The Financial Sector Conduct Authority (FSCA) has earlier in the year published FSCA Interpretation Ruling 1 of 2020 (RF) (“the Ruling”, which deals with the applicability of section 37C of the Pension Funds Act to the benefits of paid-up members and deferred retirees, being members who have retired, but who have preserved their retirement benefits in the fund. According to the Ruling, section 37C will apply to paid-up members’ benefits, deferred retirees and unclaimed benefits, where no election to withdraw has been made by the member prior to such a member’s death.

Not everyone in the retirement fund industry agrees with the opinion expressed in the Ruling to the effect that section 37C applies to paid-up members and deferred retirees, and some role-players are of the opinion that the benefit is payable to the member’s estate. The reasons for this view are as follows:

Section 37C applies to “any benefit … payable … upon the death of a member”. The benefit of a paid-up member or deferred retiree becomes payable when he/she withdraws from service or retires. When a paid-up member or deferred retiree dies, one is accordingly not dealing with a benefit that became payable upon the death of the member as contemplated in section 37C. The benefit had namely already become payable upon the member’s withdrawal from service or retirement, with the result that section 37C is not applicable.

In the Ruling it is stated that it is issued “to provide clarity, consistency and certainty in the interpretation and application of section 37C”. Some legal experts are however for the reasons which follow of the opinion that the Ruling does not provide such certainty. According to these experts the only effect of the Ruling is that the FSCA must, in terms of section 142(3) of the Financial Sector Regulation Act, interpret section 37C in accordance with the Ruling. The Ruling is not binding on third parties, and more specifically on the executor of a deceased member’s estate. If a fund pays the benefit in respect of a deceased paid-up member or deferred retiree in terms of section 37C, and the executor of the member’s estate subsequently claims that the benefit should have been paid to the estate, it would therefore be no defence to say that the fund acted in terms of an FSCA Interpretation Ruling.

All funds will against the background of the above have to decide whether or not to change their current practice and fund rules with regard to the payment of benefits on the death of paid-up members and deferred retirees in any way. It is recommended that funds consult with their consultants in this regard.

This newsletter provides information of a general nature and does not constitute advice in respect of a particular client