In a groundbreaking judgment regarding the distribution of death benefits, the Constitutional Court on Friday held that dependency must be assessed based on facts at the date of a member to a pension fund’s death, not at the time distribution decisions are made.

Every year, South African retirement funds distribute billions of rands upon the death of their in-service members to persons who were “dependents” of a deceased member. These benefits are distributed in terms of section 37C of the Pension Funds Act.

This application related to the equitable allocation and distribution of death benefits held within a pension fund. The Constitutional Court noted that it is particularly important in the context of South Africa’s high incidence of employment precariousness and dependency on a single breadwinner. Pension fund benefits provide much-needed assistance to those left vulnerable in the event of the death of their primary supporter.

In this case, Tshifhiwa Mutsila’s husband died in 2012 of work-related injuries. She was left to care for herself and their five children. She filed a claim with her pension fund, the Municipal Gratuity Fund, claiming the death benefit of R1.6 million.

However, she discovered there was a competing claim from another woman, Dipuo Masete, who said she was the customary wife of the deceased and that they had two children. The fund recognised both the applicant and Masete and their respective children as dependents of the deceased. The fund allocated 47.5% of the benefits to Mutsila and 52.5% to Masete and her children.

A complaint was lodged with the Pension Funds Adjudicator who found that the fund had not conducted a proper investigation as required by the Act to identify the beneficiaries of the deceased and set aside its decision regarding the allocation of the death benefit.

The fund meanwhile launched an application in the high court, which found that the fund had failed to conduct a diligent investigation and dismissed the application. The fund’s subsequent appeal to the full court was dismissed on similar grounds.

The fund appealed that decision to the Supreme Court of Appeal, which set aside the adjudicator’s decision and upheld the decision taken by the fund. It held that both the high court and the full court failed to recognise whether Masete and her two children were factually dependent on the deceased.

In a unanimous judgment penned by Judge Leonora Theron, the ConCourt held that a proper investigation to determine the dependency of Masete and her children was not carried out by the fund. The extent of factual dependency is crucial when a fund makes an equitable allocation and distribution, it said.

The apex court held that the date of death is to be used to determine dependency. It, however, said that this did not mean that changed circumstances cannot be taken into account when the equitable allocation is made.

If, at the distribution stage, there are changed circumstances that alter the needs of the dependent, the fund may have regard to these circumstances when determining an equitable distribution. The court held that it was necessary to remit the matter to the fund and directed it to conduct its investigation afresh and to consider who the dependents of the deceased were at the time of his death. This investigation must be concluded within three months.

zelda.venter@inl.co.za

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