In South Africa, the payment of retirement fund proceeds on premature death is governed by the Pension Funds Act of 1956. When a member of a retirement fund dies before reaching retirement age, the benefits are not automatically paid out according to the member’s nominated beneficiaries. Instead, the distribution is handled according to specific legal guidelines to ensure that dependents are adequately provided for.
Who is entitled to the benefits?
Dependents
Legal Dependents: These include a spouse, children (including adopted and stepchildren), and any other persons who were financially dependent on the deceased member at the time of death.
Factual Dependents: People who were not legally dependent on the deceased but were financially supported by them, such as a partner, parents, or other relatives.
Future Dependents: Individuals who would have become financially dependent on the deceased in the future, such as an unborn child.
Nominees
These are individuals or entities nominated by the member in a beneficiary nomination form. However, a nomination does not guarantee that the nominee will receive the benefits as the board of trustees still needs to take into account the needs of dependents. This is a process which the trustees of the fund need to investigate and apportion accordingly.
Who Decides How Much Each Beneficiary Gets Paid?
The distribution of retirement fund proceeds is determined by the board of trustees of the retirement fund. The trustees have the responsibility to ensure that the benefits are distributed fairly among the dependents and nominees within a reasonable amount of time.
Investigation process
The board of trustees is required to conduct a thorough investigation to identify all potential dependents and nominees. This involves gathering information about the deceased member’s family, financial dependents, and any nominations made by the member.
Decision-Making
The trustees have the discretion to decide how to distribute the benefits among the dependents and nominees. They must take into account the financial needs of each dependent, the extent of their dependency on the deceased, and any other relevant factors. The distribution does not necessarily have to be equal; it is based on the specific needs and circumstances of each individual.
Distribution
After the decision has been made, the benefits are paid out to the beneficiaries as determined by the trustees. The payment can be made as a lump sum, an annuity, or a combination of both, depending on the rules of the retirement fund and the preferences of the beneficiaries.
Key Points to Note
The board of trustees has wide discretion in deciding how to allocate the benefits, which is designed to protect vulnerable dependents. However, their decisions can be challenged if a beneficiary believes the distribution was unfair.
Timeframe: The trustees are required to make a decision and distribute the benefits within a reasonable period, typically within 12 months of the member’s death.
Tax Implications: The retirement fund death benefits may be subject to tax, depending on the nature of the fund and the form in which the benefits are paid out.
This system is intended to ensure that the dependents of the deceased are adequately provided for, even if the deceased member did not update their nomination form or if the member’s will does not reflect the current situation. If there are for example, claimants like a dependent or children from an undisclosed relationship or a person that the contributor assisted financially making them dependent on the funds available, all of these would be considered.
Image credit: Photo by Alexander Dummer
