FSCA Interpretation Ruling 1 of 2024 on Section 37C of the Pension Funds Act

1 FSCA INTERPRETATION RULING 1 OF 2024 (RF) PENSION FUNDS ACT, 1956 (ACT NO. 24 OF 1956) FINANCIAL SECTOR REGULATION ACT, 2017 INTERPRETATION RULING: INTERPRETATION AND APPLICATION OF SECTION 37C OF THE PENSION FUNDS ACT, 1956

1. PURPOSE OF THE INTERPRETATION RULING This Interpretation Ruling is issued in terms of section 142(1) of the FSR Act to provide clarity, consistency and certainty in the interpretation and application of section 37C of the Act. It revokes and replaces FSCA Interpretation Ruling 1 of 2020 (RF) issued on 25 March
3. DEFINITIONS In this Interpretation Ruling, “the Act” means the Pension Funds Act, 1956 (Act No. 24 of 1956), and any word or expression to which a meaning is assigned in the Act bears the meaning so assigned to it, and unless the context indicates otherwise- “Default Regulations” means regulations 37, 38, 39 and 40 of the Regulations made in terms of section 36 of the Act as published in GN R98 in Government Gazette 162 of 26 January 1962, and amended on 25 August 2017 in GN 863/2017; “deferred retiree” means a member who has reached retirement age and such member has not elected to withdraw their retirement benefit or a member who has reached retirement age and elected to remain in a pension fund pursuant to the pension fund rules; and

2 “FSR Act” means the Financial Sector Regulation Act, 2017 (Act No. 9 of 2017). 3. BACKGROUND 3.1 On 25 March 2020, the Authority issued FSCA Interpretation Ruling 1 of 2020 (RF), which replaced Information Circular PF No. 2 of 2010 issued by the erstwhile Registrar of Pension Funds. 3.2 Since then, it has come to the attention of the Authority that certain aspects of FSCA Interpretation Ruling 1 of 2020 (RF) require amplification and revision, specifically in respect of unclaimed benefits. 3.3 The Authority has taken the decision to revoke FSCA Interpretation Ruling 1 of 2020 (RF) and issue a replacing Interpretation Ruling in terms of section 142(1) and 142(5) of the FSR Act, promote legal certainty and to ensure clear and consistent interpretation and application of section 37C of the Act. 4. INTERPRETATION AND APPLICATION OF SECTION 37C OF THE ACT 4.1 The introduction to section 37C(1) of the Act provides as follows: “Notwithstanding anything to the contrary contained in any law or in the rules of a registered fund, any benefit (other than a benefit payable as a pension to the spouse or child of the member in terms of the rules of a registered fund, which must be dealt with in terms of such rules) payable by such a fund upon the death of a member, shall, subject to a pledge in accordance with section 19(5)(b)(i) and subject to the provisions of sections 37A(3) and 37D, not form part of the assets in the estate of such a member, but shall be dealt with in the following manner…”.[Own emphasis] 4.2 Section 37C provides that benefits payable as a consequence of the death of a member do not form part of the estate of a member and further for the manner in which the benefit payable upon the death of a member must be dealt with. It does not provide for the manner in which any benefit that is payable upon the death of a member must be calculated. The calculation of such benefit must be done in accordance with the registered rules of the fund concerned. The import of section 37C is that funds must trace and pay benefits to the dependants or nominees of deceased members. 4.3 Section 37C applies despite anything to the contrary contained in any law or the rules of a fund. Therefore, in the event that a registered rule is in conflict with section 37C, section 37C prevails. 4.4 The phrase “payable …upon the death of a member” in section 37C means that it is the death of the member that causes the benefit to be payable. However, where a benefit has already become payable before the member’s death, it falls outside the ambit of section 37C even if the benefit has not yet been paid to the member. If a member has become entitled to claim a benefit and the fund received a written instruction from the member to pay out or to transfer the benefit prior to the member’s death, then it is that written instruction that caused the benefit to be payable (not the death of the member) and accordingly section 37C will not be applicable. Put differently, the benefit vested in the member at the moment when they provided the

3 instruction to the fund and on vesting it became payable. The fact that the member may have subsequently passed away does not alter the fact that the right to payment of the benefit had already vested and had been payable prior to the member’s death. 4.5 The same principle applies in relation to unclaimed benefits. An unclaimed benefit by its nature is a benefit that has vested because it is due and payable to the person entitled to it. The nature of the unclaimed benefit does not change when it is paid into an unclaimed benefit fund. If the person entitled to the benefit is traced, the benefit must be paid to them. 4.6 The unclaimed benefit is not due and payable because of the death of a member, and accordingly section 37C will not be applicable when that member dies. Where the person entitled to an unclaimed benefit dies, the benefit, which has vested in that person, must be paid to that person’s estate and must not be dealt with in terms of section 37C. Similarly, where an unclaimed benefit arose from a death benefit that is subject to the provisions of section 37C, the section does not apply upon the death of a person entitled to that undistributed death benefit that is held in an unclaimed benefit fund. Such an unclaimed benefit vested in the deceased person and must be paid to their deceased estate. Although the person entitled to the benefit is defined as a member of the unclaimed benefit fund, it is not their death that makes the benefit payable, and therefore the trigger in section 37C “payable upon the death of a member” does not apply. 4.7 Regulation 38(1)(b)(i) of the Default Regulations provides that if a member has not made an election to cause the pay out or transfer their benefits upon leaving the service of a participating employer before retirement, such member is a paid-up member. Put differently, even when a member exits the service of their participating employer, the member will only cease to be a paid-up member once such member instructs the fund in writing to pay out or transfer the member’s benefits. 4.8 A paid-up member and a deferred retiree is a ‘member’ as defined in the Act. Since section 37C is applicable to a ‘member’ under the circumstances set out in that section, it follows that section 37C is applicable to a paid-up member and a deferred retiree “upon their death”. However, when a paid-up member or deferred retiree instructs the fund to pay them or to transfer their benefit or to pay it as a retirement benefit, the benefit becomes payable. If the paid-up member or deferred retiree dies after that instruction to the fund is received and before the benefit is so dealt with, the benefit must be paid to their estate. 4.9 Therefore, reference to “any benefit” in section 37C includes: (a) a paid-up member’s benefit; and (b) a deferred retiree’s benefit before the receipt by the fund of an instruction to pay or transfer that benefit. 5. EFFECTIVE DATE 5.1 This Interpretation Ruling takes effect on the date of publication.

4 5.2 Information Circular PF No. 2 of 2010 and FSCA Interpretation Ruling 1 of 2020 (RF) are hereby withdrawn. KATHERINE GIBSON DEPUTY COMMISSIONER FINANCIAL SECTOR CONDUCT AUTHORITY Date of publication: 4 March 2024