The distribution of retirement fund death benefits in South African law

Abstract

Section 37C of the Pension Funds Act 24 of 1956 regulates the distribution of retirement fund death benefits in South Africa. This thesis focuses on the distribution of the retirement fund death benefits that the pension fund is obliged to pay when a fund member dies while still in service, and it explores the discretionary powers granted to pension fund trustees to distribute these benefits. The fiduciary duties applicable to these trustees in distributing these benefits are also explored, as are the remedies that dependants and/or nominated beneficiaries may rely on because of wrongful distribution and other injustices. In addition, this thesis examines certain measures to protect pension funds and their trustees against liability. The problem identified in the thesis is the haphazard application of the discretionary powers of pension fund boards (pension fund trustees) in distributing retirement fund death benefits to dependants and nominated beneficiaries in South Africa. How pension fund trustees are supposed to exercise their discretion is unclear, because the “guidelines” developed by the courts and the Pension Funds Adjudicator provide these trustees with insufficient direction. From the consideration of several recent cases and the Pension Funds Adjudicator’s determinations on the distribution of retirement fund death benefits, it is observed that the uncertainty they have caused, coupled with the conduct of “incompetent” pension fund trustees in some cases, has led to a high number of disputes or complaints by aggrieved dependants and nominated beneficiaries. Of further concern, on the other hand, are the challenges that these claimants face in protecting their rights when pension fund trustees distribute death benefits wrongfully. The distribution of death benefits by pension fund trustees in the United Kingdom is compared with the equivalent distribution by pension fund management boards in Germany, to determine which lessons South Africa may learn from these two jurisdictions. Recommendations are then made for strengthening and improving the provisions of the Pension Funds Act on the distribution of retirement fund death benefits in South Africa. It is argued that pension fund trustees’ uncertainties in distributing retirement death benefits could be addressed by amending section 37C of the Pension Funds Act, and recommendations in this regard are provided.