Section 37C and Expression of Wish

In a recent judgement (Swart L & Others v The Pension Funds Adjudicator & Others (54157/2019)), the Gauteng Division of the High Court made some interesting points about:

• A deceased member’s expression of wishes.

• Information to be gathered by a fund and the importance of changing circumstances.

• A trust being nominated.

In this article we are concentrating on the findings about expression of wishes and how this may change the approach taken by funds to nomination forms.

The Facts

The deceased had founded a family trust which held a substantial portion of his assets. He nominated the trust and his spouse to each receive 50% of his death benefit from his fund. The deceased had two adult children from a previous marriage, who were both beneficiaries of the trust. The fund awarded 100% of the benefit to the spouse. The adult children were unemployed and to some extent dependent on the deceased. The spouse remarried prior to the allocation of the death benefit. The deceased had passed away in 2014and the spouse remarried in 2018.

Although the fund recognised the dependence of the children, it was satisfied that they had been taken care of as they had each received approximately R220,000.00 from another policy. They were also nominated to each receive 50% of the proceeds of the trust. On this basis they were not allocated any part of the benefit and neither was the trust.

The fund appears not to have considered the solvency of the trust in concluding that the children’s maintenance needs were met. In her determination, the Pension Funds Adjudicator found that the fund had ignored several other important facts e.g.,

• The dependence of the children,

• The age of the spouse and that she may remarry,

• The claim filed by the spouse against the estate to the tune of R10 million.

The matter was referred back to the fund which made the same decision to allocate 100% of the spouse. Some additional facts were considered, including the remarriage of the spouse, but this did not result in a different decision. A further complaint was filed but the Pension Funds Adjudicator regarded herself as functus officio meaning she was not able to consider the complaint again. [1] She advised the trust to approach the High Court to review the matter, which it did.

The High Court set the decision of the fund aside as it found that the decision was so unreasonable that no reasonable person could have so exercised their power. However, the High Court did not substitute the fund’s decision with its own, as it could not find exceptional circumstances that allowed it to do that. The fund was ordered to reconsider the matter and specific facts were identified for it to consider.

Basket of factors and Deceased’s wishes

The High Court confirmed the now well-known basket of factors to be considered by a fund when making an equitable allocation among dependants and nominees in terms of section 37C of the Pension Funds Act. These always bear repeating i.e., age of beneficiaries, relationship with deceased, extent of dependence of beneficiaries, financial circumstances of beneficiaries, and wishes of the deceased.

In this case the wishes of the deceased were the focus. The High Court said that while it accepted that the fund was not bound by the expression of wish, it was also not to be lightly ignored. Before the fund decided to ignore the deceased’s wishes it should have considered whether there were compelling reasons to do so. If it would result in an injustice or be inequitable should the deceased’s wishes be given effect to, then the fund would be justified in deviating from those wishes. In this case there was no evidence that the fund placed any weight on the deceased’s wishes.

Implications

Funds should distinguish between a true nomination (where a non-dependant is nominated) and an expression of wish (where the deceased provides the fund with information about who they would like to receive the benefit and in what proportions). The expression of wish could include dependants as well as nominees. Some funds have moved towards including a statement of dependants on the beneficiary nomination form to assist them with their investigations. This could be extended to a request for an expression of wish. In doing this a fund must provide clear communication as to the status of a true nomination of a non-dependant, statement of dependants, and expression of wish. An expression of wish could also be contained in a will. In some instances, members include a clause in their will to identify beneficiaries of retirement monies. Although this is not binding, it can also be considered by funds.

Funds should consider what information may be requested from members while they are alive which will assist the fund on death. Section 37C allocations are often particularly challenging for funds so the more information obtained the better.

ENDS

[1] Watch out for our next article which will delve into the administrative law side of determinations, reviews, appeals etc.

Gail Le Grellier & Dalene Willemse

Legaltech (Pty) Limited