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Are Pension And Provident Fund Death Benefits Payable Into The Estate Of The Deceased Member?

1.    The central question is : how are the pension and provident fund death benefits payable to a member to be dealt with, on his death, in terms of the Shariah? Are the death benefits payable into the deceased estate to be distributed amongst his or her heirs, determined at death, according to the rules of the Islamic Law of Succession? How are such payments characterised according to Shariah law?

2.     The Muslim jurists are unanimous that monetary rights which attach to the property of the deceased are transmissible to the heirs of the deceased upon his or her death. (for example, the right of the creditor to hold the pledged thing (rahn) is transmitted to the creditor's heirs ).

3.     There is however a difference of opinion on the category of rights per se, which are transmissible to the heirs of the holder of the rights. (for example, a stipulated right of option of a party to a contract of sale to cancel the contract within an agreed period. (Khiyar al Shart) In the Hanafi school, the option lapses upon the death of the holder. In the other schools, the option is transmissible to the heirs of the deceased holder of the right, because it is a monetary right. [1]

4.     On the other hand, there is unanimity, across all the schools, that a valid debt (dain sahih) owed to the deceased at the time of his death, forms an asset in his or her estate.

5.     The crucial question therefore is : Did the deceased member, at the time of his death, have a valid, legally enforceable entitlement against the Fund for the payment of the death benefits ? If so, the value of the benefits clearly and indisputably form part of the deceased's estate, to be dealt with according to the Shariah.

6.     The answer to this question is found in the provisions of section 37C of the Pension Funds Act, 1956. (hereafter referred to as “the Act”), which is the applicable law.

7.     This section creates a statutory order of precedence for the payment of death benefits to the dependants of the deceased member, who were legally and factually dependant on the deceased for support at the time of his death. Section 37C (1) expressly provides that the benefits payable “shall not form part of the assets in the estate” of the deceased member. The trustees of the Fund are, in terms of section 37C (1)(a), given the discretion to allocate the death benefits between the dependants of the deceased, in such proportions as they may deem equitable. In doing so, they may override the nomination of any person who the deceased may have designated in writing as a beneficiary to receive the proceeds of the death benefits.

8.     The following was stated in a Court case, Mashazi v African Products Retirement Benefit Provident Fund,[2] on the objects of the section :

        “Section 37C was intended to serve a social function. It was enacted to protect dependancy, even over the clear wishes of the deceased. This section specifically restricts freedom of testation in order that no dependants are left without support. Section 37C (1) specifically excludes the benefits from the assets in the estate of a member. Section 37C enjoins the trustees of a pension fund to exercise an equitable discretion, taking into account a number of factors. The fund is expressly not bound by a will, nor is it bound by a nomination form. The contents of the nomination form are there merely as a guide to the trustees in the exercise of their discretion...”.

9.     The Fund is a juristic person, a body corporate, which is vested with its own assets, and it is responsible for its own liabilities, capable of suing and being sued in its corporate name, and capable of doing all such things as may be necessary for or incidental to the exercise of its powers or the performance of its functions in terms of its rules. (Section 4B read with section 5)

9.     The contributions paid by the member to the Fund are accordingly owned by the Fund as a separate legal person.

10.   The member is bound by rules of the Fund. In terms of section 13 of the Act, the rules of the Fund shall be binding on the fund and its members and on any person who claims under the rules.

11.   The member acknowledges and agrees, through subscribing to the Fund, that the death benefits will be dealt with as provided in section 37C.

12.   In these circumstances, it is apparent that the deceased member has no legal entitlement or claim against the Fund, for payment of the benefits at the time of his death, with the result that the death benefits are excluded from his estate, according to the Shariah.

13.   In my view, the death benefit payments made by the trustees, in the exercise of their discretion, to the dependants of the deceased, in terms of section 37C of the Act , should be characterised as gratuitous payments in the nature of tabarru. On this basis, it makes no difference whether or not the Pension or Provident Fund in question is voluntary or compulsory.

14.   A similar conclusion was reached by certain fataawa,[3] and appears to be the view of certain contemporary Shariah experts in the field of Islamic finance.[4]



Specialist Shariah & Corporate Attorney

20 January 2014

[1]   See for example, Kitab-Al-Mugni, IBN Qudama, on sale. Kuwait Fiqh Encyclopaedia on Definition of an            

     Estate (Tarika)

[2] Per Hussan J : 2003 (1) WLD at page 632 H - J

[3]   see Contemporary Fataawa, by Mufti Muhammad Taqi Usmani, “Entitlement to Death benefits Payable by Pension

     Funds”, page 165 – 167 - Fataawa Mahmudia (20 : 402); Fataawa Haqaania (6 : 541); Ahkaam Mayyit (page 261);    

     Mufid Al Waariseen (page 29)

[4]   In a recent telephonic discussion, the distinguished contemporary jurist, Shaykh Abdul Satar Abu Guddah confirmed

     that the proceeds do not form part of the deceased estate. According to him, this view has also been adopted by

     various Shariah Boards of Islamic Financial Institutions.

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I personally know the honourable Shaykh Mahomed Shoaib Omar for over thirty years. I found him to be an ardent seeker of knowledge, quick of mind &  constantly devoted to the study of the books of fiqh &  has written himself a number of papers. He has been amongst the foremost participants in drafting the Muslim Personal Law for S.Africa, so that it may be enforced there; and the majority of local Ulama have endorsed this.

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