Retirement fund death claims process

The distribution of retirement fund death benefits is governed by section 37C of the Pension Funds Act (the Act). The Board of Trustees (Trustees) of the fund must investigate and gather information they will rely on to decide how the benefit must be distributed, after considering several factors.

Below is a list of 10 things to know about the death claims process and a short case study of a death benefit distribution.

Death claims process open_in_new

Ten things to know

1. Trustees of the fund decide how the benefit will be allocated

This means that the Trustees will assess the death claim and decide how the benefit will be allocated between the different beneficiaries. Even though the deceased member may have nominated a beneficiary, the benefit may not be allocated according to the nomination. The Trustees will take the nomination into account, but they may not necessarily follow it.

2. When the fund is notified of a member’s death

Identify potential beneficiaries. These are dependants (defined in paragraph 3 below) or nominees (persons who do not qualify as dependants who the deceased member nominated to receive the benefit).
Determine the level of dependency of the persons who qualify as dependants. This includes asking for proof of what the member paid for in respect of the person claiming financial dependency, such as bank statements, proof of medical scheme payment or a copy of a maintenance order. Such proof also helps the Trustees to determine what that person’s level of dependency was.
Obtain details of any other benefit pay-outs. The Trustees take other benefit pay-outs into account to find out to what extent that may meet the dependant’s financial needs.

3. There are different categories of dependants expand_less

Legal dependant: a person who the member had a legal obligation to maintain, for example a minor child or a former spouse with a maintenance order;

Factual dependant: a person who the member maintained even though there was no legal obligation to do so, for example someone who lived with the member;

Spouse: includes a person whom the member legally married, a customary law spouse and a permanent life partner;

Child: includes a major child and a stepchild; and

Future dependant: someone who the member would have had to maintain if the member did not die, for example, a fiancé or a child who was not born yet at the date of the member’s death.

4. A person may not be allocated a portion of the benefit

Even though they qualify as a deceased member’s dependant or nominated beneficiary, the Trustees may decide that it is fair to not allocate a portion to specific dependants and/or nominees. The Trustees will decide how to allocate the benefit based on the facts of each claim.

5. The initial decision on the allocation may differ to the final one

After the Trustees make an initial decision on the allocation, all interested parties are given time to provide extra information that may impact the Trustees’ decision. That extra information may affect the decision and the Trustees may allocate a higher amount, a lesser amount or even change the allocation to a specific beneficiary to zero.

6. A life partner can be treated the same as a spouse

Although a person may not have been legally married to the deceased member, that person may be treated as the deceased member’s spouse. The Trustees will look at the information to see if the relationship was a permanent one, for example, by looking at whether they lived together and for how long, whether they shared expenses or whether they were medical aid dependants. A partner in a Muslim or Hindu marriage will also be considered as a spouse of the deceased member.

7. Child of deceased not automatically entitled to portion of benefit

Although a child qualifies as a legal dependant, the Trustees may still decide not to allocate a portion of the benefit to that child. The Trustees will look at several factors, such as each dependant’s financial needs, their ages, whether they are employed or their chances of becoming employed, to decide on the allocation.

8. Married in community of property doesn’t mean spouse entitled to whole benefit

The benefit does not form part of the joint estate and the death benefit will be distributed according to how the Trustees decide it should be allocated.

9. Benefit not part of the deceased member’s estate

The benefit is meant to replace the loss of support that dependants suffer when a member dies. To achieve this, the benefit is allocated to the dependants directly. This means that the benefit will not be used to settle the debts of the estate and there is no estate duty or executor fees paid on the benefit. The benefit may be paid to the estate if there are no dependants and the Trustees allocate the benefit to a non-dependant nominee, and the estate has a shortfall. The shortfall is settled first and any amount remaining will be paid to the nominee. If the member was in arrears with their maintenance obligation when they passed away, this can be claimed from the deceased member’s estate. The person who was entitled to maintenance cannot claim the arrear maintenance from the fund.

10. Beneficiary cannot renounce their portion of benefit in favour of another

If a beneficiary does not want the portion of the death benefit allocated to them and renounces their right to receive the benefit, the Trustees will decide how the benefit will be reallocated.

How we decide: An example

Case study 1

The deceased member was a 49-year-old male who died in November 2019. The death claim value available for distribution R54 000. The deceased member received an annual income of R690 000 and did not have a Last Will and Testament. The fund found six potential beneficiaries and was provided with the following information for each of them as at the date of the member’s death:

A 45-year-old unemployed surviving spouse: married to the deceased member since 2008.
A 20-year-old son: the member’s son from a previous relationship who did not live with the deceased member and was a second-year student. The deceased member paid for his studies.
A 17-year-old daughter: the member’s daughter from a previous relationship who did not live with the deceased member and was a grade 11 learner. The deceased member paid R500 a month maintenance.
A 10-year-old daughter: the member’s daughter with the surviving spouse who was a grade 6 learner.
A 6-year-old son: the member’s son with the surviving spouse who lived with the deceased member and was a grade 1 learner.
A 1-year-old son, the member’s son with the surviving spouse who lived with the deceased member.

Case study 2

The deceased member was a 49-year-old male who died in November 2019. The death claim value available for distribution was R1 400 000 The deceased member received an annual income of R690 000. He left his entire estate, worth R2 000 000, to his surviving spouse. The fund found six potential beneficiaries and was provided with the following information for each of them as at the date of the member’s death:

A 45-year-old surviving spouse: married to the deceased member since 2008 and was employed, earning an annual income of R600 000.
A 20-year-old son: the member’s son from a previous relationship who did not live with the deceased member and was a second-year student. The deceased member paid for his studies.
A 17-year-old daughter: the member’s daughter from a previous relationship who did not live with the deceased member and was a grade 11 learner. The deceased member paid R500 a month maintenance.
A 10-year-old daughter: the member’s daughter with the surviving spouse who was a grade 6 learner.
A 6-year-old son: the member’s son with the surviving spouse who lived with the deceased member and was a grade 1 learner.
A 1-year-old son, the member’s son with the surviving spouse who lived with the deceased member.

The benefit was allocated as follows

This case shows that certain factors such as the value of the benefit, ages and employment status were considered in deciding the allocation of the benefit. It also shows how the different factors can lead to a different allocation. Each death claim is assessed by the trustees based on its own merits.

Case study 1

The potential beneficiaries all qualify as the deceased member’s dependants.
As the spouse was unemployed, their household lost its only source of income when the member died.
Considering the small value of the benefit that is available for distribution and the three minor children the spouse must look after, the Trustees decided to allocate 100% of the benefit to the spouse.
The benefit is too small to consider paying anything to the major son of 20, who is able to find employment.

Case study 2

The 45-year-old surviving spouse: the Trustees considered her salary, the amount she received from the estate and her age. They allocated 12% of the benefit to her.
The 20-year-old son: the Trustees considered his age and that his studies were funded by the deceased member. They allocated 1% of the benefit to him.
The 17-year-old daughter: the Trustees considered her age, that she is a scholar who will complete her tertiary education and the maintenance that the deceased member paid. They allocated 1% of the benefit to her.
The 10-year-old daughter: the Trustees considered her age, that she is a scholar who will complete her schooling and tertiary education and that she lived with the deceased member. They allocated 24% of the benefit to her.
The 6-year-old son: the Trustees considered his age, that he is a scholar who will complete his schooling and tertiary education and that he lived with the deceased member. They allocated 28% of the benefit to him.
The 1-year-old son: the Trustees considered his age, that he still has to go to school to complete his schooling and tertiary education, and that he lived with the deceased member. They allocated 34% of the benefit to him.

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Retirement fund death claims process

Ten things to know

1. Trustees of the fund decide how the benefit will be allocated

2. When the fund is notified of a member’s death

3. There are different categories of dependants expand_less

4. A person may not be allocated a portion of the benefit

5. The initial decision on the allocation may differ to the final one

6. A life partner can be treated the same as a spouse

7. Child of deceased not automatically entitled to portion of benefit

8. Married in community of property doesn’t mean spouse entitled to whole benefit

9. Benefit not part of the deceased member’s estate

10. Beneficiary cannot renounce their portion of benefit in favour of another

How we decide: An example

Case study 1

Case study 2

The benefit was allocated as follows

Case study 1

Case study 2

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