Navigating death benefit distribution

The Institute of Retirement Funds Africa (IRFA) will this year host a series of workshops presented by FedGroup that aim to assist in navigating the veritable minefield that is fair, equitable death benefit distribution.

The workshops will address the many pertinent concerns and challenges faced by the industry, while also working towards industry consensus for a uniform approach to the complexities of the process.

"As Section 37C of the Pension Funds Act provides that death benefits do not form part of the deceased's estate, when a member of a pension fund dies before retirement age, the board has a fiduciary, legal and professional duty to determine how the death benefit of the fund member is distributed among all beneficiaries and dependants, whether listed in the nominees form or not," explains Jeanetta Hendricks, business development manager at FedGroup. This could include any person who was factually or legally dependant on the fund member, which could therefore include spouses, children, parents, and/or any other legal or financial dependants.

According to Hendricks, this makes ensuring that all dependants receive a fair and equitable distribution of the death benefit a highly subjective process that can become an ethical minefield when trying to meet the expectations of nominated beneficiaries, while also satisfying the duties required of trustees.

"Factors that can potentially confound the process include South Africa's unique family dynamics and societal practices, such as fragmented familial structures, child-headed households, and the absence of formal marriage structures, or even legal unions as there are six recognised forms in South Africa," she adds. Other considerations include factual dependants such as same-sex partners, step children, foster children, or common law spouses.

Adding further complexity to the process is determining the level of support required by each dependant, which could include a deceased's spouse, children or even parents, and the difficulty of ensuring that all possible beneficiaries have been located, which should be concluded within 12 months of the fund member's death.

"The Act fails to offer regulated guidelines or directives on how to determine who qualifies as dependants and how trustees should apportion the benefit when making a determination, and there are no express instructions, procedures or formulae to outline what steps could be regarded as reasonable," elaborates Hendricks. Furthermore, many within the industry only read the Act in silos, and rely mainly on industry best practices and value judgements to make these determinations.

Accordingly, the workshops aim to highlight all relevant legislation and legal frameworks - both within the retirement industry and other ancillary legislation - that can be used to make informed decisions. This includes the Financial Services Board's PF 130 circular, as well as case law precedents and ancillary legislation, such as the Children's Act, Divorce Act, and Maintenance Act when making determinations on minor children, or the Civil Union Act and Recognition of Customary Marriages Act to determine spousal or partner apportionment, which can help support the process and ultimate decision.

"There are no clear guidelines on which pieces of legislation should be applied in cases where acts conflict," continues Hendricks. "Accordingly, arriving at a decision on how to distribute a death benefit requires a multi-faceted deliberation process, which we hope to elucidate," she concludes.

"The workshop will provide immense value to attendees," says Wayne Hiller Van Rensburg, IRFA President. "Both industry and the public need more clarity in this aspect of retirement funds, and as such the Navigator Workshops are extremely valuable."

Attendees of the workshops will earn six Continuing Professional Development (CPD) points. For more information or to register for the conference, visit www.www.irf.org.za.