Retirement death benefit: fund trustees can override deceased member’s instructions


Johannesburg - According to the 2015/2016 annual report from the Office of the Pension Funds Adjudicator, the allocation of death benefits constituted the largest number of resolved cases.

In the unfortunate situation where a member of a retirement or provident fund passes away, there’s no guarantee that the nominated beneficiaries will receive a cash payout as per the wishes of the deceased.

Preenay Sathu, channel head at FNB Financial Advisory, says by law, the trustees of the retirement fund can override the wishes of the deceased despite the fact that the deceased may have nominated beneficiaries of their choice.

Retirement and provident funds are regulated by section 37C of the Pension Funds Act. This section gives the fund’s trustees the final say on how the death benefit is allocated among the beneficiaries. The trustees will be guided by the member’s wishes, but they will make the ultimate decision on who receives the benefit and who does not.

“To avoid frustration, retirement fund members must update their beneficiaries on a regular basis and ensure that all individuals that are financially depended on them are nominated. Upon death, fund trustees have up to 12 months to identify the dependents of the deceased. Should it be found that there’s an individual who is financially dependent on the deceased, that person can be allocated a death benefit even if they were not nominated,” said Sathu.

Furthermore, any person listed as a beneficiary is not necessarily entitled to a payout.

The trustees have a responsibility to consider the following:

- Age of the nominee;

- Nature of relationship with the deceased member of the fund;

- Determine the extent to which the individual is dependent on the deceased;

- Financial standing of the individual – do they earn an income?

- Consider their future earning potential.

A common misconception is that if the fund member has his or her wishes stated in a will in relation to a fund death benefit, such desires will be followed. The trustees of the fund are not bound by the deceased member’s will.

“Retirement planning forms a large part of long-term financial planning. However, having plans in place is not enough. It’s also important to have a basic understanding of the regulations governing investment vehicles such as retirement funds, especially in the event of death," said Sathu.

"It is important that you work with a suitably qualified financial adviser to answer any questions and ensure that you have a very clear understanding of the impact of these regulations on your family.”

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