Section 37C and Islamic Inheritance (2026): Who Gets Your Retirement Fund

When a member of a South African pension, provident, preservation or retirement annuity fund dies, the death benefit does not pass under the will and does not form part of the deceased estate. Section 37C of the Pension Funds Act hands the decision to the fund's board of trustees, who must trace dependants within twelve months and pay the benefit to them in whatever proportions the board considers equitable. A beneficiary nomination form is only a guide. For a Muslim who has drafted an Islamic will to distribute the estate by faraid, this is the single largest asset the will does not reach, and this guide explains what the section says, how trustees apply it, and the steps that bring the outcome closer to the Shariah shares.

What section 37C actually says

The text of section 37C(1), as quoted in FSCA Tribunal decisions, opens with the words notwithstanding anything to the contrary contained in any law or in the rules of a registered fund. Any benefit payable by the fund on the death of a member shall not form part of the assets in the estate of the member. It is then dealt with in a fixed sequence. Under paragraph (a), if the fund becomes aware of or traces a dependant within twelve months of the death, the benefit is paid to that dependant or divided among dependants as the board deems equitable. Under paragraph (b), if no dependant is found within twelve months and the member designated a nominee in writing, the nominee is paid, less any amount needed to cover a shortfall where the estate's debts exceed its assets.

Paragraph (bA) covers the common case where there are both dependants and a nominee: the board must, within twelve months, pay the benefit to the dependant or nominee, or both, in such proportions as the board may deem equitable. If there are no dependants and no nominee, the benefit goes to the estate. The one exception written into the section is a benefit payable as a pension to a spouse or child under the fund's own rules, which follows those rules. The practical meaning is that the board, not the member and not the executor, decides who receives the money and how much, and it must investigate before deciding. Our estate planning hub sets out how the rest of a Muslim estate is handled; this article is about the part that sits outside it.

Who counts as a dependant, including religious marriages

The Pension Funds Act's definition of dependant is wide. It includes a spouse, which the FSCA Tribunal has confirmed extends to a spouse under a customary marriage, a child including an adopted or extramarital child, anyone the member was legally liable to maintain, and anyone the member was in fact maintaining or would have become legally liable to maintain. A Muslim marriage that was never registered civilly has historically been the difficult case, and the FSCA's June 2024 presentation on the two-pot amendments records that the Pension Funds Act's new definition of pension interest recognises marriages concluded according to the tenets of a religion. Members whose nikah was never followed by a civil registration should still assume the fund will ask for proof: the nikah certificate, evidence of cohabitation and of financial support.

The width of the definition is what creates the tension with faraid. Under Islamic law, a surviving wife takes one eighth where there are children, sons take twice a daughter's share, parents take fixed sixths, and a person the deceased was merely supporting, such as a divorced sister or a child in his care, takes nothing unless provided for in the one-third bequest. Under section 37C, that same divorced sister, if she was being maintained, is a factual dependant with a claim the board must weigh, while an adult son in a good job may receive little because his dependency is low. The two systems are asking different questions. Faraid asks who is related and how; section 37C asks who needs the money.

How trustees decide, and what they are told to ignore

FSCA Tribunal decisions reviewing section 37C allocations describe the process the board must follow. It must identify all dependants and nominees, investigate the extent of each person's dependency, consider relevant factors such as age, relationship, financial status, future earning capacity and the amount of the benefit, and ignore irrelevant ones. The board may not simply rubber-stamp the nomination form, and it may not treat the will as binding either. The Tribunal has set aside allocations where a fund excluded a customary spouse, and where it refused to tell a child's guardian how the allocation was reached.

• Age of each dependant and how long they would have relied on the member, which tends to favour minor children over adult ones.
• Relationship to the deceased, so a spouse and minor children are usually weighted ahead of parents and siblings.
• Financial position of each dependant, including their own income, assets and other death benefits they will receive.
• The extent of the deceased's actual maintenance of each person before death, shown through bank transfers and school fees.
• The member's expressed wishes on the nomination form, which are considered but not decisive.
• The size of the benefit relative to the needs identified, so a small benefit may go entirely to one dependant.

A member who dies with no nomination and with dependants who cannot easily be traced leaves the board with twelve months of investigation and the benefit sitting unpaid. That delay, more than any allocation decision, is the complaint most often brought to the Pension Funds Adjudicator, whose office handles disputes about fund decisions and whose current appointee was announced by National Treasury in November 2025.

Why your Islamic will does not control the fund, and what it still does

An Islamic will drafted under the Wills Act, which our guide to Islamic wills in South Africa explains in full, directs the executor to distribute the estate's assets according to faraid, usually by reference to a distribution certificate from a body such as the Muslim Judicial Council. Section 37C removes the fund benefit from that estate before the executor touches it. The will still governs the house, the bank accounts, the shares and the business, and if a benefit is paid to the estate under paragraph (b) because no dependants or nominees exist, it then falls under the will. For most families, though, the fund money is allocated by the board and received by the dependants directly.

There is a second, less obvious effect. Because the fund benefit is not in the estate, it is not available to pay the deceased's debts, funeral costs or outstanding zakat, which Islamic law requires to be settled before distribution. SANZAF's guidance is explicit that unpaid zakat is a debt against the deceased's wealth. If the estate is thin and most of the family's savings were in the fund, the heirs who receive the fund money will need to settle those obligations voluntarily. A line in the will asking them to do so has no legal force but carries moral weight, and it is one reason to discuss the plan with the family while alive.

Five steps that pull the allocation towards faraid

The board's discretion is wide but not unlimited, and members have more influence than the law's wording suggests. Everything below is legal under section 37C and consistent with the FSCA Tribunal's approach.

• Complete the nomination form in faraid proportions, naming every heir with their share, and attach a short explanation that the proportions reflect the member's religious obligation; boards must consider the member's wishes even though they are not bound by them.
• Keep the nomination current after every marriage, birth, divorce and death, because a stale form naming a former spouse is the commonest cause of a disputed allocation.
• Document the maintenance you provide to anyone outside the immediate family, so that the board's dependency finding matches the reality rather than guesswork.
• Reduce the amount that flows through section 37C: once past 55, consider moving part of the pot into a Shariah living annuity, where the provider's beneficiary rules may differ from section 37C, and ask the provider in writing whether section 37C applies to its product.
• Use the estate side to balance the result: if the fund is likely to pay mostly to the spouse and minor children, the will can direct other assets so the overall distribution across fund and estate approaches the faraid shares, within the Wills Act's limits.
• Tell the heirs the plan and leave a written note, since adult children who understand why a sibling received more are far less likely to lodge a complaint that freezes payment for a year.

Platforms that build Islamic wills, such as Tazkiya, will usually ask for fund details precisely so that the will and the nomination are drafted together. The faraid calculator produces the share table you need for the nomination form.

How the death benefit is taxed

Lump sums paid from a retirement fund on death are taxed in the deceased member's hands under the retirement fund lump sum benefit table, not in the hands of the dependants. SARS's published table for 2026/27 taxes the first R550 000 at 0%, then 18% to R770 000, 27% to R1 155 000 and 36% above, cumulatively with every retirement lump sum the member took since October 2007 and every withdrawal since March 2009. If the member had taken little or nothing before, a death benefit under R550 000 passes tax free. A dependant who elects an annuity instead of a lump sum receives income taxed at ordinary rates in their own hands. Our guide to winding up a Muslim estate covers the estate side of the tax picture.

The decision: what each kind of member should do now

If you are married with minor children and most of your wealth is in an employer fund, accept that section 37C will likely favour your spouse and children over your parents and siblings, and use your will and your takaful cover to provide for the parents' sixth and any other heirs. Complete the nomination in faraid shares anyway, because it anchors the board's starting point. If you are older, with adult self-supporting children and a substantial retirement annuity, section 37C may produce an allocation far from faraid; speak to the fund about how its board has treated similar cases, and consider whether a living annuity with a clear nominee rule gives you more control. If you have a religious marriage that was never registered, gather the proof of marriage and maintenance now, because your spouse's status as a dependant will be the first thing the board tests.

In every case, the retirement fund is the one asset where the Islamic will is advisory rather than binding, and the member who understands that while alive is the one whose family avoids a year of silence and a Tribunal hearing. Facts checked against fsca.co.za, sars.gov.za, treasury.gov.za, sanzaf.org.za on 8 September 2026.

Frequently asked questions

Does my Islamic will control my pension fund death benefit?

No. Section 37C of the Pension Funds Act states that a death benefit from a registered fund does not form part of the member's estate and is allocated by the fund's trustees among dependants and nominees as they consider equitable. The will governs the rest of the estate, and the fund benefit only falls into the estate if no dependants or nominees exist.

Is a beneficiary nomination form binding on the fund?

No. The nomination is one factor the trustees must consider, but where dependants exist the board decides the proportions under section 37C(1)(bA). A nominee who is not a dependant only receives the benefit directly if no dependant is traced within twelve months. Completing the form in faraid shares still matters, because it is the board's starting reference.

Who is a dependant under the Pension Funds Act?

A spouse, including a customary or religious spouse, any child including adopted or extramarital children, anyone the member was legally liable to maintain, and anyone the member was in fact maintaining. The FSCA Tribunal has confirmed that customary spouses qualify, and the 2024 amendments recognise marriages concluded according to the tenets of a religion for pension interest purposes.

How long does a section 37C payout take?

The Act gives the board twelve months from the death to trace dependants and decide the allocation, and payment follows that decision. Funds with complete nomination forms and easily traced families often pay sooner; disputed cases and untraced dependants can run to the full year and beyond, with complaints going to the Pension Funds Adjudicator.

Is a retirement fund death benefit taxed?

A lump sum is taxed in the deceased's hands under SARS's retirement fund lump sum benefit table, with the first R550 000 of cumulative lifetime retirement lump sums at 0% and bands of 18%, 27% and 36% above. A dependant who takes an annuity instead pays ordinary income tax on the annuity income as it is received.

Can my heirs use the fund money to pay my unpaid zakat and debts?

Legally the benefit belongs to the dependants once allocated, not to the estate, so creditors and the executor cannot claim it except for the limited debt shortfall rule in section 37C(1)(b). Islamically, unpaid zakat and debts are settled before inheritance, so the heirs who receive the fund money should settle them voluntarily. Leaving written instructions to that effect helps.