THE RETIREMENT FUNDS ACT AND ITS IMPLICATIONS FOR MEMBERS AND BENEFICIARIES

THE RETIREMENT FUNDS ACT AND ITS IMPLICATIONS FOR MEMBERS AND BENEFICIARIES

There are some requirements in the RFA that employees (or members of pension funds) have to comply with in order to ensure that a valid beneficiary nomination is made writes PROFESSOR MTENDE MHANGO

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Retirement Ahead - Road Warning Sign

In my article last week, titled Botswana And the Progressive Death Benefit Provisions in the Retirement Funds Act I discussed some of the highlights of the Retirement Fund Act (RFA) and the retirement fund regulations. I suggested in that article that one of the changes introduced in the RFA is that a death benefit beneficiary nomination could be binding on a pension fund. In this article, I expand on what was said in the previous article.

There are some requirements in the RFA that employees (or members of pension funds) have to comply with in order to ensure that a valid beneficiary nomination is made. Among them is that the beneficiary nomination must be in writing and identify all dependants of the employee, including any desired beneficiaries, who are not dependants, whom the employee wishes to receive a proportion of any lump-sum death benefit. An employee may even give reasons for his proposed monetary distributions.

If the beneficiary nomination contains this minimum information, does not exclude any dependants and is not unreasonable, the Board of Trustees, which is responsible for governing a pension fund, may be obligated to accept it and pay all death benefits according to it. On the other hand, if the beneficiary nomination excludes some dependants or is not reasonable in the manner in which it proposes to distribute benefits, the RFA confers discretion to the Board of Trustees to pay, in an equitable and reasonable manner, all death benefits to persons who were dependants of the deceased employee, including those who were simply nominated to receive such benefits.

A dependant is defined in the RFA as any person whom a member of a pension fund is legally liable for maintenance; any person who was financially dependent on the member at the time of the member’s death; any person who in the opinion of the Board of Trustees was dependant on the member for maintenance at the time of death; any pension who was the spouse of the member; any person who was a child of the member; and any person whom the member would have become legally liable for maintenance had the member not died. As you can see, this definition is very broad.

It is important to note that not every dependant is entitled to receive death benefits. In other words, despite being identified as a dependant or nominated to receive a portion of the benefits, the Board of Trustees could determine that it is not equitable or reasonable for such dependant to receive benefits due to some other considerations. At the very least, every dependant is entitled to be considered by the Board of Trustees. The key to qualify for consideration in the payment of death benefits, where no valid or reasonable beneficiary nomination exists, is that each person must have been a dependant of the deceased employee at the time of his death.

Most death claims that end up being disputed in the courts have dealt with disputes between a spouse and a mistress or kept woman from a “small house”. In cases where both the surviving spouse and the kept woman were clearly financially dependent on the deceased, courts or tribunals have resolved that each should be considered in the payment of the death benefits. In many of these cases, the surviving spouse and the kept woman have shared in the death benefits. Other cases usually involve disputes between or among family members about who ought to be considered in the payment of death benefits. I have no doubt that experience in other jurisdictions like South Africa, Malawi and Swaziland where laws similar to the RFA are in place, will be replicated and be useful in Botswana as the RFA and its regulations become fully operational in the years to come.

To prevent or minimise costly disputes over death claims, it is important for every employee, who belongs to a pension fund, must regularly update their beneficiary nomination form. Each employee must also check with their pension fund or administrator of their pension fund, about the requirements in the rules of the fund they belong or policies for creating a beneficiary nomination. It is possible that different pension funds could have different requirements or modalities regarding how to nominate beneficiaries.

More importantly, employees must ensure that they do not exclude any dependants or make unreasonable distributions in their beneficiary nomination form. In my view, an unreasonable distribution could be where a deceased employee, who leaves one minor child and an unemployed husband, proposes in her beneficiary nomination that the husband and minor child gets 5% each of the death benefits and the remaining 90% of the benefits to her estranged and distant uncle in law.

If an employee maintains a valid and reasonable beneficiary nomination, which does not exclude any dependants, it means that when they die the Board of Trustees may be bound to pay all the death benefits in accordance with the wishes contained in such beneficiary nomination. This is a clear departure from the old legal dispensation and which could lessen the number of complaints directed at the Board of Trustees or courts since by paying according to the beneficiary nomination the Board will simply be giving effect to the RFA and the wishes of the deceased employee. While this may not stop interested parties from contesting the payment of death benefits, it will ensure that, in appropriate circumstances, an employee’s freedom to decide how their pension benefits should be distributed is upheld.

If an employee fails to maintain a valid or reasonable beneficiary nomination, he will be waiving his right to decide and the Board of Trustees will assume the responsibility and decide for him. Remember I have said that once there is no valid or reasonable beneficiary nomination; the Board of Trustees will exercise the discretion to pay the benefit to whoever they believe was dependent on the employee in such proportions as they deem equitable. The Board’s decision becomes final. The problem with leaving these important financial matters to the Board of Trustees is that people whom you may have not wanted to receive your pension benefits could possibly end up receiving those benefits as long as the Board of Trustees determine that they qualify as your dependants. If you do not want this to happen or wish to prevent disputes between people you leave behind, then make sure that you maintain a valid and reasonable beneficiary nomination.

As a trustee of a pension fund, I always recommend and remind member of pension funds to annually update their beneficiary nomination forms to prevent strangers like myself (as a member of a Board) from making important financial decisions on their behalf. My recommendation to members of pension funds in Botswana is the same. I would further suggest that any member of a pension fund should acquaint themselves with the RFA and rules of their fund. The RFA can be obtain at www.ilo.org. In terms of section 15 (1)(d) of the RFA and section 44 of the regulations 2016, you have a right to receive copies of the rules of your pension fund and other relevant information. These suggested steps can help your surviving family members, who relied on you for financial survival, to have financial stability (such as being able to continue paying for school fees, food and other necessities in life) upon your death.

 

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.