Guarding against retirement funds’ arbitrary discretion when allocating death benefits: The urgent need for statutory guidelines

• Citation: (2021) 7(1) JCCL&P 36
• Date: 16 May 2022
• Published date: 16 May 2022
• DOI: https://doi.org/10.47348/JCCL/V7/i1a2
• Pages: 36-62

https://doi.org/10.47348/JCCL/V7/i1a2

36

GUARDING AGAINST RETIREMENT

FUNDS’ ARBITRARY DISCRETION

WHEN ALLOCATING DEATH

BENEFITS: THE URGENT NEED FOR

STATUTORY GUIDELINES

Motseotsile Clement Marumoagae*

Associate Professor, School of Law, University of the Witwatersrand

and Visiting Associate Professor, Faculty of Law, National University of

Lesotho

ABSTRACT

This article discusses the enormous power enjoyed by retirement

funds’ boards to implement or reject deceased members’ clearly

expressed wishes in their nomination forms or wills when distributing

their death benefits. It demonstrates that boards are vested with wide

discretion to apportion death benefits which, at times, is difficult

to justify. Further, this leads boards to make incorrect allocations

of death benefits by paying some beneficiaries less than others,

completely excluding some from the distribution or allocating the

entire benefit to one beneficiary. It argues that apart from requiring

boards to honestly, rationally and reasonably allocate death benefits

in line with the material facts placed before them, there is a need for

legislative guidance that can effectively guide discretion exercised by

boards of retirement funds when allocating death benefits.

Keywords: retirement funds, death benefits, distribution, boards,

discretion.

I INTRODUCTION

Disputes concerning the distribution of death benefits are common

in South Africa. Some beneficiaries usually complain about the way

retirement funds boards allocate available death benefits or for being

* LLB LLM Diploma in Corporate Law (Wits) LLM (NWU) PhD (UCT) AIPSA

Diploma in Insolvency Law and Practice (UP).

(2021) 7(1) JCCL&P 36

© Juta and Company (Pty) Ltd

37

GUARDING AGAINST RETIREMENT FUNDS’ ARBITRARY DISCRETION

WHEN ALLOCATING DEATH BENEFITS: THE URGENT NEED FOR

STATUTORY GUIDELINES

https://doi.org/10.47348/JCCL/V7/i1a2

excluded from the distribution.1 It seems that the legislative,2 quasi-

judicial3 and judicial4 guidelines that have been provided over the

years are not able to adequately assist boards in properly exercising

their discretion when allocating death benefits to deceased

members’ beneficiaries. With the assistance of a selected case of

the high court, determination of the Office of the Pension Funds

Adjudicator (Adjudicator) and decision of the Financial Services

Tribunal (Tribunal), this article illustrates how boards of retirement

funds use their wide discretion to arbitrary distribute death benefits.

The purpose of this article is to examine the criteria used in South

Africa when boards decide to allocate respective portions of deceased

members’ death benefits to their identified beneficiaries or not

to allocate benefits to some of the beneficiaries. In this article, as

Lehmann has alluded,5 I also argue that retirement funds should be

guided by legislation when exercising their discretion during the

allocation of death benefits.6

First, I explain the current legislative framework on the distribution

of death benefits in South Africa. I illustrate how the Adjudicator and

courts have sought to provide guidance on how death benefits should

be allocated. Secondly, through recent case law, I demonstrate that

boards of management of retirement funds can fetter their discretion

when allocating death benefits. In addition to decided cases, I also

rely on the Adjudicator’s determinations which, while not having a

precedential force,7 play an important role in the growth of pension

1 See for instance Marks-Bayman v RCL Foods Pension Fund & Others [2021] 2 BPLR

506 (PFA); Mhlontlo v South African Retirement Annuity Fund & Another [2021] 3

BPLR 722 (PFA); Lotlhanyang v Old Mutual Superfund Provident Fund & Another

[2021] 2 BPLR 446 (PFA) and Cele v PRASA Provident Fund & Another [2021] 3 BPLR

622 (PFA).

2 Section 37C of the Pension Funds Act 24 of 1956 (PFA) and s22 of Government

Employees Pension Law (Proclamation 21 of 1996) (GEP Law).

3 Sithole v ICS Provident Fund & Another[2000] 4 BPLR 430 (PFA) paras 24 and 25.

4 See, among others, Fundsatwork Umbrella Pension Fund v Guarnieri & Others 2019

(5) SA 68 (SCA) para 7, Government Employees Pension Fund & Another v Buitendag

& Others 2007 (4) SA 2 (SCA) paras 6–8, Greyling v Government Employees Pension

Fund & Another (51529/2012) [2014] ZAGPPHC 905 (7 November 2014) paras 7,

8 and 9 and Titi v Funds at Work Umbrella Provident Fund (1728/2010) [2011]

ZAECMHC 22 (10 March 2011) para 7.

5 See also K Lehmann The distribution of retirement fund death benefits an analysis

of the equitability and constitutionality of section 37C of the Pension Funds Act 24 of

1956 (Phd Dissertation, University of Cape Town, 2021) 212–13, who argues that

‘… guidelines are best provided by the legislature, not the Adjudicators’.

6 Ibid.

7 SKhumalo ‘Jurisprudential Role Played by the Pension Funds Adjudicator in South

African Law’ Paper presented at the Pension Lawyers Association Conference held

on 05 March 2006 at Cape Town, who argues that ‘… the tribunal is not a court

of law and while it is obliged to follow the decisions of the High Courts, it is not

bound to follow its own previous decisions’.

© Juta and Company (Pty) Ltd