WORDS ABOUT WEALTH
A recent article on Personal Finance, “Your retirement benefits are separate from your estate and not covered by a will,” received a large number of views, suggesting that this is a fact about savings in retirement funds that many people ignore. Shameer Chothia, senior consultant at Momentum Corporate Advice and Administration, quoted in the article, says it is only in exceptional circumstances that if you die while you are a member of a pension fund (and it may be an occupational pension or provident fund, a preservation fund and even your retirement pension investment), the benefit is paid to your estate.
This is because pension funds are governed by the Pension Funds Act, which is quite explicit on how benefits are to be distributed in the event of a member’s death. It applies to assets affiliated to a pension fund, who die prematurely, before reaching retirement age.
As with a life insurance policy, your retirement fund requires you to name beneficiaries on a beneficiary designation form. But – and this is a big but – it is up to the fund trustees to determine who gets what, and while they will consider your designated beneficiaries, these are not the only people they will consider when distributing, which must be “fair”. Trustees are required to consider any dependents, including people you have not nominated, such as children from a previous marriage and even illegitimate children they may be on when looking for. your loved ones and your offspring.
Let us take a look at the relevant section of the Act, section 37C:
“Notwithstanding any provision to the contrary contained in a law or in the regulations of the registered fund, any benefit (other than a benefit payable as a pension to your spouse or to your child under the rules of the registered fund …) payable on on death of the Member, will not form part of the assets of the Member’s estate, but will be dealt with as follows (and here I deviate from the exact wording of the Act for the sake of brevity):
a) If the fund, within 12 months of your death, becomes aware of or finds a dependent or dependents of the member, the benefit will be paid to that dependent or, as the fund may deem equitable, to one of these dependents. or in proportion to some or all of these dependents.
b) If the fund is not aware of or cannot find any dependent of the member within 12 months, and the member has appointed in writing an agent who is not a dependent … the benefit or [nominated] part of the benefit will be paid to the candidate.
If the member has a dependent and has also nominated a candidate, the fund will pay the benefit or a portion thereof to that dependent or candidate in such proportions as the board may deem equitable.
c) If the fund does not know or cannot find any dependents and the member has not appointed an agent, or if the member has appointed part of the service to an agent, the service (or remaining part of it) will be paid to the member’s estate.
There is another condition under (b): If there are no dependents (named or not named but found by search) and your estate is in debt, the benefit can be used to offset the debt. But that’s only if you don’t have dependents. It will apply if you have a named beneficiary who is not a dependent – in which case the named beneficiary will have whatever is left over after the debt is paid.
How is a dependent defined in the Act? The definition is quite broad:
a) Someone to whom you are legally responsible for maintenance.
b) Someone to whom you are not legally responsible for maintenance, if that person is:
i) in the opinion of the board, depending on you for maintenance;
ii) your spouse;
iii) one of your children, or an adopted child, or a child born out of wedlock.
c) someone to whom you would have become legally responsible for maintenance.
So everything is quite complicated, as you can see, and what must often be a nightmare for pension fund trustees, especially when obscure “dependents” start to come out of the woods after the death of one. member. No wonder the pension fund arbitrator receives so many complaints about the way the trustees have distributed the benefits.
One solution is to list all of your known dependents (as defined in the Act) as beneficiaries on your nomination form. This will make things much easier for the Trustees and the benefit will likely be paid as soon as possible.