An interesting question came up the other day that is worth sharing. A member of the Benchmark Retirement Fund passed away leaving a spouse and major children. The deceased completed a beneficiary nomination form at a time the employer participated in another pension fund but did not complete a beneficiary nomination form after the employer moved to the Benchmark Retirement Fund. The investigation by the fund revealed that the major children are employed and are not financially dependent on the deceased and that the spouse is self-employed.
On the basis of these facts the trustees allocated the full benefit to the spouse subject to the spouse applying no less than 51% of the capital to purchase an annuity. Since the needs of the spouse are fully taken care of from her inheritance, the spouse approached the fund whether the capital to be applied can be split up into three portions so that an annuity can be purchased for the spouse and the major children.
The fund informed the spouse that the spouse’s request can unfortunately not be accommodated by it. Section 37A of the Pension Funds Act provides for only 3 exceptions to the general principle that a benefit cannot be reduced, transferred, ceded, hypothecated, executed etcetera. The first exception is with regard to deductions permitted in terms of the Income Tax Act. The second exception is with regard to deductions permitted in terms of the Maintenance Act. The third exception is with regard to any deduction permitted in terms of section 37D.
Evidently the request by the spouse is not covered by the first two exceptions, but what about section 37D. This section is very specific in terms of what may be deducted. It provides primarily for housing loans and loan guarantees and for amounts due to the employer in respect of compensation for any damage caused to the employer through theft, dishonesty, fraud or misconduct. The section also provides for the deceased’s or a beneficiary’s medical aid or insurance premiums to be deducted as well as anything else for which the Registrar has given specific approval.
Once again the request by the spouse is not covered by any of these exceptions and the fund was hence correct in turning down the request by the spouse.
The situation might have been quite different, had the deceased left a valid beneficiary nomination form. In this instance, the fact that the latest beneficiary nomination form was a form of another fund it could not be taken into account by the trustees of the Benchmark Retirement Fund. Section 37C requires that a beneficiary must be designated in writing to the fund, the operative phrases being ‘in writing’ and ‘to the fund’.
Had deceased nominated the two children, the trustees would have had to consider a fair distribution of the death benefit between the spouse and the major non-dependent children and could have been guided by the a properly substantiated request by the spouse. And a final observation – the spouse of course needed not to be nominated to qualify for a portion of the death benefit being a legal dependent of the deceased through marriage.