Pension Fund Act Section 37c In South Africa Explained | Burger Huyser (2024)

Written by Micaella Snyders

10 February 2022

HOW DOES SECTION 37C OF THE PENSION FUND ACT AFFECT YOUR DEATH BENEFIT LUMP SUM PAYOUT?

WHAT IS A DEATH BENEFIT IN A RETIREMENT FUND?

A death benefit is paid out when a member of a pension, provident, or retirement annuity fund dies while in service or within five years of becoming a pensioner.

WHAT IS SECTION 37(C) OF THE PENSION FUND ACT?

• Section 37C regulates the distribution and payment of a lump sum benefit payable on the death of a member of a pension fund, provident fund, pension, provident preservation fund, and retirement annuity fund, also known as a death benefit.
• The death benefit does not form part of the deceased person’s estate. The death benefit is dealt with separately by the board of trustees responsible for allocating and paying the benefit in a manner deemed fair and equitable as per the Pension Fund Act.
• For the board of trustees to make a fair and equitable decision, they are required to identify the dependants and nominees of the deceased member and effect equitable distribution of the benefit amongst the dependants and nominees.
• The objective of Section 37C is to ensure that the person/s that were dependent on the deceased person is continued to be supported.

WHO QUALIFIES AS A DEPENDENT?

• A dependent is anyone financially dependent on the deceased member at the time of their death.
• A dependent can therefore include a child, parent, grandparent, partner, and a spouse. The list is not exhaustive as a person who can sufficiently demonstrate to the board of trustees that they were financially dependent on the deceased member will qualify as the dependent.
• An investigation will be conducted to firstly identify the dependent and secondly determine the extent to which the dependent was financially dependent on the deceased person.

WHO QUALIFIES AS A NOMINEE?

• The board of trustees must determine whether the deceased member nominated a person/s to receive a portion of the death benefit.
• The nomination must have been made in writing by the deceased member, and the person nominee must not qualify as the dependent of the deceased member.
• Requirements for a nomination:
• It must state who the nominee is;
• It must be in writing;
• It needs to be communicated to the fund;
• It must indicate what portion of the benefit is allocated to the nominee;
• The nomination must be made by the member;

NOMINEE VS DEPENDENT – WHO RECEIVES WHAT?

• A nominee will, by virtue of the nomination, automatically qualify for the percentage allocated to them by way of what is contained in the nomination form. The nominee will, however, only receive this portion of the death benefit if:
• There are no existing dependents;
• The deceased member’s estate is solvent;
• The nominee is alive at the time when the board of trustees makes their decision;
• The nominee was not the cause of the deceased member’s death.

SECTION 37C VS FREEDOM OF TESTATION

• Section 37C overrides the freedom of testation.
• The board of trustees is not bound by the wishes of the deceased member as expressed in the nomination form.
• The death benefit is governed by the contents of Section 37C contained in the Pension Fund Act.

If you have any issues with a death benefit payout or board of trustees of a retirement fund, contact our offices, our deceased estate lawyers In Johannesburg and Gauteng, will be happy to assist you with your matter.