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Update: Regulatory issues for retirement funds

Update: Regulatory issues for retirement funds

Two-pot system
Conduct of Financial Institutions Bill
Draft Interpretation Ruling
Omni Conduct of Business Return
Quarterly unclaimed benefit returns to the Financial Sector Conduct Authority
Treating Customers Fairly (TCF) Questionnaire

1. Two-pot system update

Treasury has presented its updated proposals on the two-pot system to the Standing Committee on Finance. On 1 November 2023, Treasury released the next version of the Revenue Laws Amendment Bill (RLAB), which is the draft Bill that contains the two-pot system legislation.

The RLAB will go to the Select Committee on Finance on 21 November 2023. It is at this stage that there could be some important decisions made as to whether to accept Treasury’s two-pot proposals. Recently, Treasury stated in an industry meeting that the RLAB would only be gazetted in 2024.

Part of Treasury’s proposals is to move the implementation date of the two-pot system from 1 March 2024 to 1 March 2025 and this date is included throughout the revised RLAB. However, that date is not yet a done deal. It seems extremely unlikely, however, for Government to continue with a 1 March 2024 implementation date if the final legislation is only gazetted next year.

Proposed changes to the two-pot system

The following proposed changes to the two-pot system, among others, have been included in the latest draft of the RLAB:

Seeding

The seeded amount is a once -off event and it is 10% of the vested pot on 28 February 2025, capped at R30 000 (previously R25 000). Treasury stated that it amended the cap as an inflationary adjustment to the R25 000 originally proposed.

It is important for the fund to know whether the seeded amount reduces the compulsory annuitisation non-vested or vested portion of the vested pot. This has been clarified as follows:

For members of provident funds and preservation provident funds under 55 on 1 March 2021:

What is “seeding”?

Seeding is the amount of the vested pot (everything built-up in the fund by a member up to 28 February 2025) that transfers into the savings pot on 1 March 2025 and that a member can immediately access in cash, without leaving employment or the fund.

the seeded amount will come out of the annuitisation vested and non-vested parts of the vested pot proportionately.

For members of provident funds 55 and over on 1 March 2021 (and still members of the same provident fund): these members only have vested amounts in their vested pot, so seeded amounts come out of their vested amounts.

Opt in or opt out?

Members of provident funds who were 55 and older on 1 March 2021 (and still members of the same provident fund) [1] will now be able to opt into the two-pot system as opposed to opting out of the two-pot system. So, the default is that these members are out of the two-pot system. This is a reversal of the previous position.

Opting in appears to be a once-off option, but the option does not need to be made by these members on or before 1 March 2025. It could be made at any time. If a decision is made to opt in after 1 March 2025, the seeded amount is still calculated as of 1 March 2025.

[1] There is inconsistency in the wording of the Bill across provisions about including the requirement for such older members to still be members of the same provident fund. This may be a drafting issue.

Who could be exempted from the two-pot system?

The following entities or persons may be exempted from the two-pot system: a “legacy retirement annuity policy’’ (in a Retirement Annuity Fund) approved for exemption by the Financial Sector Conduct Authority (FSCA), a beneficiary fund, an unclaimed benefit fund and a fund pensioner.

The tax mechanism for savings withdrawals from the savings pot

The RLAB now contains provisions for the South African Revenue Service (SARS) to issue the fund’s administrator with a fixed rate to tax the savings withdrawal. SARS will need to provide more information to the industry as to how this will work in practice.

Savings withdrawals from the savings pot are taxable at the member’s marginal rate. This has not changed.

More flexibility for defined benefit funds

More flexibility has been drafted into the RLAB for calculating the one-third/ two third split when contributions are paid into a defined benefit fund. If a defined benefit fund can’t do the split based on pensionable service, the RLAB allows for the fund to allocate contributions utilising a reasonable method of allocation, as approved by the FSCA.

How does the two-pot system apply on death?

Treasury’s intention is to maintain the status quo in relation to death benefits. So, after the two-pot system is implemented, beneficiaries would still be able to decide to take their whole death benefit allocation either as an annuity or as a cash lump sum.

Section 37D deductions

Deductions related to housing loans/ guarantees, maintenance orders, divorce orders and theft/fraud/dishonesty against the employer can now be made proportionately from all three pots, including the savings pot (previously deductions were only permissible from the retirement pot and vested pot).

A non-member spouse’s pension interest

When a non-member spouse decides to transfer their pension interest to another fund (after a divorce), it is transferred from the same pot in the transferring fund to the same pot in the receiving fund, or from the vested or savings pot in the transferring fund to the retirement pot in the receiving fund (as decided by the non-member spouse).

2. Conduct of Financial Institutions Bill (COFI)

The State Law Advisors have substantive queries on COFI, necessitating further work. Thus, COFI will not be tabled in 2023.

3. Draft Interpretation Ruling

As dealt with in a previous edition, the FSCA issued FSCA Communication 20 OF 2023 (RF) and a draft Interpretation Ruling intended to replace the current Interpretation Ruling 1 of 2020. This current Interpretation Ruling, which took effect on 25 March 2020, is an interpretation of section 37C of the Act affecting paid-up members, unclaimed benefit members and deferred retirees. The FSCA believes that it made an error in its interpretation of section 37C about unclaimed benefits and wants to replace the existing Interpretation Ruling with a revised version.

The FSCA is currently reviewing the submissions received from the industry. The FSCA mentioned that the existing Interpretation Ruling might be withdrawn and replaced in the first half of December 2023.

4. Omni Conduct of Business Return

The Omni CBR has been delayed and timelines for implementation will be extended.

The FSCA is considering whether to have a different version of the Omni Conduct of Business Return for retirement funds and benefit administrators, as compared to other types of financial institutions.

5. Quarterly unclaimed benefit returns to the FSCA

The FSCA:

- Encourages all funds to ensure they submit their quarterly unclaimed benefits information on time, every time, and accurately;
- Is considering issuing penalties against funds that do not do so; and
- Reminds funds to ensure they update the quarterly return for claims that have been paid.

6. Treating Customers Fairly (TCF) Questionnaire

Many funds have received, from the FSCA, a TCF questionnaire to complete, sometimes as part of a desktop review. The FSCA has stated that it will forward a TCF Questionnaire to all funds that have not yet completed one. It will issue a general communication on the results in March/April 2024.

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Treasury: Two-pot System

Treasury: Two-pot System

Treasury proposes changes to the two-pot system

On 25 October 2023, the National Treasury and SARS presented to the Standing Committee on Finance (ScoF) the Tax Bills, including on the draft legislation that incorporates the two-pot system legislation.

The presentation included a Draft Response Document containing a summary of draft responses from the National Treasury and SARS to public comments received during consultation.

Once the responses have been considered by SCoF, they will be presented to the Minister of Finance for approval, including to approve consequential amendments to the 2023 Draft Tax Bills before formal tabling in Parliament.

We may see some announcements about the two-pot system made in the Medium-Term Budget Policy Statement on 1 November 2023. We may also see the revised Revenue Laws Amendment Bill early in November 2023.

The changes are proposed and not final.

The main proposed changes

Postponing the effective date from

1 March 2024 to
1 March 2025

The cap on the selected amount proposed to be increased from

R25 000 to R30 000

Provident fund members who were 55 or over on 1 March 2021 and who are still members of the same provident fund: to be automatically opted out of the two-pot system but can choose to opt in

Other proposed changes

- It is proposed that the seed capital will be taken proportionately from the annuitisation vested and non-vested benefits in the vested pot when it is moved to the savings pot.
- Lump sum death benefits to remain as they are. Beneficiaries can still choose to take a lump sum or an annuity, as they currently can (their choice).
- No staggering allowed for payment of savings withdrawals from savings pots.
- Exemptions from the two-pot system proposed to be permitted for: funds with no active participating members, funds in liquidation, beneficiary funds, closed funds, and dormant funds as well as pensioners.
- All amounts credited or allocated to the member’s account in the fund after implementation date will be split one-third to the savings pot and two-thirds to the retirement pot.
- Taxation of savings withdrawals from the savings pot is proposed to remain taxable at the member’s marginal rate. SARS will look at a method of notifying a tax rate to funds.
- When a member ceases tax residence in South Africa, it is proposed for pension and provident funds that:
  - The vested pot can be withdrawn (subject to taxation regarding the lump sum withdrawal tax tables).
  - The savings pot can be taken on exit and will be taxed at marginal rates (subject to treaty provisions); and
  - The retirement pot can only be taken by the member after three years and will be taxed according to the relevant lump sum tax table (subject to treaty provisions).
- The member has three options for any amounts remaining in the savings pot on retirement:
  - Take the savings pot in cash (taxed according to the retirement lump sum benefits table).
  - Transfer all or some of the savings pot to the retirement component and annuitise it; and
  - After taking some in cash or transferring some to the retirement pot, the member can choose to leave some amount in the savings pot and take withdrawals from it after retirement. These will, be taxed at marginal rates.
- Section 37D deductions for housing loans/ guarantees, maintenance orders, divorce orders, and misconduct at the employer will be made proportionately across the savings pot, vested pot, and retirement pot.

More information awaited

The longer period proposed will aid effective implementation and member communication. We will have to wait and see what the final version of the legislation holds for us.

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FSCA UPDATES: Training Toolkit & Section 37C & arrears

FSCA Training Toolkit | Section 37C | arrears contributions

FSCA Training Toolkit | Section 37C | arrears contributions

The new Trustee Training Toolkit e-learning platform from the FSCA
Section 37C and unclaimed benefits
3262 employers with arrear contributions – naming and shaming by the FSCA

1. The new Trustee Training Toolkit e-learning platform from the FSCA

The FSCA has an e-learning online platform and offers free training to Trustees on this platform, called the Trustee Training Toolkit. The platform and training have been revamped and were launched by the FSCA at the end of September 2023.

Even if a Trustee has already completed the current Toolkit, they must still complete the new modules of the revamped Toolkit.

The Toolkit will be made up of 22 modules going forward. A brand-new set of 11 training modules was introduced on 27 September 2023. (An additional 11 modules will be introduced in March next year). Trustees will need to complete all 22 modules.

It is compulsory [1] for all Trustees to complete the Toolkit. The 11 modules released on 27 September 2023 must be completed within six months of 27 September 2023 by Trustees existing at this date. If appointed or elected after 27 September 2023, the Toolkit must be completed by a Trustee within six months of their appointment or election. The Toolkit includes assessments, but there is no pass or fail result.

The content of the updated Toolkit is more comprehensive than the old Toolkit. It includes sections on, among other things, governance, contributions, investments, minimum benefits, protection of benefits, types of benefits, fund rules, death benefits, and the effect of divorce and maintenance orders.

[1] Conduct Standard 4 of 2020 prescribes the minimum skills and training requirements for fund board members. It requires fund board members to complete the FSCA’s Trustee Toolkit within six months of being elected or appointed.

2. Section 37C and unclaimed benefits

On 14 August 2023, the FSCA issued a DRAFT Interpretation Ruling (IR) for comment. This is not final.

The existing Interpretation Ruling about section 37C

The FSCA published Interpretation Ruling 1 of 2020 (Retirement Fund) which is an interpretation of section 37C of the Act. It took effect on 25 March 2020.

What is an Interpretation Ruling (IR)?

An IR is issued by the FSCA under the Financial Sector Regulation Act to promote clarity, consistency, and certainty in the interpretation and application of financial sector laws, in this case, section 37C of the Pension Funds Act (the Act).

Once issued by the FSCA, the FSCA must then act in accordance with the IR until a court gives a different interpretation to the relevant legislation, the FSCA changes it, or the particular provision of the legislation is done away with.

Changing its interpretation of section 37C as regards unclaimed benefits

The FSCA believes that it made an error in its interpretation of section 37C about unclaimed benefits.

A change in interpretation for unclaimed benefits

Practical problems

The FSCA states that the current incorrect interpretation has led to unintended consequences. Practically speaking, the error in interpretation gave rise to a large number of section 37C investigations being required for deceased unclaimed benefit members instead of payments to an estate.

Paid-up members and deferred retirees - interpretation stays the same

The remaining provisions of the current IR won’t change, for example those related to paid-up members and deferred retirees. Thus, section 37C applies to deferred retirees and paid-up members if they die before giving the fund written instructions about what they want done with their benefit.

The IR is a draft and may change

3. 3 262 employers with arrear contributions - naming and shaming by the FSCA

The FSCA has said previously that it wants to inform members (and other fund stakeholders) of arrear contributions. On 1 September 2023, the FSCA published Communication 21 of 2023 (RF) and a media release including the names of employers (and funds) with arrear contributions.

3262 employer names were published (with a much smaller list of funds). As of 30 April 2023, the FSCA had received notification of 5430 employer names, but only published the names of employers who have been in arrears for four months or more. The FSCA has stated that it is aware that not all arrear contributions were reported to it, and it views this as an act of non-compliance.

The statistics published are as follows:

Municipalities

approximately R1 billion in arrear contibutions

Private sector companies

approximately R6 billion in arrear contibutions

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Constitutional Court: Mudau v Municipal Employees’ Pension Fund

Constitutional Court: Mudau v Municipal Employees’ Pension Fund

Rules must be Registered before they are applied!

On 2 August 2023, the Constitutional Court handed down judgment in the matter of Mudau v Municipal Employees Pension Fund and others [1]. In a unanimous decision penned by Justice Kollapen, the Constitutional Court set aside a decision of the Supreme Court of Appeal (SCA) and confirmed that a rule amendment with a backdated effective date may not apply before it is registered by the Financial Sector Conduct Authority (FSCA) (or the Registrar of Pension Funds as it was then).

The industry has widely welcomed this eminently sensible judgment.

[1] [2023] ZACC 26

Background

The original Municipal Employees Pension Fund (Fund) rules provided that a member who joined the Fund after June 1998 would upon resignation be entitled to a withdrawal benefit calculated as follows: the member’s contributions, plus interest, multiplied by three (the original rule).

Having been warned by its actuaries that the rule provided for unsustainably high returns, which could operate to the financial detriment of the Fund, the Fund resolved on 21 June 2013 to amend the rule, with effect from 1 April 2013, by providing for the following reduced withdrawal benefits: member’s contribution, plus interest, multiplied by 1,5 (the amended rule).

By backdating the amendment, the Fund sought to avoid the danger that many members may resign if they were aware of the impending reduction of withdrawal benefits. The Fund applied for the registration of the new rule on 22 July 2013, and the Registrar of Pension Funds (Registrar) approved and registered it on 1 April 2014, with an effective date of 1 April 2013.

Mr. Mudau became a member of the Fund in 2003 and resigned from his employment with effect from 31 May 2013. The Fund paid his benefit in accordance with the amended rule (1.5 times contributions) which was lower than he would have got under the original rule. The member approached the Adjudicator’s office, complaining that his benefits should have been calculated in terms of the original rule, since, in terms of the Pension Funds Act, the proposed amendment would only take effect after it was registered.

The Adjudicator upheld the complaint, determining that the amended rule could not be applied to Mr. Mudau’s withdrawal benefits since it had not yet been registered by the Registrar when the benefits became due, and furthermore, that the amended rule could not be applied to benefits which accrued before the amendment was registered.

Timeline of Events

The High Court

The Fund approached the High Court to review the Adjudicator’s determination, which was dismissed. The Fund then unsuccessfully appealed to the full bench of the High Court for a review of this decision. The full bench of the High Court found that the Adjudicator was not obliged to apply the unregistered amended rule which had not been approved and registered by the Registrar when Mr. Mudau resigned and was paid his resignation benefit. It further found that the amendment could not be applied retrospectively in relation to Mr. Mudau, as he was no longer a member of the Fund when the Fund resolved to amend the rule and at the time the amended rule was registered.

The Supreme Court of Appeal

The Fund then appealed the matter to the Supreme Court of Appeal (SCA). The SCA found that the Adjudicator had erred.

The SCA was of the view that although there is a strong presumption in our law against legislation operating retroactively if the wording of the statute is unambiguous and the intention of the legislature (or pension fund) is clearly to interfere with vested rights retroactively, the provisions of the retroactive instrument must be given effect to. If the amended rule explicitly states that it operates retroactively, and thus reduces pension benefits due to members with effect from 1 April 2013, then it must be applied in this manner.

The SCA concluded that the amended rule reduced all withdrawal benefits that had accrued to the Fund’s members after 1 April 2013, even at the time when the rule had not yet been registered by the Registrar.

This judgment caused a great deal of consternation in the industry with widespread concern about the negative impact it could have on members’ benefits.

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

The Constitutional Court

Constitutional issues

Mr. Mudau then approached the Constitutional Court (CC), which upheld the following constitutional arguments –

- His right to equality and to be treated the same as other members of pension funds, who are paid their benefits in terms of the registered rules, has been limited through the application of the unregistered amended rule to the computation of his benefits.
- His right to social security has been limited as his pension benefits, a vehicle for social security benefits, have been affected.
- His right to property has been limited as he has been arbitrarily deprived of his property — his accrued pension benefit.

The CC saw two main issues:

Whether a pension fund may process a member’s claim for a withdrawal benefit in terms of a rule amendment that has yet to be registered by the Registrar; and
Whether a rule amendment may retrospectively or retroactively impact an accrued or vested pension fund benefit.

A fund may not apply an unregistered rule

The CC unequivocally stated that:

“At the heart of this appeal, is whether a fund may apply a rule amendment that is not yet registered in anticipation of its future registration and determine the payment of benefits due on that basis. It may not do so.”

It is the registered rule that is binding on the fund

When the withdrawal benefit accrued and was paid, only the original rule was in existence as the registration of the amended rule has not yet been done by the Registrar. The original rule is the only rule that was in existence at the time. There was no other registered rule in place.

Rules can have a retrospective effect

The CC agreed with the SCA finding in Mostert NO. v Old Mutual Life Assurance Co (SA) Ltd [2] where the SCA held that although amended rules may have a retrospective effect after registration, they do not have a binding effect before registration.

[2] [2001] ZASCA 104

An unregistered rule cannot have binding effect on a fund and its members

There can be no amendment to a rule until it has been registered. Purporting to rely on a rule not yet registered was simply not open to the fund and breached its fiduciary duty to Mr Mudau. The fund acted outside of the provisions of the Pension Funds Act.

The unregistered amended rule did not apply to the Adjudicator proceedings

The retrospective rule amendment did not have the effect of interfering with the state of the law when Mr. Mudau lodged his complaint with the Adjudicator. Adjudicator proceedings are legal proceedings. The Adjudicator must deal with the law as of the date that the complaint is lodged (the legal proceedings are instituted). The date the complaint is lodged is fixed to the date of the law applicable to the dispute. Only the registered original rule was before the Adjudicator not the unregistered amended rule.

The powers of the High Court are confined to the complaint made to the Adjudicator

- The High Court considers the merits of the Adjudicator case afresh;
- Identification of the complaint and the law applicable are determined with reference to the proceedings before the Adjudicator on the merits of the complaint; and
- Additional evidence on the merits may be placed in front of the High Court.

The CC ordered the fund to make good the difference between what the Fund had paid Mr. Mudau in terms of the amended rule and the original rule plus interest at the prescribed legal rate.

A Sensible Judgement

Following the judgment of the SCA in the Mudau case, the position was that a fund could amend its rules to determine the effective date of the amended rule and apply the amendment before registration by the Registrar (or now the FSCA). This led to the members being in the invidious situation where a rule amendment, with a backdated effective date, could negatively impact the amount of the benefit to which they were entitled in terms of existing rules.

Fortunately, the CC has now clarified that this is not the case – where members leave a fund, they are entitled to the benefits in terms of the registered rule at the time of leaving the fund.

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The OPFA Magoleng matter

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.

[1] Sithole v ICS Provident Fund and Another [2000] 4 BPLR 430 (PFA)

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].

[2] Morgan v SA Druggists Provident Fund and Another (1) [2001] 4 BPLR (PFA)

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.

[3] Gowing v Lifestyle Retirement Annuity and others [2007] 2 BPLR 212 (PFA)

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.

[4] Swart N.O. and others v Lukhaimane N.O. and others [2021] JOL 49952 (GP)

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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