Is there a limit to the powers of trustees to determine the mode of payment of a death benefit to a major beneficiary?

In the Mahomed v Argus Provident Fund case the Pension fund adjudicator’s decision relates to the dissatisfaction of the allocation and distribution of a death benefit. The primary issue was whether or not the intended payment of a major dependents benefit in the form of the purchase of an annuity was lawful.

Background on the deceased

The deceased worked at a newspaper for many years and when she passed away she was survived by her two major daughters. The eldest daughter was very ill and was unable to look after herself. She had a tendency to disappear for long periods of time and required constant monitoring. Her finances were to be managed by the executrix of the estate. The youngest daughter of the deceased lived with her husband and three children.

Trustee’s decision

The board decided that the deceased’s tax free contribution of R141 678-81 should be distributed equally between the two daughters. R70 839-41 to be deposited into a trust which will be managed by the executrix for the eldest daughter and R70 839-41 was to be awarded to the younger daughter for her to make a donation to a charity on her mother’s behalf and the remainder to spend as she wished.

The board further agreed that the amount of R1 840 829-27 will be transferred to an annuity to provide a monthly income payable to the trust managed by the executrix to cover the eldest daughter’s monthly expenses.

The amount of R446 621-81 would be transferred to an annuity to provide monthly income to the youngest daughter to cover the costs of her medical aid contributions.

The complainant (youngest daughter) argued that it was unacceptable that the fund be allowed to purchase an annuity at its own discretion and requested the adjudicator to review the inequitable decision.

Determination

The issue before the adjudicator was whether or not the respondent allocated the benefit in terms of Section 37C of the Pension Funds Act 24 of 1956 (“the act”) which regulates the payment of a benefit.

Section 37 states the following:

(2) (a) For the purposes of this section, a payment by a registered fund for the benefit of a dependent or nominee contemplated in this section shall be deemed to be a payment to such dependant or nominee, if payment is made to-

(i) a trustee contemplated in the Trust Property Control Act, 1988, nominated by- (aa) the member;

(bb) a major dependant or nominee, subject to subparagraph (cc); or

(cc) a person recognized in law or appointed by a Court as the person responsible for managing the affairs or meeting the daily care needs of a minor dependant or nominee, or a major dependant or nominee not able to manage his or her affairs or meet his or her daily care needs;

(ii) a person recognized in law or appointed by a Court as the person responsible for managing the affairs or meeting the daily care needs of a dependant or nominee; or

(iii) a beneficiary fund.

From this section we can see that the purchasing an annuity is not included here.

Another important section to note is Sec 37(C)(4), which stipulates that a benefit to a major beneficiary may be paid in more than one payment, only if the major has consented to this in writing. The younger sister did not consent to multiple payments in writing.

Based on the above subsections of Section 37(C), the adjudicator held that the fund should have acquired prior consent from Ms Mahommed to enable them to purchase the annuity.

if an investigation into the affairs of the of the major shows an inability to manage his affairs then the board can look into investing in an annuity, however the trustees must first apply the principles of Section 37.

The adjudicator concluded to say that the death benefit was not properly allocated to the dependants and set aside the board’s decision in allocating the death benefit and the mode of intended payment.

Trustee’s must be careful when choosing a mode of payment and must ensure that the method of payment in the best interest of the deceased’s beneficiaries. Further, that the consent from the major beneficiaries are obtained if the fund is not paying out a lump sum to the beneficiaries.

By Nicole Naidoo
nicole@dyason.co.za