S37C Death Benefits Case Update - PowerPoint Presentation

S37C Death Benefits Case Update Tashia Jithoo

Issues High level overview of s37C Issues dealt with in recent case law Investigations and payments Nominations Permanent life partners ‘ Bloedige hand’ principle Duty of support to elderly parents

Factual S37C DEATH BENEFIT DISTRIBUTIONS STEP 1 : TRACING BENEFICIARIES NOMINEES Nomination in beneficiary nomination forms Not a dependant DEPENDANTS STEP 2: INVESTIGATE CIRCUMSTANCES AND DISTRIBUTE BENEFIT IF ONLY NOMINEES IF BOTH NOMINEES AND DEPENDANTS IF ONLY DEPENDANTS IF NO NOMINEES AND NO DEPENDANTS LEGAL NON-LEGAL FUTURE Distribute according to nomination form First pay to estate what is needed to settle debts Wait 12 months to see if any dependants found Distribute equitablyConsider basket of factorsPay within 12 months but can take longer if need more time to investigate STEP 3: PAY BENEFIT To minor beneficiary To major beneficiary Cash lump sum (to guardian / caregiver)Cash instalments (to guardian / caregiver)Trust (if requested and nominated)Beneficiary fund (if requested or if necessary) Extent of nature of dependencyFinancial circumstancesAgeRelationship with deceasedDeceased’s wishesAmount of benefits Cash lump sum Cash instalments (in written agreement)Trust (if requested and nominated)Beneficiary fund (if requested) Pay to Estate Pay to Guardian’s Fund or Unclaimed Benefit Fund(if no inventory to Master) ChildrenBiologicalAdoptedPosthumous SpousesPermanent Life PartnersVarious factorsCivil UnionCivil Union Act“Spouses”Marriages ActRecognition of Customary Marriages ActCivil Union ActReligion Acknowledgment to Bowmans for use of diagram

Investigations & Payments Masindi v Chemical Industries National Provident Fund and others (Case No 16/24267 decided 13/12/2016 – High Court) Sithole v NBC Umbrella Retirement Fund and another [2018] 2 BPLR 504 (PFA)

Investigations & Payments Dobie NO v National Technikon Retirement Pension Fund [1999] 9 BPLR 29 (PFA). Q: What is the 12 month period for? From Dobie, it is generally accepted that the 12-month period in s37C does NOT refer to the general time period to make payments but rather to the period to trace beneficiaries before the obligation is triggered to pay to sole nominee (who is not also a dependant) This is a practical approach given how time-consuming investigations can be.

Investigations & Payments Masindi v Chemical Industries National Provident Fund and others (HC Case No 16/24267 decided 13/12/2016) Q: When does the 12 month period commence? Relevant to when interest started to run on amounts due by fund to beneficiaries HC clarified that the 12-month period runs from when fund learns of the death, not the date of death itself - because the obligation to act cannot be triggered if there is no knowledge.But the court also said that funds need to be proactive in their processes and investigations – can’t simply sit back and wait to be informed Mechanisms available to do this? Contribution schedules, Home Affairs checks

Investigations & Payments Sithole v NBC Umbrella Retirement Fund and another [2018] 2 BPLR 504 (PFA) Adj accepted that ‘partial payments’ can be made while investigation is continuing. Here pmts were made to four out of ten benes identified but fund withheld 12.5% pending further investigation of remaining six. Adjudicator took no issue with this approach but reminded Fund that s7D(1)(c) requires that adequate and appropriate information is communicated to members and beneficiaries informing them of their rights, benefits and duties.

Investigations & Payments Sithole ( cont ) What would adequate info entail in this scenario? Reasons for partial payment, process going forward, expected timelines to complete payment process Note: The mechanism of partial payments can be very useful if there are multiple beneficiaries or family units and lengthy, complex investigations. But it could also be risky if info arises or additional beneficiaries are traced later which may have changed the distribution.

Nominations Makhubela v Rand Water Provident Fund and another [2018] 1 BPLR 114 (PFA) Was an ‘anti-nomination’ irt 1.7 mill benefit. Member had four children (two sons, a daughter and a step-daughter). BNF named three benes - fiancé (predeceased), one of two major sons and one major daughter. Excluded step-daughter and the other son. BNF also stated “Don’t pay anything to my adoptive daughter Beauty or my son Eullen because their behaviour disturbed me in my life”. Their exclusion from the distribution that was challenged before the PFA.

Nominations Adj - “the litmus test … relating to the distribution of death benefits is whether or not a party was financially dependent on the deceased member and if by his death the party stands to suffer financial prejudice”. Excluded benes had not demonstrated dependence.Relationship is a key consideration & the ‘anti-nomination’ was indication of strained relationship. Key take-away: ‘Anti-nomination’ cannot be simply accepted by fund without interrogation. Here, indication of a bad relationship, which was one of the factors to consider. Not regarded as a straight anti-nomination.

Nominations Q : The member’s wishes were never communicated directly to the fund, but the Will or other document says “I leave my benefit in XYZ fund to my son.” Is this a valid nomination?

Nominations A: Not a valid testamentary disposition but is it a valid nomination? No, because s37C(1)( bA ) says “If a member has a dependant and the member has also designated in writing to the Fund a nominee to receive the benefit. . . “

Status of Permanent Life Partners Why is this of interest? Legal debate around def of ‘spouse’ & who is a PLP “Spouse” is “a person which is the permanent life partner or spouse or civil union partner of a member in accordance with the Marriages Act, the Recognition of Customary Marriages Act, the Civil Union Act or the tenets of a religion”.Legal debate is around whether PLPs are a category of spouse on their own OR whether, to be a PLP, the relationship must be recog by one of the above Acts or tenets or religion

Status of PLPs Arguable that the words “ permanent life partner, spouse or civil union partner ” indicate that PLP is a category of ‘spouse’ on its own (for purposes of the Act) because persons married ito Marriages Act, Recognition of Customary Marriages Act, Civil Union Act or tenets of a religion already have legal recog as “spouse”PLP’s were included in the def of spouse because without that, they would not be accorded that status and would not qualify for spouse’s pensions. It elevates their status to that of spouses for purposes of pension-related benefits.  

Status of PLPs Makgopa v PPS Retirement Fund [2018] BPLR 102 (PFA) Ms Makgopa - married to mb by customary rites but marriage annulled by court. Fund granted her a share of death benefit but was challenged on the basis that she was not a spouse because marriage had been annulled. Fund then reassessed after learning about the annulment and said that it regarded her as a permanent life partner, which fell within definition of a spouse for purposes of s37C.Decision was challenged on the basis that due to annulment, she could not be regarded as a “spouse” as defined.  

Status of PLPs Fund referred to Hlati v Univ of Fort Hare Retirement Fund and others [2009] 1 BPLR 37 (PFA) which held that a PLP who had an inter-dependent relationship with deceased member, and who was then worse off because of member’s death, would be considered a factual dependant. Fund then said it regarded her as a factual dependant because of shared common household, joint liability iro moveable prop, financial dependence, joint financial responsibility for their children.

Status of PLPs The Adj held: “despite a court order declaring the customary marriage between her and the deceased to be null and void, it is clear that they were in a permanent relationship since 1988. They raised their children together and shared business interests and she was also dependant on him” . Adj also noted that even if she was not a PLP, she would still be a factual dependent because of the joint household, which indicated a mutual financial dependency on each other.

Status of PLPs Swanepoel v Eskom Pension and Provident Fund [2018] 2 BPLR 522 (PFA) Issue here was the PLP’s eligibility for a spouse’s pension. Reinforced the interpretation that ‘spouse’ in the rules is to be read with the definition in the Act, which recognises PLPs as a category of spouse in their own right. Complainant was one of the mb’s three sons nominated in BNF. Each received share of lump sum death benefit but no share of monthly pension payable on member’s death. Sons contested payment of that pension to the life partner saying that she had not even been nominated as a beneficiary by the member.

Status of PLPs Ito the rules, the pension was only payable to an eligible child under age 21 OR if incapable of supporting him/herself due to a physical or mental infirmity OR to a widow( er ). As the sons were all majors and financially able they did not qualify. Re the partner, it was argued that the rules defined a widow as a spouse of a “marriage” so the PLP was disqualified as she was not a spouse in a marriage. But the Adj found that the rules also defined a spouse as including a permanent life partner. So the same interpretation of spouse, as including permanent life partners (from Makgopa) was reinforced here in Swanepoel – ie that one is a PLP in own right and not in terms of Civil Union Act.

Key Take-Aways Don’t get caught up in the label. If the marriage is not in terms of any Act (or religion or custom), the person can still be regarded as a spouse if there was evidence of a permanent life partnership. And if not, highly unlikely that someone claiming status as a PLP would not also at least qualify as a factual dependant on the basis of the mutual dependency they carried in a shared household. This would get you over the line for purposes of s37C but maybe not the for a spouse’s pensions on death.

‘Bloedige hand’ principle “ Bloedige hand erf nie ” (common law principle) means that the person responsible for causing the death of another cannot benefit financially from that death. HC in Makanya case made it directly applicable to the GEPF and in Danielz made it applicable to insurance benefits. Nel v Netcare 1999 Pension Fud and another [2018] 3 BPLR 747 (PFA) and Van Rhyn v UTI Flexi Retirement Fund (Pension Section) and another [2018] 3 BPLR now make it clear that the bloedige hand principle applies equally and directly to pension fund cases.

‘ Bloedige hand’ principle In Van Rhyn , the Adj held that “…funds should withhold the payment of benefits allocated to the person accused in terms of section 37C of the Act pending the outcome of a criminal/civil investigation and proceed with the allocation of the death benefit to the other beneficiaries of the deceased. Once the accused has been prosecuted or acquitted, the allocation of the balance of the death benefit should be finalized. Therefore, only once the accused was found not guilty, may a portion of the death benefit allocated to him/her be paid, otherwise it should be re­allocated to other identified beneficiaries.” Practicalities of this?

‘ Bloedige hand’ principle Criminal justice system turns slowly in SA Need to adopt a practical approach, eg info from Investigating Officer re likelihood of chargesWeigh up the risks

‘ Bloedige hand’ principle Q: If the Fund awarded a benefit to the child of the deceased, but the child’s parent was accused of the member’s murder, does this principle preclude payment?

‘ Bloedige hand’ principle Issue arose in Nel that accused would benefit financially if allocated to child Adj was persuaded to allow the payment because it was not going to be paid directly to the guardian but rather to a trust for the child’s benefit Trusts and beneficiary funds can be used to administer the benefit in these circumstances and make direct payments (school, transport, clothes etc) where needed

Duty of Support to Elderly Parents T v University of KwaZulu Natal Pension Fund and Absa Consultants and Actuaries Complainant was sole nominee but mb also had elderly mother and siblings. Much of the investigation was about the complainant’s status - PLP or not Adj held that as he was a nominee, he did not need to prove status as PLP nor financial dependency Fund was conflating the two levels of inquiry

Duty of Support to Elderly Parents Was also an issue re status of member’s elderly mother Fund had failed to prove her dependency on mb No evidence re her own finances then and into the future No evidence re extent of siblings obligation and ability to support her – which they all carried Fact that mb had no children, and the siblings did, was not enough to shift financial burden solely to mb Fund ordered to reconsider decision

Duty of Support to Elderly Parents Similar issue arose in a recent case reported in the media last week Mb and young son killed in accident Mb and child’s mother no longer in relationship but were jointly parenting the child Child’s mother was 50% nominee and received maintenance for the child

Duty of Support to Elderly Parents Fund paid entire benefit to the mb’s mother who was a 50% nominee Reason given was that the maintenance needs of the member’s former partner eased when child died; she was employed and earning R27 000 pm; and was young (37) and fully able to generate income through employment Q : Was the reasoning sound?

Duty of Support to Elderly Parents Adj found: Mb’s mother was age 75, receiving old age pension and had received mb’s life insurance benefit AND there was no thorough investigation about extent of her financial needs Child’s mother was a 50% nominee so she did not need to prove dependency to be considered. Was young (37) and not earning a huge salary. Found she was not properly considered by the board.Benefit size substantial (over 1mill) Set aside decision and sent back to board for reconsideration

Key take-aways A nominee does not have to prove financial dependency on mb to be considered Investigation should be around the overall picture generated when considering entire basket of factors relative to the picture generated for other dependants When considering elderly parents, consider their need and their other sources of income including the fact that siblings of the member/other children of the parents also bear financial responsibility toward elderly parents.

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