s benefit and the Tribunal agreed with the Adjudicator’s determination that the benefit be released to the member.

The Tribunal also agreed with the Adjudicator’s determination that interest be awarded. It found that section 30N of the Pension Funds Act states that where there is a determination of an obligation to pay an amount of money, the debt shall bear interest as from the date and at a rate as determined by the Adjudicator.

The employer having opened a criminal case with SAPS is not sufficient for a fund to withhold a member’s benefit.  The employer must also show the Fund that it has applied for a compensatory order by the criminal court in terms of section 300 of the Criminal Procedure Act, applying for compensation to the employer for loss suffered. Such an order will be civil in nature, based on a separate enquiry into the damages caused to the employer. The Fund must be provided with the compensatory order to effect payment of the amount of damages awarded by the court.