WHAT HAPPENS TO YOUR MONEY?

Death, Divorce, and Leaving Your Job

Over the past three weeks, our pension law series has walked you through the foundations of South African retirement funds. Our earlier instalments introduced how retirement funds work, unpacked the two-pot system and what it means for your savings, and explained what happens when employers do not pay over contributions and how the Pension Funds Adjudicator can help.
In this final instalment, we’re tackling the question members ask us most often: what actually happens to my pension money when life changes? Specifically, when you die, when you divorce, and when you leave your employer.

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WHEN YOU DIE: THE SECTION 37C SURPRISE

Most members assume that if they nominate a beneficiary on their pension fund form, that person will inherit the money. It feels logical that you filled in the form, you signed it, surely that’s the end of it. It is not.

Under section 37C of the Pension Funds Act 24 of 1956, the fund’s trustees, not you, decide who receives your death benefit. The Act overrides both your beneficiary nomination and your will. The trustees have a legal duty to identify everyone who was financially dependent on you (or whom you had a legal duty to support) and to divide the money among them fairly.

That includes people you may not have nominated: a partner you weren’t married to, a child from a previous relationship, an elderly parent you supported, even an ex-spouse still receiving maintenance. Your nomination form is just one factor the trustees consider, but it is not decisive.

The trustees have up to 12 months from the date of death to trace dependants and make their decision. For families waiting on funds to cover expenses, this delay can be painful, but it’s deliberate: it gives trustees time to find dependents who might otherwise be overlooked.
What to do now: keep your beneficiary nomination updated, and make sure your financial dependants are documented somewhere your family can find. If you have children or a partner outside a formal marriage, this is especially important.

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THE INSTALLAIR JUDGMENT

On 16 January 2025, the Western Cape High Court handed down judgment in Engineering Industries Pension Fund and Another v Installair (Pty) Ltd and Others (1633/2023) [2025] ZAWCHC 8. It is the clearest statement yet of how the courts will apply section 13A(8) in practice.

The facts are unremarkable, and that is part of the point. Installair (Pty) Ltd deducted pension and provident fund contributions from its employees' salaries for the months of May 2020 to July 2020, but did not pay them over to the Engineering Industries Pension Fund and the Metal Industries Provident Fund. The company was later placed in liquidation.

The funds sought to recover the unpaid contributions, together with interest, from the two directors in their personal capacities under section 13A(8).

The directors raised three defences:

First, that the failure to pay was caused by the Covid-19 pandemic and the financial distress that followed, and was therefore not the result of any reckless or negligent conduct on their part;
Second, that the deducted amounts had been used to subsidise employee salaries during the period of distress, which they characterised as a benign re-allocation rather than misappropriation; and
Third, in the case of the second director, that she had not been involved in the day-to-day financial management of the company and therefore fell outside the reach of section 13A(8) altogether.

The court rejected all three defences. Parker AJ held that financial distress, whether caused by a pandemic or otherwise, does not suspend the obligations imposed by section 13A. The provision contains no hardship exemption. Money deducted from an employee's remuneration is, from the moment of deduction, no longer the employer's money to deploy. Using it to fund salaries, however well-intentioned the explanation, is precisely the conduct section 13A was enacted to prevent.

On the question of personal involvement, the court found that the second director's denial was contradicted by the company's own records. She was an active director throughout the relevant period and had clearly been involved in its financial management. The defence was described as far-fetched and untenable and was summarily rejected. The directors were ordered to pay the outstanding contributions, together with interest, in their personal capacities.

WHAT INSTALLAIR MEANS FOR THE INDUSTRY?

The judgment does not announce a new rule. The personal liability provisions have been on the statute book since 2013, and the Western Cape High Court applied them in similar terms in Engineering Industries Pension Fund and Another v Pioneer Mechanical CC and Another (13568/2020) [2022] ZAWCHC 215. What Installair does is close off the defences that struggling employers have been hoping might work. Three points stand out.

First, financial distress is not a defence. Directors who continue to deduct contributions from employees' salaries while knowing the company cannot pay them over to the fund are not preserving jobs. They are appropriating money that does not belong to the company. The court was unequivocal on this point and it is unlikely that any High Court will take a softer view in future.

Second, the "I was just a sleeping director" defence is dead. A director listed on the CIPC register who was, on the facts, involved in the company's financial affairs will be held to that involvement. Courts will look at what the director actually did, not at how the director chooses to describe their role after the fact. Boards of directors of employers participating in retirement funds should treat contribution compliance as a standing agenda item, recorded in the minutes.

Third, the fund does not need to exhaust its remedies against the company first. Where the employer is in liquidation, or simply unable to pay, the fund can proceed directly against the responsible individuals under section 13A(8). This has obvious implications for personal estate planning and for directors' and officers' liability cover, which often excludes statutory penalties of this kind.

For trustees and principal officers of retirement funds, the message is equally clear. The section 13A(9) request, in writing, to identify the personally liable individuals is not an administrative nicety. It is the step that activates the deeming provision and shifts the burden of proof. Funds that have not been issuing those notices, or that issue them only when arrears emerge, should review their procedures.

WHAT TO DO IF YOUR EMPLOYER IS NOT PAYING OVER YOUR CONTRIBUTIONS

For a member, the practical sequence is straightforward, and the earlier it is started, the better.

Compare your payslip to your benefit statement. Your payslip will reflect the deduction. Your benefit statement, or your fund's online portal, will reflect the contribution actually received. The gap between the two is the evidence.
Raise it with the employer in writing. Sometimes the explanation is a benign administrative one. Most often, it is not. A written request creates a paper trail that will matter later.
Report it to the fund. The administrator is required to escalate persistent non-payment to the trustees and, in turn, to the Financial Sector Conduct Authority under the conduct standards. Your report often triggers that process.
Lodge a complaint with the Pension Funds Adjudicator. The Adjudicator’s office is free and can determine that the contributions are owed and order payment, including interest. Under section 30O of the Pension Funds Act 24 of 1956, a determination of the Adjudicator may be enforced as if it were an order of the High Court - a significant enforcement lever.
Consult an attorney for serious or repeated non-compliance. Where amounts are significant, where the employer is heading into business rescue or liquidation, or where the directors appear to be dissipating assets, civil recovery proceedings under section 13A(8), and, where appropriate, criminal complaints under section 37, should be considered without delay. Prescriptions run, and acting quickly preserves your remedies.

IN SHORT

Section 13A is no longer a sleepy compliance provision. After Installair, it is a live personal-liability regime that members can invoke and that directors ignore at their own risk. The contributions deducted from your salary are not the employer's working capital. They are your money, statutorily ring-fenced, and the law now provides a direct route to recover them from the people who decided, on the day, not to pay them over.

JBCC

COMING UP IN OUR NEXT ARTICLE

Our next article turns to what happens to your retirement savings when life takes its most difficult turns. We will look at death benefits under section 37C of the Pension Funds Act 24 of 1956 - where trustees hold a discretionary duty to provide for actual dependants, regardless of whom you have nominated - and divorce and the clean-break principle under section 37D, which governs how a non-member spouse claims a pension interest. Both are areas where members are routinely surprised by how the law actually works.

This article is published for general information and does not constitute legal advice. For advice on a particular matter, please contact Gittins Attorneys Inc.

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