What Should the Board of Management of a Pension Fund Consider When Dealing with Death Claims Involving Surviving Cohabitants?

In an article published in 2008, it was argued that the two-pronged factual dependency test for surviving cohabitants, which was formulated in 1998 and has since then been applied by the Pension Funds Adjudicator (hereafter the Adjudicator), should be welcomed because it advances the legislative intent as reflected in Section 37C read with the definition of a "dependant" in the Pension Funds Act. The inquiry under this test is, firstly, whether the parties (that is the deceased member and surviving cohabitant) lived in a relationship of mutual dependence; and secondly, whether the parties ran a shared and common household. According to the Adjudicator, the first prong of the test is qualified by the requirement that mutual dependency must involve, amongst other things, an emotional and intimate or sexual bond. In the same article, it was demonstrated that following the Constitutional Court decision in Volks v Robinson a grey area, arising from the conflicting interpretations of the factual dependency test as applied by the Adjudicator, had emerged and the article called on the then Adjudicator Mamodupi Mohlala to clarify the uncertainties created in the law by earlier conflicting interpretations of the Act. Since then, the issue of whether a cohabitant qualifies as a factual dependant was determined by the Adjudicator in Hlathi v University of Fort Hare Retirement Fund. In this case, the Adjudicator ruled that a cohabitant qualifies as a factual dependant as long as it can be established he/she and the deceased pension member were in a permanent relationship of mutual dependency or interdependency, and that they shared a common household.


Introduction
In an article published in 2008, it was argued that the two-pronged factual dependency test for surviving cohabitants, which was formulated in 1998 and has since then been applied by the Pension Funds Adjudicator (hereafter the Adjudicator), should be welcomed because it advances the legislative intent as reflected in Section 37C read with the definition of a "dependant" in the Pension Funds Act. 1 The inquiry under this test is, firstly, whether the parties (that is the deceased member and surviving cohabitant) lived in a relationship of mutual dependence; and secondly, whether the parties ran a shared and common household. According to the Adjudicator, the first prong of the test is qualified by the requirement that mutual dependency must involve, amongst other things, an emotional and intimate or sexual bond. In the same article, it was demonstrated that following the Constitutional Court decision in Volks v Robinson 2 a grey area, arising from the conflicting interpretations of the factual dependency test as applied by the Adjudicator, had emerged and the article called on the then Adjudicator Mamodupi Mohlala to clarify the uncertainties created in the law by earlier conflicting interpretations of the Act. Since then, the issue of whether a cohabitant qualifies as a factual dependant was determined by the Adjudicator in Hlathi v University of Fort Hare Retirement Fund. 3 In this case, the Adjudicator ruled that a cohabitant qualifies as a factual dependant as long as it can be established he/she and the deceased pension member were in a permanent relationship of mutual dependency or interdependency, and that they shared a common household. the new test does not expressly incorporate the relevant requirement that a relationship of mutual dependence involve an emotional and intimate or sexual bond.
As a result, the note is critical of this omission because it creates a potentially new uncertainty in the law, and calls on the current Adjudicator to clarify this matter. Section 37C was enacted and inserted into the Act in 1976. This section regulates the payment of any benefit payable upon the death of a pension fund member, and places a duty on the Board to distribute the death benefit. The term "pension fund" is defined in Section 1 of the Act to mean a "pension fund organisation". The term "pension fund organisation" is in turn defined as: any association of persons established with the object of providing annuities or lump sum payments for members or former members of such association upon their reaching retirement dates, or for the dependants of such members or former members upon the death of such members or former members. 8 In addition, the language of Section 37C(1) 9 of the Act provides that: regardless of the provisions of any other law, including the common law and notwithstanding the rules of a registered fund, any benefit payable upon the death of a pension member must be dealt with in terms of the scheme outlined in the Act. 10 Section 37C therefore overrides the freedom of testation in relation to the benefits payable by a pension fund in the event of death of a pension fund member, and gives the discretionary powers to distribute such benefits to the Board. 11 The guiding 8 Chap 1 Pension Funds Act. 9 Notwithstanding anything to the contrary contained in any law or in the rules of a registered fund, any benefit (other than a benefit payable as a pension to the spouse or child of the member in terms of the rules of a registered fund, which must be dealt with in terms of such rules) payable by such a fund upon the death of a member, shall, subject to a pledge in accordance with section 19 (5)  Section 37 of the Act was intended to serve a social function. It was enacted to protect dependency, even over the clear wishes of the deceased. The section specifically restricts freedom of testation in order that no dependants are left without support.
[It] specifically excludes the benefits from the assets in the estate of a member, [and] enjoins the trustees of the pension fund to exercise an equitable discretion, taking into account a number of factors.
To achieve this purpose, the legislature embraced a broad definition of "dependant" in the Act. This definition reads as follows: dependant, in relation to a member, means-

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(a) a person in respect of whom the member is legally liable for maintenance; (b) a person in respect of whom the member is not legally liable for maintenance, if such person-(i) was, in the opinion of the Board, upon the death of the member in fact dependent on the member for maintenance; (ii) is the spouse of the member; (iii) is a child of the member, including a posthumous child, an adopted child and an illegitimate child; (c) a person in respect of whom the member would have become legally liable for maintenance, had the member not died … 16 What should be clear from the above definition is that the Act creates three categories of dependants. The first is a legal dependant under subsection (a). The second is a factual dependant under subsection (b). The third is a future dependant under subsection (c). While the legislature's worthy intentions in enacting Section 37C, read with the definition of "dependant", are admirable, the Adjudicator has critically observed that Section 37C: is a hazardous, technical minefield potentially extremely prejudicial to both those who are expected to apply it and to those intended to benefit from its provisions. It creates anomalies and uncertainties rendering it most difficult to apply. There can be no doubt about its noble and worthy policy intentions. The problem lies in the execution and the resultant legitimate anxiety felt by those who may fall victim to a claim of maladministration in trying to make sense of it. Any successful claim for maladministration will be borne ultimately by the other members, the participating employer, or perhaps even the members of the board of management. One admirable aspect of the section is its worthy intention to protect dependants who do not reside in the same vicinity as the deceased member. One thinks here naturally of migrant labourers working in the urban areas with dependants in remote rural areas. By imposing a duty on the board to trace dependants the section advances such persons interests. However, there is legitimate concern about the practical difficulties of tracing such dependants. One solution may be for the section to identify more precisely the steps required to be taken, including an appropriate form of publication, and then allowing for a final distribution to known dependants and nominees at the expiry of a reasonable period culminating in indemnification of the board against further claims. Further discussion and consideration is obviously required. 17 The difficulties brought about by Section 37C arise out of the three duties this section imposes on the Board. The first of these duties is to identify the dependants of a 188/204 member. The second duty is to effect an equitable distribution of the benefits amongst the beneficiaries, and the third is to determine an appropriate mode of payment. In the discussion that follows, this note will focus on the first duty imposed on the Board, which is to identify potential dependants. 18

Factual background
In Hlathi, the complainant was the mother of the deceased, and the executrix of the deceased member's estate. In light of this recognition, the question to be determined by the Adjudicator was whether Ms Hanise qualified as a spouse. The Adjudicator initially reasoned that since Ms Hanise had a formal relationship with the deceased, which lasted for a period of seventeen years, of which nine years were spent as a husband and wife, she was satisfied that the deceased and Ms Hanise were permanent life partners, and therefore the latter probably qualified as a spouse by virtue of being regarded as a spouse in terms of the amended definition of "spouse" in the Act. 39 Nevertheless, the Adjudicator argued that Ms Hanise was disqualified as a spouse for two reasons.
The first was that the new definition of "spouse" in the Act did not have retrospective  45 According to the Adjudicator's reasoning, since the legislature does not refer to the terms "totally" or "wholly" dependent in the provisions of Section 1 (b)(i), there is no exhaustive list of degree or levels of dependency.
Contrary to the suggestion in Van der Merwe, total dependency is consequently not the sole measure by which to determine dependency for purposes of Section 1 (b)(i). 46 Accordingly, it would be contrary to the legislative intent to exclude a party for purposes of Section 1 (b)(i) of the Act, on the basis that he/she had an interdependent relationship with a deceased member or that the parties had an equal relationship as opposed to a dominant-servient one. Based on the forgoing rationale, the Adjudicator ruled that in cases arising under Section 1 (b)(i) involving a surviving cohabitant it was sufficient to prove that the party seeking benefits was in a permanent relationship of mutual dependence or interdependence and ran a shared and common household with the deceased, and as a consequence of the other party's death he/she was financially worse off. 47 In applying the above principle to this matter, the Adjudicator found that Ms Hanise and the deceased contributed equally towards bond payments of both their homes and other household expenses. The Adjudicator also found it significant that the parties mutually supported each other in a relationship that lasted for a period of seventeen years, and that Ms Hanise's financial position had dramatically changed since the deceased's death. Based on these findings, the Adjudicator ruled that Ms Hanise fell within the scope of the definition of a factual dependant as set out in Section 1 (b)(i) of the Act, and was correctly regarded as a dependant by the Board. 48 The Adjudicator also considered the second responsibility of the Board, which, as indicated above, requires it to decide on an equitable distribution of the benefits amongst all identified dependants. 49 In determining whether the Board acted 194/204 equitably in the distribution of the benefits, the Adjudicator observed that in making its decision, the Board needed to consider all relevant information and ignore irrelevant factors. Furthermore, the Board should not rigidly adhere to a policy or fetter their discretion in any other way. 50 The Adjudicator also noted that her duty was not to decide what the fairest or most generous distribution was, but to determine whether the Board had acted rationally and arrived at a proper and lawful decision. 51 Consequently, the Adjudicator could only set aside the Board's decision should it have exercised its discretionary powers unreasonably and improperly.
In the present matter, the Adjudicator found that the Board allocated sixty-six per cent of the benefits to Ms Hanise because its investigation revealed that she ran a common household with the deceased for nine years, and that they were interdependent as confirmed by evidence of shared expenses. It is important to mention that the Adjudicator did not consider the third responsibility, which requires the Board to make an appropriate mode of payment, because it was not pertinent to the matter.
Considerations of the third responsibility typically arise when a minor beneficiary is involved. 52 The Adjudicator was satisfied that the Board acted reasonably and properly and considered relevant factors in settling upon its decision, and as a result there were no legal grounds to alter the Board's decision in the matter.

The Implications of Hlathi v University of Fort Hare Retirement Fund
Hlathi is important and should be welcomed by the pension funds industry because it

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If a member dies in service and the Fund receives a claim from a live-in or common-law partner, the Fund will apply the dominant/servant relationship test where the partner who was a member of the Fund was dominant in the relationship, with the surviving partner substantially dependent on the deceased. In such an event, the surviving partner may be considered to benefit from the lump sum death benefit. 57 Hence, Hlathi should be welcomed because it ensures that the Act is interpreted in a manner that promotes the values that underlie an open and democratic society based on human dignity, equality and freedom. 58 In the aftermath of Hlathi, there are a number of requirements that pension funds have to take into consideration when dealing with such matters in future. Firstly, the requirements pronounced in Hlathi must fully inform the rules or policies of any registered pension fund when dealing with death claims involving surviving cohabitants. Pension funds, such as the Eskom Pension and Provident Fund, which may have adopted policies or rules in accordance with the dominant-servient test as the basis for dealing with claims involving surviving cohabitants, will have to amend their rules or policies in this regard, and ensure that this test is no longer employed as a basis for qualifying a factual dependant. Instead, pension fund rules or policies should comply with the decision in Hlathi. In addition to this requirement, it is recommended that pension funds request members advise them of the existence of a cohabitant or life partner for purposes of record-keeping. Pension funds could also incorporate the requirements in Hlathi into their rules or policies as evidenced by the Eskom Pension and Provident Fund policy above, which was adopted in reaction to the determination in Van der Merwe. The above recommendations will allow pension funds to keep a record of existing cohabitants or life partners, and assist them to identify the same and dispose of death claims in a procedurally fair, economical and expeditious manner.
Another requirement of Hlathi is that cohabitants are now covered under the Act.

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observation of the requirements in Hlathi is that they could potentially lead to the improvement of the lives of many South Africans, who choose not to marry their partners (or to enter into a civil partnership under the Civil Union Act), but live together permanently and continue to have financial dependency on their partner after their partner's death. As the Adjudicator correctly noted in Smith v Eskom Pension and Provident Fund, 59 "when a breakdown of an intimate relationship takes place, it would be unjust and perhaps callous to ignore complex issues of financial dependency which arise between the parties involved." It is within the context of this observation that Hlathi is likely to improve the lives of surviving cohabitants in South Africa.

Criticism of Hlathi v University of Fort Hare Retirement Fund
While the determination in Hlathi should be welcomed for the reasons that have been provided above, the determination is weak in some respects and should be criticised for failing to adhere to previous determinations comprehensively. Hlathi

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This note submits that unlike flatmates or members of a commune, a person should qualify as a factual dependant if he/she can establish that they lived in a relationship of mutual dependence or interdependence, involving an emotional and intimate or sexual bond, and ran a shared and common household. The latter proposition is supported by the Adjudicator's determination in Fourie. In this case, the Adjudicator upheld the Board's decision, in particular on the basis that a person who had previously for a period of nine years lived with a deceased member in a relationship of mutual dependence involving an intimate and emotional or sexual bond and a shared common household, but who had then amicably severed this relationship to merely maintain a platonic relationship, does not qualify as a factual dependant. 64 In other cases, the Adjudicator has emphasised the need for the requirement of an emotional and intimate or sexual bond, and appears to have required evidence of an intimate or emotional bond or at least evidence from which a reasonable inference of such a bond can be made. 65 Given the above observations, this note submits that the failure by the Adjudicator to expressly endorse the emotional and intimate or sexual bond requirement creates a potential and unnecessary ambiguity in the law that needs to be clarified. While some commentators have criticised the emotional and intimate or sexual bond requirement as having no significance in the application of Section 37C, it is submitted that this remains relevant in the application of Section 37C given previous cases and the changing societal views on relationships. 66 For example, this note submits that it is not persuasive to maintain that Section 37C was intended to cover a couple who dated and cohabited for a period of twelve months, but continue to live together (as flatmates) because of financial convenience and uncertainty as to whether they remain permanently committed to each other. In other words, this note concurs with the Adjudicator in De Wilzem that Section 37C was not intended to apply to flatmates or members of a commune. In these circumstances, the