Reform of the Death Benefit Provisions in Lesotho's Public Sector Pension Fund: Lessons from South Africa and Swaziland
| Date | 01 May 2016 |
| DOI | 10.3366/ajicl.2016.0150 |
| Published date | 01 May 2016 |
| Pages | 199-214 |
| Author |
In 2008 the Parliament of Lesotho enacted the Public Officers' Defined Contribution Pension Fund Act 8 of 2008 (hereafter referred to as the Public Officers' Pension Act) to reform the public officers' pension scheme. In his 2008 budget speech, which introduced these pension reforms, Lesotho's Minister of Finance and Development, Mr Timothy Thahane, announced that the government of the Kingdom of Lesotho would reform the unfunded defined benefit public sector pension scheme to specifically address two historical problems. He explained these problems and the need for the reforms as follows:
Currently, the Government operates an unfunded pension scheme that promises a certain pension when a person retires. That pension will be paid from the recurrent budget of that year. There are two risks that surround our current pension system. If there happens to be unforeseen emergency demands on that year's budget, the Government of that day may suspend or reduce the pension, thereby causing undue hardship on the pensioner. Another feature of this scheme is that when the pensioner dies, the pension also ceases thereby leaving the spouse or the children without any benefit. The reform which Government is introducing is to change the pension scheme from the unfunded one, to a Pre-funded one where the Government and the employee make annual contributions that go into a Fund that is then invested. At retirement, a pensioner will receive a share of that Fund plus interest. That pension can be left to his spouse or children at death.
This article discusses the second problem that prompted reforms of the public officers' pension scheme. We observe that Lesotho has chosen to address this problem by incorporating a death benefit provision in the governing legislation coupled with a broad definition of a dependant from the South African Pension Funds Act 54 of 1956. In light of the problems experienced in South Africa and Swaziland, where a similar approach was adopted, we argue that whether or not Lesotho's move is positive or negative will depend on how the Lesotho courts interpret the death benefit provisions in the governing legislation. The purpose of this article is to highlight the problems associated with the implementation of similar provisions in South Africa and Swaziland, and enable the Lesotho practitioner to reflect on these problems and perhaps learn how these problems could be resolved in Lesotho.
Section 3 of the Public Officers' Pension Act, establishes and regulates the Public Officers' Defined Contribution Pension Fund (herein as the DC Fund) where public officers are compelled to become members. This provision establishes ‘a fund to be known as the [DC] Fund, for the purpose of providing pension benefits to the public officers'. One of the benefits that the DC Fund is to provide is pension death benefits to dependants of a deceased pension fund member or pensioner. The analysis in this article focuses on the term dependant as defined in the legislation because it is one of the most litigated terms of art in modern pension law. In this regard, section 2 of the Public Officers' Pension Act defines a dependant as:
a person in respect of whom a member, pensioner or deferred pensioner is legally liable for maintenance;
a person in respect of whom the member, pensioner or deferred pensioner is not legally liable for maintenance, if such a person –
was, at the time of death of the member, pensioner or deferred pensioner, in fact a dependant upon such a member, pensioner or deferred pensioner for maintenance; or
is the spouse of a member, pensioner or deferred pensioner …
Section 2 of the Public Officers' Pension Act is to be read together with section 30 which requires the beneficiaries to receive a death benefit on the determination by the DC Fund Rules. Therefore section 30 read together with section 2 of the Public Officers' Pension Act seek to address the second problem described by the Minister above – the risk of widespread income insecurity should the defined benefit scheme make no provision for the dependants of the deceased member or pensioner. Section 30, which in its application is read together with the definition of a dependant and beneficiary in the Public Officers' Pension Act, is primarily concerned with the manner in which pension money should be allocated following the death of a pension member. It is apparent that section 30 of the Public Officers' Pension Act contemplates two things must exist: firstly, it contemplates the existence of the beneficiaries of the deceased, who will receive the death benefits; and secondly, it contemplates the existence of the rules of the fund, which determine the death benefits that will be payable to the beneficiaries. It is in this regard that the Public Officers' DC Fund Rules 2008 were promulgated. Rule 26 of the rules of the DC Fund provides as follows:
Death benefits, restrictions and payment (section 30 of the Act)
If a member dies while in service, a lump sum benefit shall be payable from the Fund equal to:
a multiple of Fund salary at the date of his death as quantified in the Schedule to these rules; plus
his or her Fund credit at the date of his or her death.
The benefit payable in terms of rule 26.1(a) shall be insured with a registered insurer and the following shall apply:
such benefit shall not be paid unless the claim thereof has been admitted by the registered insurer; or
such benefit shall not be payable if the policy issued by the registered insurer is suspended or cancelled for reasons beyond the control of the Board.
The benefit provided in terms of rule 26.1(a) shall be determined annually by the Board in accordance with the rates applicable to the members, and notified to the members each year.
If a deferred pensioner dies while in service, a lump sum benefit equal to his or her fund credit at the date of his or her death, shall be payable from the fund.
Payment of death benefits shall be in line with the prevailing legislation of Lesotho.
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