Trustees: Nominating beneficiaries to retirement funds – what you need to know
By Kobus Hanekom, head of strategy, governance and compliance at Simeka Consultants & Actuaries
The requirements that trustees must follow when they allocate death benefits are not always intuitive or aligned with the moral and cultural values and expectations of the family members of the deceased.
What is the legal position?
Once members have paid their contributions into a retirement fund, those assets are no longer part of their estate. They are protected and cannot be touched, not even by creditors. Only the past 25 years can be taken into account when the member gets divorced. When a member dies, the benefit will go to those persons decided by the fund’s trustees – it does not matter whether the member is married in community of property or what they say in their will.
In terms of the Pension Funds Act, trustees have to identify all the persons who were financially dependent on the member and his/her nominees and make an allocation that is considered fair. The main gauge here is dependence – although there are others. Trustees must estimate how dependent on the member each person is and will make an allocation based on dependence as the dominant criterion. Only once they have dealt with the maintenance needs of the dependants, will they then consider beneficiary nominations and other criteria.
How does it work in practice?
As an example: Very often a member will nominate 50% to go to the spouse and, for example, 25% each to go to the two minor children. The trustees will consider the needs of each dependant and then make an allocation to one or more of them accordingly, after taking into account other relevant criteria as well. The level of dependency of younger children will be greater than those of older children because they will need to be maintained for a longer period, at least up to the end of the school. They may therefore be allocated a greater benefit than older children. With younger families, the benefit (member share and risk benefit) is often not adequate and dependants often get a pro rata percentage of their estimated maintenance needs. It is very possible therefore that the trustees will not be in a position to give effect to the member’s nomination purely on account of the fact that the needs of the dependant require a different allocation.
What to consider when you make a nomination
Trustees must seek to address the maintenance needs of each dependant before they take other considerations, such as a member’s nomination, into account. If therefore, members make a nomination that is not aligned with their dependants’ maintenance needs, they are advised to explain to the trustees (on the nomination form) why they are doing this, what the “real” position is, how they have taken care of their needs in their will or otherwise, and why it would be fair and appropriate to honour the nomination.
Share On:
Comments are closed.