PFA orders Pension Fund to re-examine death benefit payout
Muvhango Lukhaimane, Pension Funds Adjudicator
Pretoria: The Pension Funds Adjudicator has ordered a retirement fund to set aside a death benefit on the grounds that it had failed to thoroughly investigate a beneficiary’s personal circumstances in respect of employment status and future earning capacity.
Muvhango Lukhaimane was critical of Central Retirement Annuity Fund (first respondent) which had paid the spouse of the deceased R705 639 while the deceased’s two children (the complainants) received R200 000 each.
JB Lazarus passed away on 11 August 2015. He had committed suicide. The complainants submitted that the first respondent had failed to consider relevant factors in distributing the death benefit and did not conduct a proper investigation into the personal circumstances of the deceased’s dependants.
They contended that the decision of the first respondent was biased and unduly favoured the deceased’s surviving spouse.
The complaints said the spouse moved into the house of the deceased (prior to their marriage) during January 2013. The deceased instructed his attorneys to draft a co-habitation agreement, which would provide that she would in no way be dependent on him. They contended it was clear from this document that the deceased and the spouse had no intention of being dependants of each other. The deceased and the spouse married on 7 December 2014 out of community of property and profit and loss and excluded the accrual system. The marriage lasted for just over eight months.
The complainants averred that the marriage between the deceased and the spouse was an unhappy one and attached letters between the parties in support thereof.
The complainants submitted that the spouse instituted maintenance proceedings against the deceased’s estate on the basis that she was unemployed and was “financially dependent on my late husband”. She claimed an amount of R70 000 per month which equated to a lump sum payment of R18 293 000.
The complainants submitted that the spouse did not share a common household with the deceased two months prior to his demise. They stated that she was, at the time the complaint was lodged, in the employ of Sanlam Life Insurance Limited (second respondent) as a financial advisor and was also a model.
They submitted that the spouse was paid an amount of R3 750 000 and granted a substantial amount of movable property to furnish her new home. They stated that the deceased also purchased a quad bike for the spouse which she sold for R25 000. She also had very expensive wedding and engagement rings, which the deceased considered she could sell, and a fully paid car.
The complainants further contended that as was evident from the deceased’s letters, the co-habitation agreement, the ante-nuptial contract and his relationship with the spouse prior to his death, he did not intend to leave her any benefit from his estate other than an amount of R100 000 to purchase furniture.
They submitted that the spouse had already settled all her claims against the deceased’s estate for R3 750 000.
They also contended that it was abundantly clear from the deceased’s letters that he intended to benefit his children with any benefits from his life policy and other policies. Therefore, they should be considered to be the only nominees for purposes of the death benefit.
They concluded that if the first respondent’s decision to allocate a major portion of the death benefit to the spouse was premised on the fact that she was financially dependent on the deceased, consideration of the co-habitation agreement and ante-nuptial contract would show this was clearly not the case.
They claimed that the board’s distribution amounted to a double benefit which the spouse received and was not entitled to.
The second respondent said its decision to pay the benefit to the spouse was based on the fact that she was the deceased’s spouse and they lived together since 1 November 2012; her minor children from the previous marriage formed part of the joint household; she had never worked since 1995 and had no previous working experience to find suitable employment and thus, was financially dependent on the deceased; the deceased changed his will before his death and she had to leave the property and find her own place; the complainants each inherited amounts of over R5 000 000 and they had potential to earn an income; and her maintenance initial claim against the deceased’s estate amounted to R18 000 000 and was settled for R3 750 000.
The second respondent further confirmed that the deceased did not complete a beneficiary nomination form. It further stated that the spouse was employed as a financial adviser since 1 November 2016.
In her determination, Ms Lukhaimane said the wishes of the deceased as expressed in his will or on a nomination form were one of the factors to be considered by the board in investigating who the dependants of the deceased were. However, the wishes of the deceased were not binding on the board and could not trump the application of section 37C of the Act whose enactment was meant to ensure that all those who were dependent on the deceased during his lifetime were not left destitute.
“This Tribunal notes that the deceased did not complete a beneficiary nomination form and there is no express indication that he wanted Mrs Lazarus not to benefit from the death benefit.
“However, even if the deceased had completed a beneficiary nomination form excluding Mrs Lazarus from benefitting from the death benefit, the board would still not have been bound by the nomination form.
“The board is not bound by the nomination form completed by the deceased, instead the nomination form serves merely as a guide to assist it in the exercise of its discretion.”
She said while the complainants contented that the settlement agreement over the maintenance claim barred the spouse from receiving a share of the death benefit, the Tribunal could not find any express provision which deterred the spouse from claiming a death benefit from the first respondent.
“Therefore, this Tribunal rejects the complainants’ assertion that the first respondent misdirected itself and was not competent to make an interpretation which allows the spouse a right to claim a share of the death benefit.
“It is this Tribunal’s view that the board correctly considered that a death benefit does not form part of the deceased’s estate as stipulated in section 37C of the Act. In this regard, this Tribunal is satisfied that the first respondent was correct in its consideration of the spouse as a dependant of the deceased,” said Ms Lukhaimane.
However, she also pointed out that when making an equitable distribution, the board must consider a litany of relevant factors, one of them being the financial affairs of the dependants and their future earning capacity potential.
“This Tribunal notes the second respondent’s submissions that the spouse is in its employ since 1 November 2016. Interestingly, after making its initial decision and inviting the complainants to file objections, upon receipt of same, the board in the meeting held on 2 February 2017, decided to abide by its initial decision without considering the new evidence about the spouse’s employment status.
“In essence, when the board made its final decision on 2 February 2017, the spouse’s financial position and future earning capacity potential had changed dramatically.
“The fact that the spouse is employed by the second respondent as a financial adviser and had been employed as such when the board made its final decision, cannot be left unchallenged as it demonstrates that the board appears to have turned a blind eye on this critical aspect of her circumstances and considered irrelevant factors.
“This state of affairs lends credence to the complainants’ allegations of bias by the respondents, which they must be careful of and guard against as they are bound by the law.
“Therefore, when a board fails to do a thorough investigation with respect to the personal circumstances of each beneficiary, as evident in this matter, there is a greater likelihood of the objectives of section 37C of the Act being subverted,” said Ms Lukhaimane.
She ordered that the decision of the board of the first respondent to distribute the death benefit as it had decided be set aside. The board of the first respondent must re-exercise its discretion in terms of section 37C of the Act, considering the issues raised in this determination with regards to the spouse’s employment status and her future earning capacity.
ABOUT THE PENSION FUNDS ADJUDICATOR
The Office of the Pension Funds Adjudicator (OPFA) is a statutory body established to resolve disputes in a procedurally fair, economical and expeditious manner. The adjudicator's office investigates and determines complaints of abuse of power, maladministration, disputes of fact or law and employer dereliction of duty in respect of pension funds. The OPFA is situated in Pretoria, Gauteng.
For general enquiries or to lodge a complaint visit www.pfa.org.za or call 012 346 1738.
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