Pension Fund Distributions and the Duty to Support Parents

The recognition of factual dependency plays a crucial role in pension fund law, particularly in the allocation of death benefits under Section 37C of the Pension Funds Act (“the PFA”). The decision of the Financial Services Tribunal (“the Tribunal”) in Semenya and Others v Old Mutual Superfund Pension Fund and Others (“the Semenya case”) provides an insightful illustration of how financial dependence is assessed, particularly in distinguishing between those who are genuinely dependent and those who are not.

The courts have long recognised the reciprocal duty of support between parents and children, as seen in cases such as Oosthuizen v Stanley 1938 AD 322 and Smith v Mutual Federal Co Ltd 1998 (4) SA 620 (C). It must be demonstrated that the parents are in need of financial support and the children have the financial means to do so. In the Semenya case, the deceased’s 79-year-old mother was deemed a factual dependant of the deceased. The Tribunal upheld the Fund’s decision to allocate 5% of the death benefit to her, considering that she was not employed, survived on a state pension grant, received minimal financial support from other family members, and the deceased financially assisted her with ad hoc payments. The Tribunal agreed that the Fund had acted within its discretion by recognising her as a factual dependant who would have continued to rely on the deceased had he lived.

Conversely, where a person does not meet the dependency test, they cannot be classified as a dependant under section 37C. In the same case of Semenya, the pension Fund had allocated 5% of the benefits to the deceased’s 23-year-old son, who was employed at the time of the deceased’s passing. The Tribunal overturned this allocation, finding that although his income was described as modest and unstable, there was no concrete evidence that the deceased was financially supporting him. The argument that the son “would have been dependent on the deceased in the future” was dismissed as speculative. The Tribunal emphasised that factual dependency must be based on actual, verifiable financial reliance at the time of the deceased’s passing, not on hypothetical future needs or unstable employment.

This case highlights the importance of pension fund trustees making equitable decisions based on clear evidence of dependency. When allocating benefits, trustees must consider, among other things, the extent of each dependant’s financial reliance on the deceased, their employment status, earning potential, and overall financial needs. In Semenya, the Tribunal’s decision to recognise the mother’s dependency while rejecting the speculative claim regarding the son was a key example of how the Funds’ duty to distribute benefits in terms of Section 37C should be discharged.

The Semenya case reinforces the principle that pension fund decisions must be based on verifiable financial dependency rather than assumptions about family relationships or future possibilities. This ensures that section 37C continues to protect those who were truly dependent on the deceased while preventing unjustified claims that could undermine the equitable distribution of pension benefits.