3 OF 2021
High court case
Bloedige hand principle does not extend down the bloodline to beneficiaries
Nel and others (Applicants) v Netcare 1999 Pension Fund (Fund) and others
The Applicants, the deceased’s member’s siblings, lodged an application with the High Court to review the decision of the Fund to allocate the deceased member’s benefit to his step grandson. The deceased and his wife were killed by the deceased’s stepdaughter and following the deceased’s death, the board of management resolved to allocate the entire benefit to the step grandson, as the dependant of the deceased. The Applicants initially lodged a complaint with the Adjudicator on the basis that by virtue of allocating the entire death benefit to the step grandson, the stepdaughter, who killed the deceased, would benefit from the deceased’s death which she had caused. They also claimed that they were the deceased’s potential beneficiaries. The Adjudicator set aside the board of management’s decision to allocate the entire benefit to the step grandson and ordered the board of management to reinvestigate the allocation to the step grandson and whether the Applicants were potential beneficiaries (see In Perspective 4/2020). Following the reinvestigation, the board of management declared that the Applicants were not dependent on the deceased and still resolved to allocate the entire death benefit to the step grandson, on the basis that he was the only dependant. The decision to allocate the death benefit to the deceased’s step grandson was confirmed by the Adjudicator.
The board of management had identified the deceased’s wife, mother, stepdaughter, and step grandson as his legal dependants and concluded, after considering all the relevant factors, that 100% of the benefit be allocated to the step grandson, even though the step grandson was not his biological grandson. They excluded the stepdaughter because one cannot benefit from the proceeds of a death they had caused.
The board of management found that it was not necessary for a biological link to exist between the deceased and the step grandson for him to benefit. The board of management had established that the step grandson was financially dependent on the deceased. He qualified as a factual dependant of the deceased, as he lived with the deceased and his wife daily and was cared for by them.
The Applicants felt that the step grandson was equally not entitled to the death benefit as the common law principle of bloedige hand neem geen erfenis ought to be extended to a beneficiary who becomes entitled to receive a death benefit instead of an inheritance.
The Applicants sought to review and set aside the Fund’s decision, and an order declaring that they qualified as the deceased’s dependants.
The court held that the Applicants should have approached the Adjudicator again, prior to lodging an application to review and that they cannot circumvent the procedure set out in the Pension Funds Act by directly approaching the court. Only if they were unsuccessful at the Adjudicator, then could they have lodged an application to review.
The court held that the bloedige hand principle does not extend down the bloodline to exclude anyone other than the bloedige hand from receiving a benefit. There was insufficient factual justification in the Applicants’ affidavit, other than the submission that the grandson’s mother might have access to the proceeds awarded to the step grandson upon her release from jail.
The board of management compared the step grandson’s position with that of the Applicants’ and established that they were not indigent and that their need was premised on “speculative future contingencies”.
As a result, the court found that the board of management did not fetter their discretion and therefore dismissed the application.
Funds cannot assume that payment of a death benefit to a dependant could, by virtue of extension, benefit the person who caused the death of the deceased. One does not have to be the biological grandson of the deceased to qualify as a dependant.
Pension Funds Adjudicator
Death benefits cannot be withheld to correct a group life policy error
Powys (Complainant) v Old Mutual Superfund Provident Fund (Fund) and others
The Complainant is the life partner of the deceased member. She was allocated a portion of the death benefit in the Fund and was also paid a benefit from the unapproved group life assurance policy. She received a refund request of 50% of the group life assurance policy six months after it was paid and was told that it was paid in error. The Fund then withheld payment of the death benefit in the Fund to her pending the repayment of the 50% of the group life assurance policy benefit that was paid to her.
The Complainant submitted that the two matters were totally unrelated and that her portion of the death benefit should not be withheld. The refund of the 50% of the group life assurance policy fell outside the definition of a complaint in terms of the Act, as the unapproved group life assurance policy was a life policy owned by the employer. As a result, the Adjudicator had no jurisdiction to deal with that issue.
The Complainant stated that pension benefits are protected under section 37A of the Act, and that section 37D provided for some exceptions, but that withholding her portion of the death benefit following the finalisation of a civil case against her did not fall within section 37D.
The Fund submitted that the payment that was made in error from the unapproved group life policy affects the payment of the death benefit from the Fund, as it materially influences the Complainant’s financial position and that this consequently has a negative effect on the allocation of the benefits from the Fund to the other beneficiaries.
The Adjudicator held that the error made during the payment of the unapproved group life assurance policy could not affect the payment of the death benefit, as they were two unrelated matters.
The Adjudicator agreed that the complaint regarding the refund of 50% of the unapproved group life assurance policy falls outside the definition of a complaint in terms of the Act, as an unapproved group life assurance is a life policy owned by the employer. As a result, it was held that the Adjudicator has no jurisdiction to deal with this issue.
The Adjudicator however, agreed that the payment made to the Complainant from the unapproved group life assurance policy influences her financial position and it should be taken into consideration when making an allocation. However, the board of management had acted outside the scope of its powers as contained in section 37D of the Act, by withholding the Complainant’s portion of the death benefit pending the finalisation of the civil case against her in relation to the unapproved group life assurance. Thus, the withholding of the Complainant’s portion of the death benefit by the Fund is not permitted by the rules and the Act.
The board of management was ordered to reconsider its decision on the allocation and distribution of the death benefit to the deceased’s beneficiaries, taking into consideration the unapproved group life assurance policy payment made to the Complainant, and to then pay the death benefit to the deceased’s beneficiaries.
Funds cannot withhold a death benefit to correct an error caused by the insurer of a separate group life policy. All payments to the deceased’s beneficiaries must be considered when deciding on an equitable distribution, including unapproved group life benefits paid.
Pension interest in a retirement annuity fund is calculated differently to pension interest in a provident or pension fund
Badenhorst (Complainant) v South African Retirement Annuity Fund (Fund) and another
The Complainant was dissatisfied with the Fund’s refusal to pay her the member’s full fund value following their divorce.
The Complainant and member were divorced in 2015 and in terms of their divorce settlement agreement had agreed that the Complainant would be entitled to the member’s full pension interest.
The Fund refused to pay the full fund value as calculated in 2019 when payment was made to the Complainant on the basis that the Divorce Act defines “pension interest” in a retirement annuity fund, as the total amount of the party’s contributions to the fund up to the date of the divorce, together with a total amount of annual simple interest on those contributions up to that date.
The divorce benefit accrues to the non-member spouse on the date of divorce. The pension interest was calculated as at date of divorce and therefore the Complainant was not entitled to any interest that accrued to the member’s policy after the date of divorce.
The Adjudicator found that the pension interest was calculated correctly in terms of the Divorce Act (i.e. 100% of pension interest as at date of divorce) and that the Fund was not able to adhere to the parties’ intentions to pay the full value of the benefit in the Fund to the Complainant. As a result, she dismissed the complaint.
Pension interest is defined in the Divorce Act and funds cannot act ultra vires in compliance with parties’ intentions. Pension interest is calculated as at date of divorce and irrespective of the parties’ intention.
Withholding of withdrawal benefit
Financial Services Tribunal case
SGB-Smit Power Matla (Pty) Ltd (Employer) Vs GJ Van Zyl (Member), Fundsatwork Umbrella Pension Fund (Fund), Momentum (Administrator) and the Pension Fund Adjudicator (Adjudicator)
The Employer was dissatisfied with the Adjudicator’s determination wherein she found the Fund’s decision to withhold the Member’s benefit unjustified and that the Member was not given an opportunity to be heard. The Fund was ordered to pay the Member his benefit plus fund return.
The Member submitted that he had entered into a mutual separation agreement with the Applicant and was dissatisfied with the Fund’s decision to withhold his withdrawal benefit.
The Employer had informed the Fund that the Member caused serious damage, harm and loss to it and that criminal proceedings had been instituted against the Member. The criminal proceedings had been instituted after the Member had entered into a termination agreement with the Employer.
The Member then lodged a complaint against the Fund and the Employer with the Adjudicator after which the Employer lodged civil proceedings against him. The Member also submitted that considering the separation agreement the Employer had no further claims against him stemming from the employment relationship. The separation agreement contained a clause which stated that the agreement constituted the full and final settlement of any disputes, which may have arisen from the employment relationship.
The Employer was of the view that the separation agreement only related to the employment relationship and that it was not precluded from instituting criminal and or civil proceedings against the Member. The Adjudicator held that the Employer should have recorded in the separation agreement that it reserved its right to institute further claims against the Member.
The Employer felt that the Adjudicator had prematurely decided on the matter, while the Fund had not yet decided regarding the matter. The Adjudicator should have referred the matter back to the Fund to complete its internal process and only after concluding whether it had jurisdiction, to adjudicate on the matter. The Fund’s stance was that it had not made a final decision and was still in the process of considering the information that was provided by the Employer.
The Tribunal found that the Fund’s approval to withhold the benefit amounted to a decision, even though a final decision was not made.
The Tribunal held that balancing of parties’ competing interests implies that the matter should be carefully scrutinised by the Fund. The Fund should not merely be satisfied with what the employer places before it. Any decision which deprives Members of their benefits must be exercised with circumspection by the Fund.
The Tribunal found that between the period where the Fund was requested to withhold the benefit and the period where the Member lodged the complaint there was no evidence that the Fund had attempted to contact the Member. The Fund was only notified of the estimated amount of damages, and this demonstrated that it failed to scrutinise the Employer’s claim.
The Tribunal held that this approach illustrated that the Fund fell short of its fiduciary duties. It had not had sight of the charge sheet in relation to the criminal proceedings six months after it was requested to withhold the Member’s benefit.
The Tribunal did not fault the Adjudicator’s finding that the audi alteram partem was not afforded to the Member. It held that section 7C of the Act places an obligation on the board of management to take all reasonable steps to ensure that the interests of Members in terms of the rules of the Fund and provisions of the Act are protected at all times.
The Tribunal found in favour of the Adjudicator and dismissed the application for reconsideration.
A fund must investigate the request to withhold a Member’s benefit and not merely agree to the request without balancing the employer and Member’s interests.
The fund can scrutinise the employer’s request by having sight of the charge sheet and giving the Member an opportunity to tell his or her side of the story. In the current case, the request was made to withhold the benefit by the employer to the Fund in July 2019 and the complaint was lodged in September 2019. It was found that during this period no attempt was made to contact the Member. The view of the Tribunal is therefore clear that the Member should be provided with an opportunity to respond as soon as possible, and that even two months may be regarded as unreasonably long.
Parties must ensure that they reserve their right to institute further proceedings where they decide to enter into separation agreements whilst there are still outstanding claims, like 37D damage claims against the employee.