In 2013, Oxford University Press published one of my articles titled “The Emergence of a Comprehensive Regulatory Framework for Pension Death Benefits in Botswana” in volume 34 of the Statute Law Review at pages 152-174. The article was a commentary on the death benefit provisions in Botswana’s 2010 version of the Retirement Funds Bill. In that article, I argued in that the Bill should be welcomed for proposing to comprehensively regulate the payment of death benefits and bring Botswana’s private pension system in line with international best practice. I also criticized the manner in which the Bill had proposed to deal with payments to minor beneficiaries. One year later, Parliament in Botswana passed the Retirement Funds Act (RFA) in August 2014, which is slightly different and improved from the 2010 Bill. My focus today is on the provisions of the RFA that seek to comprehensively regulate the payment of lump-sum death benefits when a member of a pension fund dies.
Before we delve into the RFA, let’s briefly talk about what was the legal position before the changes were made and why. Before the RFA, there was no comprehensive regulation of the payment of death benefits under the Pension and Provident Funds Act 1987 (PPFA). The PPFA simply and inadequately regulated how benefits were designed and how death benefits were paid.
The most significant regulation of death benefit was obtained in section 20 of the PPFA regulations, which dealt with the payment of death benefits. Essentially, the section 20 prohibited a pension fund from paying a death benefit to any person who is not a dependant of the deceased. Section 20 had to be read together with the definition of a dependant in section 2(1) of the PPFA regulations where a dependant was defined to include ‘a person nominated by a member as being a common law spouse dependent on the member for his or her support.’
In order to comply with section 20, the Board of Trustees of a pension fund was required to make a determination on whether a potential beneficiary is a dependant or not. The problem with the PPFA and its regulations is that it provided an inadequate definition of a dependant which made it difficult to implement the PPFA.
Another problem with the PPFA is that it was silent on how the Board would determine the amount each dependant should receive and what criteria should be used to determine such amount. For example, if a deceased member died and left five dependants to share in the lump-sum death benefit, the PPFA did not give sufficient guidelines to the Board on how to determine the amounts to be paid to each dependant. Essentially, the PPFA gave the Board unlimited discretion to make these decisions. These problems have now been addressed in the RFA.
Section 39 of the RFA read together with section 29 of the retirement fund regulation of 2017 govern the distribution of death benefits. The relevant parts of section 39 provides that any benefit payable by a pension fund, when its member dies, will not become part of the assets in his estate. Instead, the death benefits must be paid to dependants of the deceased member, including those people he nominated to receive those benefits. The RFA gives the Board discretion to pay those benefits in such proportions as it deems equitable.
The policy behind section 39 of the RFA is to ensure that people who were financially dependant on the deceased member are not left impoverished due to the death of a member. In order to achieve this policy objective, the RFA restricts a person’s freedom to decide what should happen to his property in the event of death by ensuring that the Board is not generally bound by a beneficiary nomination form or last will and testament. For this reason, the death benefit, subject to the exceptions outlined in section 39, is excluded from the estate of a deceased member and is placed under the direction of the Board. Additionally, the RFA adopts a broad definition of a dependant to aid its policy objectives. In terms of its policy objective, section 39 is similar to section 37C of the South African Pension Funds Act, section 33 of the Swaziland Retirement Funds Act 2005 and to some extent sections 70 and 71 of the Malawi Pension Act 2011.
My submission here is that the passage of the RFA should be welcomed because it provides clear duties and boundaries to the Board on how to dispense death benefits and achieve the policy objectives discussed above.
The RFA and its regulations imposes five primary duties on the Board. Firstly, the Board has a duty to require every member of a fund to nominate their dependants or other desired beneficiaries by completing a beneficiary nomination form and stating the exact amounts to be distributed to each beneficiary. Secondly, the Board has a duty to accept the wishes contained in a beneficiary nomination form provided that the nomination does not exclude other dependants of the deceased and that its proposed distribution is reasonable.
Thirdly, before payment is made, the Board has a duty to investigate whether the beneficiary nomination excluded any minor dependants of the deceased and whether the proposed distributions to minor beneficiaries is reasonable.
Lastly, if the Board finds that a beneficiary nomination excluded a minor dependant or that it is unreasonable in the way it proportions payment to the minors, the Board has the power to ignore the beneficiary nomination and distribute the benefits in such proportions as the board deems to be reasonable and equitable.
These clear duties were not present in the PPFA. The inclusion of these express duties should be welcomed because it clarifies the responsibility of the Board and the parameters of their powers. The beneficiaries’ expectations are also clear unlike under the PPFA where it was difficult for a beneficiary to vindicate their rights. This clarification is in line with modern pension legislation which confer clear duties on governing boards in relation to the payment of death benefits. The duties introduced in the RFA are similar to those found in similar legislative provisions in Malawi, South Africa, Australia, and Swaziland.
Furthermore, the regulation 29 provides that in distributing death benefits, the Board should take the following into account: the degree of dependency; the age of the dependants or beneficiary; the likely duration of dependency; the relationship to the deceased; information provided in the member’s beneficiary nomination form; and any distribution made by the deceased member in his or her last will.
The regulation 29 should equally be welcomed for providing the above guidelines that will assist the Board to make equitable and reasonable payments of death benefits to beneficiaries. Similar guidelines have consistently been applied in South Africa under the Pension Funds Act and Australia under the Superannuation Industry (Supervision) Act of 1993. Therefore, by incorporating these relevant guidelines into the legislative framework, Botswana has made a commendable positive step to modernise and bring itself in line with best international practice.
PROFESSOR MTENDE MHANGO is an Adjunct Professor at Fort Hare University. He is also an independent board member of the Debswana Pension Fund. He writes in his personal capacity.