Adjudicator finds Alexander Forbes erred in calculating pension fund benefits

An Alexander Forbes retirement fund’s decision to allocate a death benefit has been set aside by the Pension Funds Adjudicator because the administrator had failed to conduct thorough investigations and instead, relied on a benefits calculator to tell them what to do.

In this specific case, Alexander Forbes did not follow the beneficiary nomination form to the letter. Rather, it considered the extent of the beneficiaries’ dependency on the deceased and apportioned the death benefit using the set calculation.

“The fund cannot merely rely on a calculator that predetermines entitlements to portions of a salary depending on a beneficiary’s status,” said adjudicator Muvhango Lukhaimane, in a media release.

The Office of the Pension Funds Adjudicator is a statutory body established to resolve disputes in a procedurally fair, economical and expeditious manner. The adjudicator's office investigates and determines complaints of abuse of power, maladministration, disputes of fact or law and employer dereliction of duty in respect of pension funds.

Two brothers had complained to the adjudicator about the allocation and distribution of a death benefit by the fund following the death of their father. A lump sum death benefit of R662 122.97 became available for distribution to his beneficiaries. The board of trustees of the fund resolved to allocate 21.5% of the death benefit to each of his sons and the remaining 57% to the deceased’s life partner..

The adjudicator said, the complainants were aggrieved with the decision of the board as they did not consider their fellow beneficiary as their deceased father’s life partner, and that she was not entitled to a death benefit.

The complainants submitted that the partner was neither living with the deceased nor was she financially dependent on the deceased. The complainants submitted that the deceased’s sister took care of him during his illness. The two sons further submitted that they were both unemployed as of the date of the death of their father.

The complainants also averred that the partner owned a drinking establishment which recently caught fire, and that the board failed to conduct a proper investigation, to establish all these facts. They wanted the fund to reverse the initial allocation and pay out the full benefit to his biological children.

In its submission, the fund said its board had conducted a thorough investigation and had identified all potential dependants of the deceased in order to decide upon an equitable allocation of the death benefit.

The fund submitted that the board identified the following four potential dependants of the deceased: his former spouse who was not financially dependent; the two unemployed sons who were financially dependent; and the partner who was unemployed and financially dependent.

It stated that the deceased completed a beneficiary nomination form on July 8, 2020, wherein he nominated his life partner to receive 50% and the complainants 25% each of the death benefit. It had also received affidavits confirming the deceased and his partner was in a love relationship and that the deceased intended on marrying her.

The fund then confirmed that it used a benefits calculator as a mechanism to determine the financial dependency of each dependant on the deceased. The fund said that section 37C of the Pension Funds Act granted the board of trustees the discretion to distribute and allocate death benefits equitably and that the beneficiary nomination form was not binding on the board and was used only as a guide when it conducted its investigations. Furthermore, it stated, that if the board relied strictly on the beneficiary nomination form’s allocation and disregarded the relevant circumstances of each beneficiary, that would prevent it from exercising its discretion properly.

Since the partner had a few years before reaching retirement age, the board decided to allocate her 57% of the death benefit. The two complainants were young and had income-earning potential. Thus, the board decided to allocate the complainants 21% of each of the death benefits.

In her determination, Lukhaimane concurred that the partner was living with the deceased and that she was financially dependent. The fund had received various affidavits confirming the deceased’s intention to marry his partner. Therefore, the partner qualified as a legal dependant.

However, she disagreed with the fund’s submission that the beneficiary nomination form completed by the deceased was not binding on the board.

“The beneficiary nomination form is a substantial factor which must be given the necessary credence in reaching the decision to distribute a death benefit.” In addition, she stated that ”it is unclear whether not following the beneficiary nomination form was appropriate in this matter because the board failed to carry out proper investigations.“

She said the fund could not merely rely on a calculator that predetermined entitlements to portions of a salary, depending on a beneficiary’s status to calculate the extent of a beneficiary’s dependency on the deceased. And due to the fact that the partner owned a business, was not clear whether the trustees considered benefits from any other sources.

Therefore, it appeared that the trustees fettered their discretion as they merely relied on a benefits calculator and failed to actively investigate all the relevant factors in order to make an equitable allocation.

“The board must weigh the various factors in arriving at its decision. In this instance, considering the amount available for distribution, the number of beneficiaries, their ages, their income-earning potential, their relationship with the deceased and the wishes of the deceased,” said Lukhaimane.

The adjudicator was thus not satisfied that the board conducted a proper investigation and made an equitable allocation of the death benefit under the act, and the decision of the board in allocating the death benefit was ordered to be set aside and for the trustees “to re-exercise its discretion”.

Personal Finance asked Alexander Forbes for comment on the finding, and its communication office stated that the determination would be delivered to the board of trustees of the Alexander Forbes Retirement Fund, allowing them to evaluate and reconsider their decision within the required time.

“Alexander Forbes, together with the trustees of the Alexander Forbes Retirement Fund, remain committed to ensuring a thorough and fair process to determine the allocation of death benefits,” the statement added.

PERSONAL FINANCE