The OPFA Magoleng matter

Understanding the Magoleng Death Benefit Determination

A recent press article proclaimed that the Office of the Pension Funds Adjudicator (“OPFA”) had stated the following has been causing some concern:

“But Pension Funds Adjudicator, Muvhango Lukhaimane, said that while section 37C of the Pension Funds Act gives the board the discretion to distribute and allocate death benefits equitably, the beneficiary nomination form was binding.”

The article referred to a determination issued by the OPFA on 23 June in the Magoleng matter. As seen from the information below, this conclusion is misleading, if read on its own, and is not borne out by the determination.

Background

The Deceased had been a member of an umbrella fund (“the Fund”). On his death in 2021, he was survived by his former wife, his current life partner, and two major children. A lump sum death benefit became payable in terms of section 37C of the Pension Funds Act (“the Act”). Having established that the former spouse was employed and was not financially dependent upon the Deceased, the Fund allocated the

DEATH BENEFIT of R662 122.97

to the Deceased’s life partner and two children in the following proportions:

I Magoleng

SON (age 26)

21,5%

T Magoleng

SON (age 25)

21,5%

S Magoleng

LIFE PARTNER (age 54)

57%

PRIOR TO HIS DEATH

the Deceased had signed a beneficiary nomination form, in which he nominated the following beneficiaries to receive the death benefit:

I Magoleng

SON (age 26)

25%

T Magoleng

SON (age 25)

25%

S Magoleng

LIFE PARTNER (age 54)

50%

The Complaint

Both the Deceased’s sons lodged a complaint with the OPFA, stating that in their opinion, the Deceased’s life partner should not have been allocated any portion of the death benefit. Their objections were based on the contention that Ms. Mashiane was not the life partner of the Deceased, nor was she living with the Deceased at the time of his death. The sons further submitted that Ms. Mashiane was not financially dependent upon the Deceased and that she has her own business. In the opinion of the sons, the members of the Board of the Fund had not applied their minds properly to the allocation of the death benefit.

The sons submitted that Ms. Mashiane had not provided the Fund with any proof of financial dependency on the Deceased and that, as the Deceased’s legal dependants, they are entitled to receive the entire lump sum benefit.

The Fund’s Response

The Fund responded by asserting that it had applied the rules set out in the Sithole [1] case, in that it had considered the:

    • ages of beneficiaries;
    • wishes of the Deceased;
    • extent of dependency on the Deceased;
    • beneficiaries’ relationships with the Deceased;
    • future earning capacity/potential of the beneficiaries;
    • financial status of the beneficiaries; and
    • amount available for distribution.

and in so doing, had arrived at what it believed to be an equitable distribution. The Fund further submitted that it had established that:

    • the Deceased’s former spouse was in full-time employment and the Deceased had not been paying her any maintenance;
    • neither son was living with the Deceased at the time of his death, nor was the Deceased financially supporting them and neither son was employed;
    • Ms. Mashiane was unemployed and was financially dependent on the Deceased, with whom she had lived since 2017 and whom she was due to marry soon;
    • the families of the Deceased and Ms. Mashiane had entered into lobola negotiations, which had not been finalized because the Deceased had become ill and subsequently died.

The Fund stated that it had used a “section 37C calculator” to determine what portion of the benefit should be allocated to each beneficiary. It is a system that calculates each beneficiary’s share of the death benefit, based on the length of dependency, the respective beneficiaries’ financial needs, and other factors. The calculator ultimately arrives at a “capitalized Rand value of needs”.

The Fund submitted that it was evident that Ms. Mashiane was the Deceased’s life partner and that she, therefore, qualified as a legal dependant. The Fund was satisfied, from the evidence provided to it, that Ms. Mashiane was financially dependent upon the Deceased.

The Determination

The OPFA confirmed that the factors to be taken into account by the Fund’s Board of Management are those set out in the Sithole case, referred to above. It stated that the Act provides for legal dependants, factual dependants, and future dependants. However, the fact that a person qualifies as a legal or factual dependant does not mean that they will automatically be included in the distribution of a death benefit – the deciding factor is financial dependency [2].

As far as Ms. Mashiane is concerned, the OPFA agreed that, on the evidence provided, she qualifies as a life partner and is, therefore, a legal dependant. So too are his sons – they qualify as legal dependants based on the fact that they are the Deceased’s natural children.

Whether or not a dependant receives any portion of a death benefit must be based on each dependant’s level of dependency, which must be established by the Fund at the time of making its allocation.

The OPFA then went on to consider the situation where the Deceased has left dependants and has also made a nomination. Referring to the Gowing [3] matter, the OPFA held that it is incorrect to assume that once a dependant is identified, the claim of a nominee falls away. A nominee’s level of financial dependency is irrelevant. Nominees qualify for consideration as death benefit beneficiaries purely by virtue of the fact that they have been nominated.

In its submissions, the Fund had stated that it was not bound by the Deceased’s nomination form, which served only as evidence of the wishes of the Deceased. Referring to the Swart [4] matter, the OPFA confirmed that the nomination form is a substantial factor that must be given the necessary consideration by the Fund in making its allocation. In the present case, the Fund stated that it had indeed considered the nomination form but had decided to deviate from it because of other factors. In the opinion of the OPFA, the Fund may well have been correct in deciding to depart from the Deceased’s nomination. But because the Fund did not properly investigate Ms. Mashiane’s dependency on the Deceased, it is impossible to determine whether or not such a departure was justified.

The OPFA found that the Fund had fettered its discretion in relying on a benefits calculator, instead of actively ascertaining the level of Ms. Mashiane’s financial dependency on the Deceased. Because the Fund failed to properly investigate Ms. Mashiane’s level of dependency, it has no basis for departing from the Deceased’s nomination form. This is borne out by the Court’s ruling in the Swart case: although the Fund is not bound by the wishes of the deceased, the wish expressed in a nomination form is not lightly to be ignored.

The Fund was ordered to conduct a proper investigation of Ms. Mashiane’s financial circumstances and to reconsider its allocation of the death benefit.

What can we learn?

    • A nomination form is a substantial factor and should not be lightly ignored.
    • But an investigation can reveal that the board can (and should) move away from the allocation in a nomination form.
    • A calculator cannot replace an investigation into dependency, nor the discretion of the board.
    • Nevertheless, calculators have their place and remain useful.
    • If you use a calculator, ensure that you are careful to explain to the Adjudicator (if you are responding to a complaint) how it is used appropriately.
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