IN PERSPECTIVE – 4/2025
Constitutional Court case
Section 37C: At which stage must dependency be determined
Mutsila v Municipal Gratuity Fund and Others[1]
This is the first time that the Constitutional Court has had to consider the interpretation and application of section 37C. For this reason, it is seen as a landmark case.
The central question that has arisen in this matter is: “What is the appropriate date at which a fund must decide who is a dependant, for the purpose of distributing a death benefit – the time of the distribution, or the date of the member’s death?”.
Background principles:
There are 3 duties placed upon a board of trustees:
- Identification of beneficiaries (dependants and nominees)
- Deciding on an equitable allocation
- Deciding on the mode of payment
At the initial stage of identifying dependants, it is essential to understand that the Pension Funds Act defines a “dependant” as falling into one of three categories: legal dependants, factual dependants, and future legal dependants.
This case dealt with the identification of financial/factual dependants.
To qualify as a factual dependant, two conditions must be met: the person must have relied on the member for financial support, and the member must have consistently provided that support.
At which stage should a fund determine whether a person qualifies as a financial dependant?
The Constitutional Court found that section 37C requires financial dependency to be assessed as at the date of the member’s death, not the time of distribution.
A change in circumstances after the member’s death should not affect the determination of who qualified as a dependant at the time of death. This principle is supported by the definition of “dependant” in the Pension Funds Act: legal dependency is established by law and remains constant, while factual dependency is best assessed based on the actual circumstances that existed at the date of death. Once identified as a dependant, that status as a dependant does not change. Where circumstances have changed by the time the benefit is distributed, the fund may take these changes into account to ensure a fair and equitable allocation among the dependants.
Other Section 37C principles confirmed in this case:
- The wishes of the deceased are one of the relevant factors to consider when making an equitable distribution. This can be recorded in the member’s nomination form as well as their will.
- The factual dependency test does not apply to spouses and children for purposes of determining whether they qualify as dependants. A spouse and a child do not have to prove that they were factually dependent on the member to be considered dependants.
- Whether someone qualifies as a spouse is a matter of fact. Once it has been shown on the facts that someone is married to the member, the spouse automatically qualifies as a dependant, even if they were estranged. A fund has no discretion in that regard.
- A fund’s identification of factual dependants must be supported by credible evidence demonstrating that they were dependent on the deceased for maintenance.
The determination of dependency is made at the time of death of the member. The changed circumstances may only impact the distribution decision and not the identification of who was a dependant at the date of the member’s death. This decision overturns the judgment in Guarnieri v Fundsatwork Umbrella Pension Fund, which held that the time at which to determine who is a dependant for the purpose of distributing a death benefit, was when that decision is made.
Unfortunately, in the current case, the Constitutional Court remitted this matter back to the Fund to re-investigate the facts and to make a new equitable distribution. This may result in further litigation if any party is dissatisfied with the new decision.
Given the significant time lapse since the Fund’s original decision in April 2014, the Fund has been granted three months to complete its new investigation.
Pension Funds Adjudicator case
Section 37D: Members must be provided with a fair opportunity to respond to allegations made against them if their benefits are to be withheld
Van Schalkwyk (Complainant) v DSV Flexi Retirement Fund Pension Section[2] (Fund)
The Complainant resigned from employment and became entitled to a withdrawal benefit. However, the Fund withheld the withdrawal benefit at the employer’s request under Section 37D(1)(b)(ii) of the Pension Funds Act, citing allegations of fraud.
The Complainant denied any admission of fraud or liability and claimed that the employer was not acting lawfully and that the withholding of the payment of the benefit by the fund was causing him harm as he was unemployed. The employer alleged financial loss in the amount of R2,940,499.95 due to fictitious invoices approved by the Complainant and initiated criminal and civil proceedings. The employer accordingly requested the continued withholding of the benefit pending the finalisation of the legal processes.
The Fund’s response to the Adjudicator was that it relied on the rules of the Fund and Section 37D(1)(b)(ii) together with the employer’s prima facia case as legal justification for the withholding of the benefit. The Fund further submitted that the Complainant was made aware of the employer’s request to the Fund to withhold payment of the benefit and was given the chance to state his case and present his side of the story to the trustees. However, the Complainant did not receive the details on which the employer based their allegations so that he can respond fully and he submitted that it was premature to expect from him to provide detailed reasons why the allegations were false.
The Adjudicator held that the Fund failed to afford the Complainant a fair opportunity to respond to the allegations and that the decision by the Fund to withhold his benefit was premature and without procedural fairness. The Adjudicator ordered that the decision by the Fund to withhold the Complainant’s withdrawal benefit be set aside and remitted to the fund for reconsideration.
Although case law supports a purposive interpretation allowing withholding of a benefit pending the finalisation of legal proceedings, the right to hear the other side (audi alteram partem) must be observed, even when a civil or criminal case has been instituted. This includes providing the member with detailed allegations and an opportunity to respond to the allegations, before a fund can make the decision to withhold the benefit.
Financial Services Tribunal cases
Section 37C – Allocation of Death Benefits
AM Molokwane (Applicant) v Trustees Discovery Retirement Annuity Funds & Others (Respondents)[3]
The Fund had initially allocated a death benefit between the Applicant (surviving spouse) and the deceased member’s children, but after an objection, reallocated it entirely to the children. The Applicant claimed dependency, but the Fund found no evidence of financial support after their separation. The deceased had filed for divorce and a restraining order before her death. The deceased member would have no obligation to support the Applicant and the bank statements provided did not evidence any financial support from the time they were separated.
The Applicant had also received R1 500 000 from the Road Accident Fund. The deceased’s niece confirmed that only the deceased’s children were dependants.
The Adjudicator held that the Applicant failed to prove financial dependency and that the Fund’s decision was rational and lawful.
The Tribunal agreed with this and the application for reconsideration was dismissed. As a result, the death benefit remains allocated to the deceased’s children.
Funds must allocate death benefits equitably among dependants, considering actual dependency and all relevant circumstances at the time of allocation. Dependants must provide clear evidence of actual dependency to be considered for a share of a death benefit.
Section 37D: Confirmation of audi alteram partem rule
Rand Mutual Assurance Co Ltd (Employer) v PFA & Others[4]
Ms Begwa was found guilty by her Employer in a disciplinary hearing held in her absence of gross negligence, dishonesty, breach of trust, and fraud, and was dismissed. As a result, the Employer applied to the Fund to withhold Ms Begwa’s withdrawal benefit (amounting to R217 596.49), pending the finalisation of civil proceedings against her. The Fund agreed and withheld the benefit.
Ms Begwa lodged a complaint with the Adjudicator challenging the Fund’s decision to withhold her withdrawal benefit. The Adjudicator set aside the Fund’s decision and ordered the immediate release of the withdrawal benefit to Ms Begwa, because the Fund failed to properly apply its discretion by not balancing the competing interests of the Employer and Ms Begwa. The Adjudicator emphasised the importance of the audi alteram partem principle, holding that any deprivation of a member’s pension benefit must be carefully scrutinised and that the member must be given an opportunity to present her case before such a decision is made.
Issues considered by the Financial Services Tribunal (“Tribunal”)
The audi alteram partem principle requires that before an adverse decision affecting a party is made, that party must be given a fair opportunity to present their case. The Fund did not afford Ms Begwa an opportunity to respond before deciding to withhold her pension benefit but contended that because she had an opportunity to respond to the Employer, it was sufficient. The Tribunal rejected this, stating that the Fund had an independent obligation to hear her. The Tribunal agreed with the Adjudicator’s finding that the Fund’s decision was unlawful due to non-compliance with the audi principle. However, the Tribunal questioned why the Adjudicator did not remit the matter back to the Fund to afford Ms Begwa the opportunity to be heard and then reconsider its decision.
The Tribunal emphasised that the Employer’s compliance with the audi principle did not discharge the Fund’s separate obligation to give Ms Begwa the opportunity to be heard. The matter was remitted back to the Adjudicator for reconsideration.
The employer’s compliance with the audi alteram partem principle does not discharge the separate independent obligation of a fund to afford the member a similar opportunity to respond to the allegations made against them.
Section 37D – whether a guilty plea amounts to an acknowledgement of liability
Nyathi South Africa (Pty) Ltd (Employer) v C Mngomezulu (Member) & Fundsatwork Umbrella Provident Fund (Fund)[5]
The Employer laid criminal charges of fraud, forgery, and money laundering against the former Member shortly after her retrenchment. The Member was then convicted and sentenced to 15 years of direct imprisonment following her plea bargain agreement with the state. The Member was unhappy with the payment of her withdrawal benefit to the Employer and lodged a complaint with the Pension Funds Adjudicator. The Pension Funds Adjudicator concluded that the guilty plea did not constitute a written admission of liability that would allow the Employer to claim a deduction for damages under section 37D(1)(b)(ii) without her consent.
The Tribunal however found that in her guilty plea, the Member admitted to committing theft and fraud against the Employer and to causing the Employer an actual financial loss of R3,743,736.88. The Member’s admission of guilt, coupled with her acknowledgment of causing actual financial loss to the Employer, and her undertaking to the court that the pension benefit may be used to compensate the Employer, amounts to an acknowledgment of liability to the Employer as contemplated in section 37D.
The Tribunal went on to say that the potential consequences of not considering a guilty plea statement as a written admission of liability to an employer would lead to an absurd situation. It would be akin to allowing a member who defrauded their employer of over R3 million, admitted guilt, agreed to a sentence on the assumption and undertaking that her pension benefit may be utilised to compensate the employer, to then be convicted on that basis and still receive their full pension benefit. Such an outcome would undermine the principles of justice and fairness, as it would effectively reward the wrongdoer and punish the victim.
A guilty plea in terms of the Criminal Procedures Act, where a member has acknowledged the causing of damage to an employer and undertaken to compensate the employer, amounts to an acknowledgement of liability as contemplated in section 37D of the Act.
Section 37D – Divorce Order and jurisdiction
SPL Komape (Applicant) v Masakhane Provident Fund (Fund) & Others (Respondents)[6]
The Applicant (former spouse) was married to Petrus Komape, a member of the Fund, by virtue of his employment with Sibanye Stillwater. They divorced on 15 March 2022, and their divorce order awarded the Applicant 50% of Komape’s pension interest as at the date of divorce.
The Fund’s administration provider changed during this period. When notified of the divorce, the first administrator referred the Applicant’s attorneys to the second administrator who advised that the divorce order was not compliant with Section 37D of the Pension Funds Act and that the Fund cannot give effect to it.
The Applicant successfully applied for a variation of the Court order and submitted a claim. However, the Applicant was informed that the member had already received his withdrawal benefits, and no payment could as a result be made to her.
The Applicant lodged a complaint with the Adjudicator, who dismissed it for lack of jurisdiction, stating that the Adjudicator cannot enforce or vary a Court order.
The Adjudicator’s findings:
- The Adjudicator is a creature of statute and can only investigate complaints as defined in the Pension Funds Act. The Adjudicator does not have jurisdiction to enforce or vary Court orders.
- Court orders must be enforced through legal processes such as writs of execution or contempt proceedings, not through the Adjudicator.
The application for reconsideration was dismissed. The Tribunal found that the complaint did not meet the jurisdictional requirements and upheld the Adjudicator’s determination.
The Financial Services Tribunal confirmed that the Adjudicator cannot enforce or vary Court orders. Any party seeking enforcement of divorce-related pension claims must pursue legal remedies through the courts, not through the Pension Funds Adjudicator.
Governance: Boards must follow their own rules and ensure fair participation of all trustees.
Tshwane Municipal Provident Fund (Fund) v Financial Sector Conduct Authority (FSCA)[7]
The Fund challenged the FSCA’s decision to revoke the approval of a rule amendment, which removed employer-appointed trustees from their board of management, declaring that all board members must be elected by the members.
The Fund argued that the amendment was necessary due to declining membership, cost pressures, and a lack of value from employer-appointed trustees. The FSCA initially approved the amendment but later revoked it after the City of Tshwane (the employer) raised concerns about governance and compliance with the Pension Funds Act.
When the amendment was discussed and decided upon, employer-appointed trustees were asked to leave the meeting. The FSCA found this exclusion improper, as all trustees should be allowed to participate in discussions, even if they must recuse themselves from voting due to a conflict of interest.
The FSCA also found that the process did not comply with the Fund’s own rules regarding quorum and participation, and that the reasons for removing employer trustees were not sufficiently justified.
The Tribunal made it clear that all trustees, including employer representatives, must be given a fair chance to participate in decisions, especially those affecting board structure. The Tribunal found that employer-appointed trustees were unfairly excluded from the decision-making process, the board did not follow proper procedures for amending the rules, and the amendment was not adopted for valid reasons. The FSCA acted within its powers to revoke the amendment.
The application for reconsideration by the Fund was dismissed. The revocation of the rule amendment stands, meaning employer-appointed trustees remain part of the board.
Boards must follow their own rules and ensure all trustees are given a fair opportunity to participate in decisions, especially when changes affect board composition and governance. Excluding certain trustees from discussions and decisions, without proper justification or process, is not allowed and can lead to regulatory intervention.
The FSCA’s intervention here reinforces the importance of transparency and proper process.
Although there is nothing in the Pension Funds Act preventing a board from consisting of only member-elected trustees, it is important for a board to follow the fund’s rules when making decisions.
Pension Funds Adjudicator’s Quarterly Digest newsletter July 2025
The newsletter highlights the Office of the Pension Funds Adjudicator’s (OPFA) dedication to procedural fairness, consumer education, accessible complaint resolution, and collaborative stakeholder engagement to protect pension fund members’ rights and financial dignity. The following key topics were addressed:
- The OPFA highlighted its commitment to a smooth leadership transition, agility, and continuous improvement. This is in light of the Adjudicator’s 12-year term in office that comes to an end at the end of 2025. The 2024/25 audited results showed a 100% achievement of goals, including resolving 93% of complaints within six months and maintaining a clean audit. The OPFA is also addressing complaints related to the second round of two-pot withdrawals and encourages ongoing information sharing between funds and administrators to empower members.
- The OPFA discussed the importance of the audi alteram partem principle (“hear the other side”) in cases where employers request withholding of pension benefits due to alleged employee misconduct, such as fraud or theft. It emphasised that funds must allow employees to respond to allegations before withholding benefits. A recent case (summarised above) highlighted the fund’s failure to provide the employee with sufficient details to respond, constituting procedural unfairness which necessitated a reconsideration of the withholding decision.
[1] Mutsila v Municipal Gratuity Fund and Others [2025] ZACC 17
[2] Van Schalkwyk v DSV Flexi Retirement Fund Pension Section and Another [2024] 2 BPLR 39 (PFA)
[3] Case No. PFA20/2025
[4] Rand Mutual Assurance Co Ltd v PFA & Others (Case No: PFA19/2024 – 15 August 2024)
[5] Nyathi SA (Pty) Ltd v PFA & others (Case No: PFA39/2024)
[6] Case No. PFA33/2025
[7] Case No. A8/2025