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What to consider when appointing beneficiaries of provident funds

The award of the retirement fund death benefit is a controversial, complicated and slow process, that is not well-understood by fund members and their dependents. The inevitable fear, frustration and financial hardship that follow from long payment delays add to the emotional strain of losing a loved one.

Below we explain how the process works, the issues trustees must take into account and what you, as the fund member, can do to expedite the process.

Process regulated by Pension Funds Act

The payment of death benefits from a Pension, Provident or Retirement annuity fund is regulated by section 37C of the Pension Funds Act 24 of 1956. When a member dies and a claim is made, the trustees of the fund must follow the requirements as set out in the Act and cannot merely follow the beneficiary nomination which was made by the member.

In determining who will receive the benefit on the death of a member, the trustees are granted 12 months from the date of death to search for any dependents of the deceased member. This must be done despite the existence of a beneficiary nomination.

The trustees have the final say with regards to the distribution of the death benefit; however, they must ensure that there is equitable distribution.

The beneficiary nomination acts merely as a guideline to the trustees as to the wishes of the member and will be taken into consideration when investigating the claim.

The trustees need to take the following matters into consideration:

  • The age of the parties involved
  • Their relationship with the deceased
  • The extent of their dependency on the deceased, if any (did the deceased provide any money to them)
  • The financial status and affairs of the dependents (employment, capability of managing money)
  • The future earning potential of the dependents (are they likely to find employment if unemployed; are they students; are they disabled etc.)

In addition, the trustees also need to take into consideration:

  • Any parties the deceased had a legal duty to support (spouses, children, parents, grandparents, unborn children etc.)
  • Factual dependents (common law spouses, same-sex partners, step children, foster children)
  • Customary law spouses
  • Major children who the deceased had a legal responsibility to support

The way that the death benefit is paid is also regulated by section 37C and currently allows for the following options:

  • Payment directly to the dependent or nominee
  • Payment to a trust
  • Payment to a guardian or caregiver
  • Payment to a beneficiary fund.

Other considerations

When a death benefit is payable to a minor then the trustees may only pay the benefit to the guardian of the minor or to a beneficiary fund. As a guardian has the right in terms of law to administer the financial affairs of the minor, the trustees cannot, without applying their minds to the facts, pay the benefit into a beneficiary fund and not the guardian.

Should the trustees not find a dependent within the 12 month period following the death of the member and a beneficiary was nominated by the member then the trustees may pay the benefit to the nominated beneficiary. If no beneficiary was nominated then the benefit will be paid into the deceased’s estate.

The most effective way to speed up the process is to ensure that, as a fund member, your beneficiary nomination form is kept up to date all the time and lists ALL your financial dependents. This helps the Fund trustees greatly in their investigation, and therefore minimises the delay in settling the claim.

This article is a general information sheet and should not be used or relied upon as professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your financial adviser for specific and detailed advice. Errors and omissions excepted. (E&OE)

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