SCA RULING ON DEATH BENEFITS FOR DEPENDANTS
Few pension fund matters are more contentious than the allocation and distribution of death benefits, which is one of the most common causes of pension disputes in the courts and before the Pension Funds Adjudicator. A development that should bring some much-needed consistency in how funds identify dependants for the purpose of distributing death benefits is the recent Supreme Court of Appeal (SCA) case in Fundsatwork Umbrella Pension Fund v Guarnieri and Others.
As it seems unlikely that the SCA’s judgment of 31 May 2019 will be appealed, the question of when dependents are to be identified for the purpose of making a death benefit distribution under Section 37C of the Pension Funds Act, can now be seen as settled in law. The result should hopefully be fewer disputes over death benefit distributions.
Under this section of the Act, when a member dies, the board of a retirement fund has an onerous duty to identify the potential ‘dependants’ and distribute the death benefits equitably among them and any nominated beneficiaries. The aim is to protect the interests of the dependants, who might otherwise be a drain on the resources of the State, without entirely overriding the wishes of the late member.
One of the key points made in the Guarnieri judgment is that it is not the date of the member’s death that is relevant when identifying dependants.
The importance of timing
The timing of the identification of dependants was directly pertinent to the SCA’s finding that one of the ‘dependants’in the Guarnieri case was not in fact a dependant. Therefore, the board of the fund concerned had erroneously made an allocation in favour of someone who did not qualify for a death benefit.
In this particular case, the fund member who had passed away was survived by his wife, two children and mother. Prior to the distribution of the member’s death benefits, the mother also passed away. The fund’s board, which was not aware of her death, allocated 42% of the deceased member’s death benefit to her.
Before her death, the mother had completed an election form requesting an advance on the death benefit, and also requesting that the balance of the benefit be used to purchase an annuity. The beneficiary of that annuity after the mother’s death was her daughter, who was living in Australia and was not a dependant of the deceased member.
The deceased member’s widow challenged the distribution, which the Pension Funds Adjudicator set aside and referred back to the board of the fund. The board then made the same allocation as before. The late member’s widow challenged this in the High Court, which also set it aside. The fund then lodged an appeal with the SCA, which dismissed the appeal.
For its part, the fund had argued that the determining criterion for qualifying as a dependant should be the date of the member’s death and that any later changes in circumstance should be ignored.
The SCA disagreed. It held that the only way to ensure that the people identified as dependants are those whose interests Section 37C seeks to protect, is the proper timing of this determination: a dependant should be a dependant when the death benefit allocation is made and should still be a dependant when the benefit is paid.
The SCA also observed that funds of boards should ensure that the information that was used to make the allocation is still accurate, before distributing death benefits. This is because of the scope for changes in the factual circumstances from the date of the member’s death to the time when the death benefit is allocated and distributed.
While the allocation and distribution practices of some funds are already aligned with the SCA judgment, others are not. Such funds should give careful consideration to the judgment, which can be read here.