Navigating the Complexities of Death Benefits Distribution

Allocating death benefits is a sensitive and often disputed aspect of pension fund management.

Trustees are responsible for identifying dependants and nominees, distributing death benefits fairly based on relevant factors and determining the most suitable method of payment for beneficiaries. 

Section 37c of the Pension Funds Act 24 (1956) governs the distribution of lump-sum death benefits following the death of a member of a pension fund, provident fund, or retirement annuity.

These benefits are not considered part of the deceased’s estate, except under limited circumstances, and are instead entrusted to the discretion of trustees for equitable distribution.

HOW IS IT DONE?

In carrying out their duties, trustees of Namibian pension and provident funds have, to date, relied on the date of death of the principal member to determine beneficiaries (dependants and nominees).

If a beneficiary predeceases the principal member, their portion is reallocated among the remaining beneficiaries.

However, if a beneficiary passes away after the principal member’s death, their share is paid to their estate.

The rationale is that the right to the benefit “vests” at the date of the principal member’s death.

This practice has long guided the distribution of death benefits in Namibia, providing a consistent approach on the matter.

PRACTICES IN SA Vs NAMIBIA

Namibia, though independent, shares a legal history with South Africa.

Both countries continue to rely on Roman Dutch law, including the Pension Funds Act of 1956.

While Namibia still adheres to the original provisions, South Africa has made a number of amendments to its Pension Funds Act over the years, and most recently, promulgated the Pension Funds Amendment Act 31 of 2024.

One key difference is that South African law focuses on the date of disbursement rather than the date of death in determining the rightful beneficiaries.

This shift stems from a recent ruling by the South African Supreme Court of Appeal (SCA) in Funds At Work Umbrella Pension Fund v Guarnieri and Others. This case clarified the timing of determining dependants under Section 37c, suggesting that the distribution should consider the circumstances at the time of disbursement rather than at the date of the member’s death.

CASE STUDY

The Guarnieri case addressed the duty of trustees to identify dependants and distribute death benefits equitably.

The court emphasised that the purpose of Section 37c is to protect the financial interests of dependants, ensuring they are not left destitute and reliant on state support, while not completely disregarding the deceased’s wishes.

A key aspect of the case was the timing of identifying dependants.

The court found that the date of death should not be the sole criterion for identifying dependants.

In Guarnieri, the member’s mother, who had been allocated a portion of the death benefit, died before the funds were distributed.

The fund’s trustees, unaware of her death, still allocated 42% of the death benefit to her.

This allocation was later disputed by the deceased’s widow, who successfully challenged the decision before the pension funds adjudicator, and subsequently in the courts.

The trustees argued that the mother’s claim to the benefit had “vested” at the date of the member’s death and that any changes in circumstances after that date were irrelevant.

However, the SCA disagreed. The court held that to truly protect dependants, trustees must ensure that the people receiving the benefits are still dependants when the benefits are paid.

This ruling means trustees in South Africa must recheck the status of dependants at the time of disbursement to ensure the distribution remains fair and in line with the intent of Section 37c.

DIFFERENCE OF APPROACH

Namibian pension funds predominately rely on the date of death of the principal member to determine beneficiaries.

This means that while Namibian trustees allocate benefits based on the circumstances at the time of the member’s death, their South African counterparts must verify that dependants remain dependants when the benefits are distributed.

This difference places a heavier administrative burden on South African trustees but ensures that only current dependants receive death benefits.

WHAT NEXT?

The distribution of death benefits under Section 37c remains a contentious issue, especially regarding the timing of identifying dependants.

While the South African courts appear to have provided clarity on this matter, in Namibian law, the current legal framework remains in effect unless changed by future legislation or judicial interpretation.

It would be interesting to see this matter appealed in the Constitutional Court of South Africa for further legal development.

The absence of litigation in Namibian courts leaves this question open to interpretation, and trustees must exercise caution in the interim.

The Namibia Financial Institutions Supervisory Authority (Namfisa), as the regulatory body overseeing pension funds, holds the authority to provide clarity by issuing directives or regulatory guidance.

Such an intervention would serve to standardise the practice and eliminate ambiguities regarding whether the date of death or the date of disbursement should be the determining factor.

Until such time as a court ruling or formal guidance from Namfisa is provided, trustees are advised to consider all factors in executing their fiduciary duties, balancing the interests of beneficiaries with the prudent administration of pension funds.

Trustees should remain vigilant and informed, ensuring that they act in the best interests of all parties, while also maintaining compliance with evolving legal and regulatory frameworks.

• Vincent Shimutwikeni is the Head: Legal and Compliance at the University of Namibia and a trustee of a pension fund. He writes in his individual capacity.