Retirement funds rules are the main source of the rights and obligations that regulate the relationship between the fund on one hand, and its members and the employer, on the other. The board of trustees of a fund are therefore guided by the rules of that fund.

Background

A summary of the facts is set out below.

Mkhawuleni Paulus Ndwandwe (the deceased) died on 19 September 2018. He was survived by Xoshwaphi Ndwandwe (Mrs Ndwandwe), who he married in terms of customary law in 1988, and his common law wife, Thowi Alvinah Ngcobo (Ms Ngcobo).

At the time of his death, the deceased had 10 children, five born from his relationship with Mrs Ndwandwe, two born from his relationship with Ms Ngcobo, two adult sons born of another prior relationship, and Nosipho Andiswa Mbambo, a minor child born from a relationship with the sixth respondent.

At the time of his death, the deceased was employed by Transnet and was a member of the Transnet Retirement Fund (fund). On 27 October 2000, the deceased completed a beneficiary nomination form in which he nominated the following people to receive a portion of the death benefit: Mrs Ndwandwe, two of his children with Ms Ndwandwe, and two of his children with Ms Ngcobo.

Notwithstanding the nominees and percentages stipulated by the deceased in the nomination form, on 18 March 2019 the fund resolved to apportion the death benefit as follows:

• 40% each to Mrs Ndwandwe and Ms Ngcobo
• 3,66% each to the adult sons born of another prior relationship
• 12,69% to the minor child, Nosipho

Mrs Ndwandwe sought to review and set aside this apportionment by the trustees of the fund before the High Court.

Rules of the fund

In her application, Mrs Ndwandwe contended that the trustees of the fund committed a reviewable irregularity in ignoring the contents and stipulations in the deceased’s nomination form.

The trustees of the fund disagreed with Ms Ndwandwe and argued that it was not bound by the nomination form and was entitled to make an independent apportionment of the deceased’s death benefit to his qualifying dependents as defined in terms of the fund’s rules, and specifically Rule 10.4(iii).

In this regard, Rule 10.4 (iii) provides that:

“If a member has a dependant and the member has also designated in writing to the fund a nominee to receive the benefit or such portion of the benefit as is specified by the member in writing to the fund, the fund shall within 12 months of the death of such member pay the benefit or such portion thereof to such dependant or nominee in such proportions as the trustees may deem equitable: Provided that this paragraph shall not prohibit the fund from paying the benefit, either to a dependant or nominee contemplated in this paragraph or, if there is more than one such dependant or nominee, in proportions to any or all of those dependants and nominees.”

The issues before the court

Although Mrs Ndwandwe raised several grounds of review, the court dealt with the following core issues that required determination:

• Did the trustees of the fund comply with the provisions of Rule 10.4(iii) of its rules when deciding how to apportion the deceased’s death benefit?
• Did the trustees of the fund act reasonably and rationally in arriving at the decision?

Finding

The court found that Rule 10.4(iii) permitted the fund to make any distribution to nominees or dependents that it deemed equitable. Having identified the potential class of dependants, the court further held that the trustees of the fund were vested with a large discretion to determine, in the light of its assessment of their respective needs, in what proportions the death benefit of the deceased would be distributed among his dependants.

The court consequently held that the test in law was whether the trustees of the fund had acted rationally and arrived at a proper and lawful decision in the manner that it distributed the death benefits amongst the deceased’s dependants.

In this regard, the court held that the decision of the trustees of the fund was rational and equitable in terms of law and as required by Rule 10.4(iii) of the fund rules. The court further held that the decision of the trustees of the fund complied with the test, having considered the fund’s rules and the surrounding circumstances of the matter.

Conclusion

This judgment accords with the prevailing law set out in section 37C of the Pension Funds Act 24 of 1956 (PFA). The PFA empowers a board of trustees to take all reasonable steps to identify and locate all potential dependents and beneficiaries of the deceased member’s death benefits and to distribute the benefits in a rational and equitable manner. The board of trustees is therefore not bound to rely solely on the information that is brought to its attention through a member’s nomination form.

Members of pension funds should, therefore, take note that a pension fund is not bound by their nomination form. The fund has a wide discretion to distribute the death benefits in accordance with what it considers to be rational, equitable and in compliance with its rules. This is not to say that a member should not complete a death beneficiary form as a member would be ill-advised not to do so. The form remains an important document for consideration by trustees.

The fund may therefore apportion death benefits to the member’s nominees as well as identified dependents and beneficiaries who are not included in the nomination form, subject to the wording of its rules.