In South Africa, failing to nominate a beneficiary does not mean that a pension fund death benefit is forfeited or automatically distributed in accordance with the deceased’s will. The distribution of death benefits from a registered retirement fund is principally governed by section 37C of the Pension Funds Act 24 of 1956 (“the Act”), which requires the fund to investigate the deceased member’s dependants and determine an equitable distribution of the benefit.

Section 37C provides that, subject to certain exceptions, a death benefit payable by a registered fund does not form part of the deceased’s estate. Where the fund identifies dependants within 12 months of the member’s death, the benefit must be allocated to one or more of those dependants in proportions considered equitable by the fund. Consequently, where no nomination exists, the trustees must undertake an investigation to identify the deceased’s spouse, children and other persons who qualify as dependants under the Act. 

The leading authority is Mashazi v African Products Retirement Benefit Provident Fund and Another 2003 (1) SA 629 (W). The Court held that section 37C serves an important social function by protecting dependants and may therefore restrict the deceased’s freedom of testation. The fund is not bound by the deceased’s will, and a beneficiary nomination is not an absolute instruction. Rather, the nomination serves as a guide to the trustees when exercising their statutory discretion.

This principle was confirmed in Kaplan and Katz NNO v Professional and Executive Retirement Fund 1999 (3) SA 798 (SCA), where the Supreme Court of Appeal held that the statutory scheme in section 37C may override beneficiary nominations. In The Municipal Workers Retirement Fund v Mabula and Another [2017] ZAGPPHC 1153, the Court similarly confirmed that the trustees must identify the potential beneficiaries and determine an equitable allocation, taking into account factors such as the extent of dependency, the relationship to the deceased, the financial circumstances of the dependants and the deceased’s wishes. (SAFLII)

Accordingly, the absence of a beneficiary nomination may create greater uncertainty and potentially delay the distribution process, because the fund cannot rely on the member’s recorded wishes and must conduct its own investigation. Importantly, however, the absence of a nomination does not mean that the deceased’s spouse or children automatically receive the entire benefit. The trustees retain a statutory discretion and must determine an equitable distribution amongst the relevant dependants and, where applicable, nominees.

The recent dispute concerning the late former Deputy President David Mabuza illustrates the practical importance of beneficiary designations and dependency. Reports indicate that Mabuza had nominated Nonhlanhla Mnisi in respect of approximately R44.7 million, while his daughter and her mother challenged the proposed payment and argued that other persons who were financially dependent on him should also be considered. The Mpumalanga High Court subsequently halted the proposed distribution pending determination of the dispute.

While a beneficiary nomination does not guarantee payment to the nominated person, making and regularly updating a nomination remains important. It provides the fund with an indication of the member’s wishes and may assist in reducing uncertainty. Nevertheless, where section 37C applies, the decisive consideration remains the fund’s proper investigation of the deceased’s dependants and the trustees’ lawful and equitable exercise of their statutory discretion. The Financial Services Tribunal has reaffirmed that the trustees must conduct a proper investigation and cannot simply follow a nomination without considering the circumstances of the deceased’s dependants.