A retirement fund’s decision to allocate a death benefit has been set aside by the Pension Funds Adjudicator because it had failed to conduct thorough investigations and instead relied on a calculator to tell them what to do.
Alexander Forbes Retirement Fund did not follow the beneficiary nomination form and had failed to carry out proper investigations. The fund had considered the extent of the beneficiaries’ dependency on the deceased and apportioned the death benefit using a benefit calculator.
“The fund cannot merely rely on a calculator that predetermines entitlements to portions of a salary depending on a beneficiary’s status,” said Muvhango Lukhaimane.
Two brothers had complained about the the allocation and distribution of a death benefit by the fund following the death of their father. A lumpsum death benefit of R662 122.97 became available for distribution to his beneficiaries. The board of management of the fund resolved to allocate the death benefit as follows: each of the two sons of the deceased 21,5%; and the deceased’s partner 57%.
The complainants were aggrieved with the decision of the board to allocate 57% of the death benefit to the partner. They averred she did not qualify as the life partner of the deceased and that she was not entitled to a death benefit.
The complainants submitted that the partner was neither living with the deceased nor were they in a life partnership. Further, she was not financially dependent on the deceased. The complainants submitted that the deceased’s sister took care of him during his illness. They further submitted that they were unemployed as at the date of the death of the deceased.
The complainants also averred that the partner owned a drinking establishment which recently caught on fire. They submitted that the board failed to conduct a proper investigation. They wanted the fund to allocate the death benefit to the biological children of the deceased.
In its submission, the fund said its board had conducted a thorough investigation in order to make an informed decision. The board had identified and investigated all potential dependants of the deceased in order to decide upon an equitable allocation of the death benefit.
The fund submitted that the board identified the following four potential dependants of the deceased: the deceased’s former spouse who was not financially dependent on the deceased; the two unemployed sons of the deceased who were financially dependent on the deceased; and the partner who was unemployed and financially dependent on the deceased at the date of his death.
The fund submitted that the deceased completed a beneficiary nomination form on 8 July 2020 wherein he nominated his life partner to receive 50% and the complainants 25% each of this death benefit. It had also received affidavits confirming the deceased and his partner were in a love relationship and that the deceased intended on marrying her.
The fund confirmed that it used a benefit calculator as a mechanism to determine the financial dependency of each dependant on the deceased.
The fund also submitted that section 37C of the Act grants the board a discretion to distribute and allocate death benefits equitably. The beneficiary nomination form that was completed by a deceased was not binding on the board and was only used as a guide when it conducts its investigations. Further, if the board relied strictly on the beneficiary nomination form and disregarded the relevant circumstances of each beneficiary, this would prevent it from exercising its discretion properly.
In her determination, Ms Lukhaimane said the deceased and his partner were in a relationship from October 2017. The partner submitted that she was living with the deceased and that she was financially dependent on him as she was unemployed. The fund had received various affidavits confirming the deceased’s intention to marry his partner. Therefore, the partner qualified as a legal dependant.
Since the partner had a few years before reaching retirement age, the board decided to allocate her 57% of the death benefit. The two complainants were young and had income earning potential. Thus, the board decided to allocate the complainants 21% each of the death benefit.
Ms Lukhaimane disagreed with the fund’s submission that that the beneficiary nomination form completed by the deceased was not binding on the board.
“The beneficiary nomination form is a substantial factor which must be given the necessary credence in reaching the decision to distribute a death benefit. The submission by the fund indicates that the beneficiary nomination form was considered by the board, however, it was not followed as other factors supported a different allocation decision.
“However, it is unclear whether not following the beneficiary nomination form was appropriate in this matter because the board failed to carry out proper investigations.
“It may well be that the board was correct to deviate from the beneficiary nomination form, but this must be informed by thorough investigations where such investigations warrant a deviation because allocating the benefit in line with the form would lead to inequitable consequences.
“Therefore, the fund should re-consider the allocation made to the beneficiaries of the deceased,” said Ms Lukhaimane.
She said the fund cannot merely rely on a calculator that predetermines entitlements to portions of a salary depending on a beneficiary’s status to calculate the extent of a beneficiary’s dependency on the deceased.
“This is an incorrect way of apportioning benefits in terms of section 37C of the Act.
“The complainants averred that the partner owns a business. Moreover, it is not clear whether the board considered benefits from any other sources. Therefore, it appears that the board fettered is discretion as it merely relied on a benefit calculator and failed to actively investigate all the relevant factors in order to make an equitable allocation of the death benefit to the beneficiaries of the deceased.
“The board must weigh the various factors in arriving at its decision. In this instance, considering the amount available for distribution, the number of beneficiaries, their ages, their income earning potential, their relationship with the deceased and the wishes of the deceased, the Adjudicator is not satisfied that the board conducted a proper investigation and made an equitable allocation of the death benefit in terms of section 37C of the Act,” said Ms Lukhaimane.
The decision of the board in allocating the death benefit was ordered to be set aside. The board was ordered to re-exercise its discretion.