A February 2025 high court judgment incorrectly found that a pension fund’s group insurance policy was not governed by s 37C of the Pension Funds Act (PFA).
The dispute arose following the death of a mine employee. The mine employees were members of the Pension Fund, which had arranged group life insurance cover for the employees with an insurer. The deceased had nominated his grandmother and aunt as beneficiaries under the policy, allocating 40% and 60% of the benefits to them, respectively. However, after his death, the trustees of the Fund allocated only 5% and 15% to them, and allocated the remaining 80% to the deceased’s minor child, who had been born after the nomination form was signed.
The central issue was whether the policy proceeds should be governed by the Pension Fund Act. The claimants (grandmother and aunt) argued that the policy benefits should be paid to them according to the nomination form. The Fund contended that the benefits should be allocated under section 37C of the PFA, which is designed to protect the interests of the deceased member’s dependants and ensure that they are adequately provided for. Section 37C allows the trustees of a pension fund to exercise their discretion in distributing benefits, despite the deceased member’s wishes as indicated in a nomination form.
The insurer providing the group life insurance cover, who also featured as a respondent, sided with the approach of the Fund on the basis that according to the policy terms, death benefits had to be paid in accordance with the Fund rules, which are governed by the PFA. It also argued that the policy was a group scheme policy held by the Fund, not by the deceased.
The court decided in favour of the claimants, finding:
- The benefits payable from a pension fund are distinct from those payable under a group life insurance policy. The PFA governs the former, while the latter is determined by the applicable insurance laws. The court seems to have taken the view that even though the policy terms refer to the Fund rules, the Fund rules only address the payment of pension fund benefits, and not policy benefits.
- The nomination form signed by the deceased was a valid instruction for the payment of life insurance benefits. The trustees of the pension fund had no jurisdiction over the allocation of these benefits.
- The trustees acted beyond their powers by attempting to allocate the life insurance benefits. The allocation of benefits under the policy should be administered according to the nomination form and not influenced by the trustees’ discretion under the PFA.
Although the judgment does not include enough details about terms of the policy and why the benefits should not be benefits as defined in the PFA, the judgment appears to be clearly wrong. We may therefore see an appeal.
Machipi & Another v Palabora Mining Company and Others, Gauteng Division, Pretoria, case number 2023-062156