Retirement Fund Death Benefits: How Section 37C Decides Who Gets Your Money

When a member of a pension, provident, preservation or retirement annuity fund dies, the money does not go where the member’s will says. It is allocated by the fund’s trustees under Section 37C of the Pension Funds Act. Two recent court rulings have changed how that law is read, and many articles online are out of date. This guide explains the rules through five common myths, then shows how the benefit is taxed and what you can do now.

What You Will Learn

• Why your will does not control your retirement fund
• What a nomination form can and cannot do
• What the 12-month period really means after the 2026 Supreme Court of Appeal ruling
• Who counts as a dependant, and when dependency is measured
• How death benefits are taxed, and how living annuities differ

Consider what happens when you are retrenched.

Myth 1: My Will Decides Who Gets My Retirement Fund

It does not. Death benefits from a retirement fund fall outside your estate, so your will and your executor have no say over them. The trustees must find your dependants and nominees and share the money in the way they consider equitable. If you die without a will, the Intestate Succession Act applies to your estate, but not to the fund.

Myth 2: My Nomination Form Decides

A nomination form tells the trustees what you want, but it is not binding. It is one factor among several, alongside each dependant’s age, relationship to you, financial position and future needs. A nominee who is not a dependant is not automatically entitled to a share.

A reported 2026 determination by the Pension Funds Adjudicator shows how this works. A member who died in May 2024 had nominated his sister for 100 percent of his benefit in 2005. The trustees gave 45 percent each to the sister and to his life partner and 10 percent to his niece and nephew. On a R8.3 million benefit, that is R3.735 million each for the sister and the partner, and R415,000 each for the niece and nephew (my calculation). The Adjudicator upheld the split. This summary comes from a news report and not the full determination.

Myth 3: Trustees Have 12 Months, Then It Goes to the Estate

Section 37C asks trustees to pay within 12 months of death. Many funds treated that as a cut-off, after which an unclaimed benefit was paid into the estate. In South African Retirement Annuity Fund v Pension Funds Adjudicator (28 May 2026), the Supreme Court of Appeal rejected that approach.

• The 12 months is a guideline to promote efficiency, not a deadline that ends dependants’ rights.
• The duty to trace dependants starts when the fund learns of the death, not on the date of death.
• Paying the estate is a last resort, available only after every avenue for finding dependants and nominees is exhausted.

In that case, a widow claimed a R52,120.53 benefit two years and three months after her husband died. The fund had already decided to pay the estate. The court sent it back to investigate. Read the Moonstone report or the Cliffe Dekker Hofmeyr alert for detail.

Myth 4: Only Legal Dependants Count

Legal dependants are people you had a legal duty to support, such as a spouse and minor children. Factual dependants are people who relied on you for regular financial support, even though you had no legal duty to support them. Occasional gifts do not qualify. Trustees may also consider people you would probably have had to support in future, such as elderly parents or an unborn child.

In Mutsila v Municipal Gratuity Fund (8 August 2025), the Constitutional Court made two points that matter:

• Dependency is assessed at the date of the member’s death, not at the date the trustees decide.
• Once identified, legal and factual dependants stand on an equal footing. Nobody has a right to a bigger share because of their status. Everyone is entitled to an equitable allocation.

The court also told trustees to investigate properly. They cannot rely only on what third parties or the claimants say, and a sworn affidavit is not automatically credible evidence.

Myth 5: Every Retirement Product Works the Same Way

It does not. Pension, provident, preservation and retirement annuity funds fall under Section 37C. A living annuity bought from an insurer sits outside it. The money goes to the beneficiaries named in the contract, and without a named beneficiary it goes to the estate after tax. A living annuity held inside a fund (an “infund” annuity) is still under Section 37C. Check which kind you have.

How Death Benefits Are Taxed

A lump sum is taxed by reference to the deceased’s lump sum history, using the retirement lump sum table: nothing on the first R550,000, then 18 percent up to R770,000, R39,600 plus 27 percent up to R1,155,000, and R143,550 plus 36 percent above that. The method is the same as in our guide to leaving a retirement fund: tax on all lump sums to date, minus tax on those received before.

The tax is calculated once on the whole benefit and shared proportionally. Splitting it between three children does not give each child a separate R550,000. For example, a R900,000 benefit with no earlier lump sums carries R74,700 of tax, or R24,900 for each of three equal shares. If the deceased had already taken a R100,000 lump sum, the tax on the same benefit is R101,700 (R33,900 each).

Beneficiaries can take cash, transfer their share into an annuity in their own name, or combine both. A transfer into an annuity is tax neutral, and the annuity income is then taxed at the beneficiary’s own rate. According to Ninety One, retirement fund death benefits are exempt from estate duty.

What You Can Do Now

• Ask each fund for a copy of your nomination form and check it names the right people.
• Update it after a marriage, divorce, birth or death in the family.
• Write a letter of wishes for the trustees if your family situation is unusual, for example a second family.
• Keep a list of every fund and policy you own, so your family can find them. A benefit nobody knows about cannot be paid.
• If you leave money to minors, expect the trustees to pay it into a trust or beneficiary fund, not to hand it over in cash.

Key Takeaways

• Your will does not control a retirement fund death benefit. The trustees do, under Section 37C.
• A nomination form is a guide, not an instruction.
• The 12 months is a guideline. Late claims must still be investigated.
• Dependency is judged at the date of death, and legal and factual dependants are treated equally.
• Lump sums are taxed on the retirement table, once, and shared proportionally.

Frequently Asked Questions

What is Section 37C of the Pension Funds Act?

It is the law that governs who receives a retirement fund death benefit. It requires the trustees to identify the member’s dependants and nominees and to distribute the benefit equitably, usually within 12 months of the death.

Does my will override my retirement fund nomination?

No. A retirement fund death benefit does not form part of your estate, so your will does not control it. The trustees decide, and your nomination is one of the factors they consider.

Who counts as a dependant for a death benefit?

Legal dependants, such as a spouse and minor children, and factual dependants, who relied on the member for regular financial support. Trustees may also consider people the member would probably have supported in future.

What happens if no one claims within 12 months?

The fund must still investigate. According to the Supreme Court of Appeal’s 28 May 2026 ruling, the 12 months is a guideline, and payment to the estate is a last resort after every avenue is exhausted.

Is a death benefit taxed?

A lump sum is taxed on the retirement lump sum table, with the first R550,000 tax-free over the deceased’s lifetime. A transfer into an annuity is not taxed at the time, and the income is taxed in the beneficiary’s hands.

Are living annuities treated differently?

Yes. A living annuity bought from an insurer is not governed by Section 37C. The money goes to the beneficiaries named in the contract.

Can I challenge the trustees’ decision?

You can complain to the Pension Funds Adjudicator. Under section 30I of the Pension Funds Act, members generally have three years to complain, although the clock starts when you knew, or should have known, what went wrong.

Review Your Beneficiaries

Use our retirement annuity calculator to see what your retirement savings could be worth, then check who would receive them. If your family situation is complicated, request a portfolio review.

This article is general information and not legal, tax or financial advice. Section 37C is applied case by case, and the courts are still developing the law. For help with your own situation, request a portfolio review, and speak to an attorney about your will and estate.