The Duty to Effect an Appropriate Mode of Payment to Minor Pension Beneficiaries Under Scrutiny in Death Claims

This note focuses on the payment into a trust arrangement in favour of a minor beneficiary as contemplated in terms of section 37C (2) of the Pension Funds Act 24 of 1956. The aim is to examine the criteria under which the boards of management of pension funds may deprive a guardian the right to administer benefits on behalf of minor beneficiaries. This examination is conducted within the context of the approach adopted by the Pension Funds Adjudicator in four specific determinations decided prior, but relevant, to the amendments to the Pension Funds Act, where the board in each case unlawfully deprived a guardian of the right to administer death benefits in favour of a minor beneficiary. Therefore, the note will discuss four specific determinations and thereafter comment about the criteria to be used by practitioners. The note argues that these determinations should be welcomed because of their progressive interpretation of the Pension Funds Act and for setting an important precedent for pension fund practitioners and boards. In each case, the Pension Funds Adjudicator found a violation of section 37C. The note also criticises the remedy granted in two of the determinations, namely Moralo v Holcim South African Provident Fund, and Mafe v Barloworld (SA) Retirement Fund Respondent, and argues that the Pension Funds Adjudicator’s ruling on these matters was arbitrary and capricious because it disregarded its own precedent in Lebepe v Premier Foods Provident Fund & Others. We therefore submit that the Pension Funds Adjudicator should have ordered the boards in Moralo v Holcim South African Provident Fund, and Mafe v Barloworld (SA) Retirement Fund Respondent to pay all of the benefits directly to the complainants and guardians in those determinations.


Introduction
The duty to effect an appropriate mode of payment to minor beneficiaries under section 37C of the Pension Funds Act 24 of 1956 (the Act) has been the subject of several determinations issued by the Pension Funds Adjudicator (the Adjudicator). Section 37C, as amended, of the Act contemplates six modes of payments of death benefits to minor beneficiaries and gives the board of management of pension funds (herein the board) discretion to decide an appropriate mode of payment. 1 (3) Any benefit dealt with in terms of this section, payable to a minor dependant or minor nominee, may be paid in more than one payment in such amounts as the Section 37C as amended provides in pertinent part that: (1) (a) If the fund within twelve months of the death of the member becomes aware of or traces a dependant or dependants of the member, the benefit shall be paid to such dependant or, as may be deemed equitable by the board, to one of such dependants or in proportions to some of or all such dependants.
(2) For the purpose of this section, a payment by a registered fund to a member nominated trustee contemplated in the Trust Property Control Act, 1988(Act No. 57 of 1988; a person recognised in law or appointed by a Court as the person responsible for managing the affairs or meeting the daily care needs of a dependant or nominee; or a beneficiary fund, for the benefit of a dependant or nominee contemplated in this section shall be deemed to be a payment to such dependant or nominee. In terms of s 17 of the Children's Act 38 of 2005, the age of majority has been changed from 21 to 18 as of 1 July 2007. This means that upon reaching the age of 18, a child will no longer be regarded as a minor and for purposes of s 37C and may be entitled to receive their benefits at age 18. This will require pension funds to change their rules or practice in relation to how payments of death benefits under the Act are made.
145/168 board may from time to time consider appropriate and in the best interests of such dependant or nominee. 2 The six alternative modes of payment contemplated in the above provision of the Act are the following: The first is direct payment to a minor beneficiary; 3 the second is direct payment to the minor's guardian; 4 the third is payment into a deceased member nominated trust; 5 the fourth is payment in installments; 6 the fifth is payment to a person recognised in law or appointed by a court as the person who is legally responsible for managing the affairs of a beneficiary or meeting his or her daily care needs 7 ; and the sixth, is payment to a beneficiary fund. 8 This note will focus on the third mode of payment, which is payment into a trust arrangement in favour of a minor beneficiary as contemplated in terms of section 37C (2) of the Act. The problem with this mode of payment is that sometimes it entails a decision by the board on whether or not a parent or guardian should be deprived of the right to administer benefits on behalf of minor beneficiaries. It is important to point out that the Financial Services Laws General Amendment Act 22 of 2008, which was promulgated on 30 September 2008 to amend section 37C of the Act, has introduced a new concept of a pension fund organisation known as a beneficiary fund. Accordingly, the beneficiary fund is a pension fund organisation which is regulated under the Act. The purpose of a beneficiary fund is to accept payments of benefits that were previously paid to trusts by pension funds, when boards either deprived a parent or guardian of their ability to administer the benefits or decided it was in the best interest of the minor beneficiary to pay the money into a trust

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With regard to the payment of the minor child's share of the death benefit into a trust, the Adjudicator noted that section 37C(2) of the Act regulates the mode of payment of a death benefit into a trust in favour of a minor dependant or minor nominee. In interpreting the section 37C(2), the Adjudicator reasoned that when paying a death benefit to a minor, the benefit is normally paid to the guardian of the minor. As a legal guardian of a minor child a parent has a duty, inter alia, to administer the property and assets of her/his minor child. Therefore, based on this reasoning the Adjudicator held that the payment of the minor child's benefit to her/his legal guardian should be done in the ordinary cause of events unless there are cogent reasons for depriving the guardian of the duty to take charge of her/his minor child's financial affairs, and the right to decide how the benefit due to the minor should be utilised in the best interests of the minor child. 12 The Adjudicator noted that common law grants a legal guardian, as against a custodian or a care giver, greater responsibility and authority to make decisions regarding the welfare of a minor child under his/her guardianship, subject to those decisions being in the best interests of the minor. 13 guardianship is used in two senses. In the first sense, the broader definition of guardianship is equated with parental authority and includes all other responsibilities. This is typically used to describe the legal status of the parents of a marital child in their capacity as natural guardians. In the second sense, the On the facts of this case, it was clear to the Adjudicator that the minor child had not been survived by any legal guardian as both of his parents had passed away, and that the deceased's minor child was being cared for by the complainant who was his grandmother. According to the Adjudicator, it was clear that the complainant was acting as the minor child's guardian because she took care of his daily needs.
In addressing the CSRF submission that the complainant was a caregiver and not a legal guardian, and thus its refusal to pay her the death benefit, the Adjudicator explained that: 14 Regarding the question of whether a guardian should be deprived the right to administer the benefit, the Adjudicator noted that there is an onerous duty on the board to carefully consider the facts of each case before depriving anyone, who acts as a guardian of minor child, of the right to administer the financial affairs of the minor child. According to the Adjudicator, the board must consider the following relevant factors in making this decision: (1) the amount of the benefit; (2) the ability of the guardian to administer the moneys; (3) the qualification (or lack thereof) of the guardian to administer the moneys; (4) and the benefit should be utilised in such a manner that it can provide for the minor until he or she attains the age of majority.
On the facts of this case, it was clear to the Adjudicator that the complainant was the one who attended to all the daily needs of the deceased's minor child.
It was also clear that the relationship between the complainant and the minor child was not temporary as in the case of a temporary care-giver. Therefore, the Adjudicator held that the complainant was in the same position as that of a

Lebepe v Premier Foods Provident Fund
Accordingly, what is actually in the best interests of a child is a question of fact in each case; that it might be in the best interests of a minor child for the board to pay his/her share into a trust, but this decision should be taken after all relevant factors have been carefully considered. In the end, the Adjudicator ruled that the board fettered its discretion when it routinely paid the minor child's share of the benefit into a trust without an investigation into the ability of the complainant to administer the affairs of the deceased's minor child and consideration of the factors announced in Ramanyelo v Mine Workers Provident Fund. 18 In this case, the complainant was the wife of Mr Lebepe (the deceased), who was a member of the Premiere Foods Provident Fund (Provident Fund).
Following the deceased's death, a death benefit in the amount of R233 000.00 became available for distribution. The board of the Provident Fund identified the complainant and her three minor children as dependants of the deceased, and distributed R33 000.00 to the complainant and placed the remaining amount into a trust. The complainant as guardian of the three minor children received a total of R675.00 per month from the trust in respect of maintenance of the children.
The complainant was unhappy about the decision of the Provident Fund and claimed that she had been arbitrarily deprived of her right to administer the benefit on behalf of her minor children. She also claimed that the Provident the minor children." Based on these findings, the Adjudicator concluded that the board failed to take account of relevant factors and fettered its discretion when making its decision on the mode of payment on the benefit. Therefore, the decision to pay the three minors children's share of the benefit into a trust was set side, and the Provident Fund was ordered to pay the complainant the remaining amount of the share of the children's benefit in full.

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On the facts of the case, the Adjudicator held that no exceptional circumstances existed to warrant the fund's deviation from the norm of paying a benefit directly to a major or guardian. The Adjudicator was critical of the fund's assertion that it paid the complainant's share of the benefit into a trust due to the fact that she was unemployed, had 25 more years to reach retirement, and had a minor child of 5 years, as unacceptable in law. Instead, the Adjudicator reasoned that there was no evidence that the complaint was labouring under a legal disability such as prodigality, insolvency, mental disability or that she was incapable of managing her own affairs or controlling the lump sum payment. Therefore, the Adjudicator set aside the fund's decision to pay the benefit into a trust and held that the appropriate order would be to direct the fund to pay the complainant the remaining amount of her share of the benefit in full.

Mafe v Barloworld (SA) Retirement Fund Respondent 21
The complainant in this case was the widow of the deceased. Prior to his death, the deceased was a member of the Barloworld Retirement Fund (retirement fund

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have been considered at all in this case, with the board having blindly relied on the deceased's former employer's words instead of conducting its own investigation and properly applying its minds to the matter.
The Adjudicator was critical of the retirement fund's approach to this matter and held that it fettered its discretion when it failed to apply its mind with regard to the appropriate mode of payment of the complainant's share of the benefit.
Furthermore, it held that the board failed to properly exercise the discretion vested in them by section 37C(1) with regard to payment of the eldest son's share of the benefit. Therefore, the Adjudicator set side the board's decision and directed the retirement fund to re-exercise its discretion properly regarding the appropriate mode of payment.

Importance and implication of the determinations
The determinations discussed above (herein collectively referred to as "the above determinations") should be welcomed because of their positive implication towards the administration of pension funds and clarity regarding a grey area in the growing and developing South African pension jurisprudence.
They address an issue that has not received much-needed judicial attention over the years and clarify much that was in dispute about the circumstances under which a guardian can be deprived of the right to administer death benefits on behalf of his minor child. The above determinations are important for a number of reasons including the following: under a legal disability such as prodigality, insolvency, mental disability, or incapacity to manage his own affairs, may properly be deprived of the right to administer death benefits on behalf of a minor beneficiary. 24 • Second, the above determinations are important because they clarify that the board may not deprive a guardian of the right to administer benefits on behalf of his minor child merely because such a guardian is not formally educated, lives in a rural area, or has never handled large sums of money.
Instead, the determinations above stand for the proposition that section 37C requires that the board can no longer routinely pay death benefits into a trust or a beneficiary fund under current legislation without applying their

minds to the factors announced in Ramanyelo v Mine Workers Provident
Fund and confirmed in the above determinations, and must conduct an individualised investigation into whether or not a guardian before them is capable of administering the benefits on behalf of a minor child or children.
Unlike in the above determinations, where the board decided not to pay the benefit to the guardian involved for one reason or another, in Ramanyelo v Mine Workers Provident Fund, it emerged following the Adjudicator's investigation of the complaint that the fund in that case had adopted a policy in terms of which, whenever there was a benefit of R20 000.00 or more payable to a minor child, it was routinely paid into a trust arrangement regardless of the guardian's ability to administer the benefit. 157/168 rulings in the above determinations is that all pension funds with similar practices or policies will have to change the way they handle these matters and align their practices and policies with the reasoning and rulings in the above determinations.
The other effect of the rulings is that they clarify the scope of the investigation that has to be carried out by the board. The Adjudicator has consistently interpreted section 37C as imposing three duties on the board.
The first duty is to conduct a thorough investigation to identify the circle of potential beneficiaries i.e., dependants and nominees. The second duty is to decide on an equitable distribution of the benefits.

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should do what is in the best interest of the child. This aspect of the ruling is important to the jurisprudence of the Adjudicator, who is obliged in terms of sections 7 and 39 of the Constitution 30 to respect, protect, promote the spirit, import and fulfil the rights in the Bill of Rights. 31 In this case, the Adjudicator's ruling respects, protects, promotes the values, spirit, and fulfils the rights of children contained in section 28 of the Constitution. This aspect of the ruling is also important because it contributes to the development of constitutional jurisprudence that reflects the Bill of Rights within the pension fund industry. This is a commendable practice because it ensures that the Constitution has an impact upon the pension fund industry as a whole, and pension members in particular. Put differently, it is good for South African democracy for pension members and/or beneficiaries to see the relevance of the Constitution to pension-related matters. 32 • Fifth, the above determinations are important because of their emphasis on three considerations regarding modes of payment. The first is that direct payment whether to a minor or guardian is the default mode of payment; that the board should not ignore this in favour of other modes of payments provided for in section 37C. Put differently, when faced with a death-benefit distribution, the board should first consider direct payment of the benefit before other alternative modes of payment, and where there is a good reason both in law and fact not to effect a direct payment such other alternative modes of payments may be considered. The second is that the board must consult with the potential beneficiary before the board may pay a benefit into a trust or beneficiary fund. Recall that all of the complainants in the above determinations had complained that they had not been consulted by the board with regard to the decision to pay the benefits into a trust, and the Adjudicator set aside the board's decision in all the above In Davila-Bardales v INS, the First Circuit overturned and remanded the decision of the Board of Immigration Appeals (BIA), a tribunal with functions and powers similar to those of the Adjudicator, when it disregarded its own precedent. The First Circuit noted that the law prohibits a tribunal from adopting significantly inconsistent policies and/or decisions that result in the creation of conflicting lines of precedent governing identical situations. It emphasised that the law demands certain orderliness. If a tribunal decides to depart significantly from its own precedent, it must confront the issue squarely and explain why the departure is reasonable.
The First Circuit further noted that the prospects of a tribunal treating virtually identical legal issues differently in different cases without a semblance of a 162/168 plausible explanation raises the kinds of concerns about arbitrary tribunal action that the consistency doctrine addresses. 40 Likewise, in Mafe v Barloworld (SA) Retirement Fund Respondent, the Adjudicator ordered the retirement fund to re-exercise its discretion. These inconsistent outcomes by the Adjudicator on a similar set of facts should be criticised because they do not promote certainty in the pension fund industry. It is difficult for legal advisers to advise clients regarding the potential outcome of In Ramanyelo v Mine Workers Provident Fund the Adjudicator established precedent when it ruled that "whether a guardian should be deprived the right to administer benefits on behalf of a minor child depends on the applications of the following relevant factors in making this decision: (1) the amount of the benefit; (2) the ability of the guardian to administer the moneys; (3) the qualification (or lack thereof) of the guardian to administer the moneys; (4) and the use of the benefit in such a manner that it can provide for the minor until he or she attains the age of majority.

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the adequate fulfilment of their responsibilities simply because the money they desperately need to enable them to fulfil their responsibility was sheltered in a trust. It is nearly impossible for a person in South Africa to raise two minor children on a monthly income of R200.00. Therefore, we submit that the

Conclusion
To conclude, the above determinations are extremely important given their interpretation of what constitutes an appropriate mode of payment and the circumstances under which a board may deprive a guardian of the right to administer benefits on behalf of minor beneficiaries. The above determinations should be welcomed because of their progressive interpretation of the Act and for setting an important precedent for pension fund practitioners and the boards. They also confirm that the Act is a remedial statute which should be liberally construed by the courts and tribunals to give effect to its purpose of enhancing social protection by granting rather than denying benefits to beneficiaries. Furthermore, the above determinations remain relevant to the recent amendment to the Act because the intention of the legislature seems to be that where a board is of the opinion that it would not be in the interest of a minor beneficiary that his benefit be paid to his parent or guardian (presumably because the parent or guardian is labouring under a legal disability such as prodigality, insolvency, mental disability or is incapable of managing his own affairs), the benefit may be paid to a registered beneficiary fund. 42 42 Swanepoel (n 9).
This means that even with the recent amendments parents or guardians still face the challenge of being deprived of their right to administer benefits on behalf of minor beneficiaries, which is why the application of the criteria announced in the above determinations remains relevant.

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On a substantive and practical level, the above determinations demonstrate that when faced with a death benefit distribution, the board should first consider direct payment of the benefit before other alternative modes of payment, and where there is a good reason both in law and fact not to effect a direct payment such other alternative modes of payments may be considered. Regarding the effects of the above determinations on pension law, we submit that one of the key effects is that the invidious and biased practice of pension funds depriving most African women of the ability to administer death benefits on behalf of their minor children will probably be curbed.