In a society where-millions of South Africans depend on a single breadwinner for survival, the death of that provider can leave families financially devastated. "Every year, South African retirement funds distribute-billions of rands upon the death of their in-service members to persons who were 'dependants' of a deceased member, distributed in terms of section 37C of the Pension Funds Act - described as "a far-reaching and relatively unique statutory provision". In 2014, about ZAR 8.8-billion in death benefits was distributed by pension funds regulated by the Financial Sector Conduct Authority, increasing to about ZAR 9.3-billion in 2015."

Yet despite the enormous sums involved, and the critical importance of these benefits to vulnerable families, there is often litigation surrounding section 37C of the Pension Funds Act 24 of 1956 (PFA) and its application. At the heart of many of these disputes lies a fundamental question for pension funds, adjudicators, and our courts: when must a fund determine who qualifies as a 'dependant' in terms of section 37C, at the time of the member's death, or at the time the fund makes its distribution decision?

The Constitutional Court, in Mutsila v Municipal Gratuity Fund and Others (CCT 228/23), considered the interpretation and application of section 37C. The matter concerned the "equitable allocation and distribution of death benefits held within a pension fund and is particularly important in the context of South Africa's high incidence of employment precariousness and dependency on a single breadwinner, as pension fund benefits provide much needed assistance to those left vulnerable in the event of the death of their primary supporter."

The Constitutional Court's unanimous judgment in Mutsila is a watershed moment for South African pension law. The Court's decision not only clarifies crucial procedural requirements for investigations in terms of section 37C, but also confirms how dependency is determined, and defines the date on which dependency must be assessed, rejecting the Supreme Court of Appeal's view in Guarnieri.

In this case, Ms Tshifhiwa Shembry Mutsila was married to Mr Takalani Emmanuel Mutsila in a civil marriage on 8 December 2003. Mr Mutsila passed away in a workplace accident on 15 December 2012. The couple had five children, aged between 9 and 23 years as at April 2014, all of whom were learners and dependent on their parents at the time of Mr Mutsila’s death. 

As a member of the Municipal Gratuity Fund (the Fund), Mr Mutsila’s death triggered a death benefit of ZAR 1,614,434.86 for distribution to his dependants. A dispute arose when both Ms Mutsila and Ms Dipuo Masete submitted claims to the Fund, with Ms Masete claiming she was married to Mr Mutsila under customary law and that he maintained her two children.

The Fund allocated 52.5% of the benefit to Ms Masete and her children; 22.5% to Ms Mutsila; and 25% to the couple’s five children. The Fund based this allocation on the dependants of Mr Mutsila as at the date of distribution in April 2014, in line with Guarnieri.

Dissatisfied, Ms Mutsila lodged a complaint with the Pension Funds Adjudicator, arguing that Ms Masete was neither a legal nor a factual dependant. The Adjudicator found the Fund had not conducted a proper investigation and set aside the distribution decision.

The High Court and Full Court both dismissed the Fund's appeals, finding it had failed to conduct a diligent investigation. However, the Supreme Court of Appeal reversed these decisions, holding that the Adjudicator had failed to afford the Fund procedural fairness and reinstated the original distribution. 

The Constitutional Court ultimately granted leave to appeal, upheld the appeal, and referred the matter back to the Fund. In its judgment, the Constitutional Court explained the distinction between legal and factual dependants under the PFA, and most significantly, clarified that dependency must be determined at date of the member’s death for section 37C purposes, thereby rejecting the Guarnieri approach.

The Court held that factual dependency must be determined based on objective facts existing at the date of death, not at the date of distribution. It noted that it would be "absurd that someone who was not factually dependent on the member while they were alive can suddenly become a factual dependant after the member's death."

The judgment confirms that once an individual is identified as a dependant (whether legal or factual), that status does not change, although changed circumstances may be considered when determining equitable distribution.

This decision provides essential guidance for pension funds in conducting death benefit investigations and reinforces the social security purpose of section 37C, protecting vulnerable dependants.

Written by Nicolette van Vuuren, Partner at Webber Wentzel