It is important for retirement fund members to understand what happens to their retirement benefits when they die to reduce any potential burden on their dependants and/or beneficiaries. It is important to note that a nomination does not guarantee that this person will receive all or a part of the death benefit.

Who allocates the death benefit?

Every retirement fund is managed by a board of trustees. The trustees are responsible for allocating retirement fund benefits in terms of Section 37C of the Pension Funds Act. The intention of the Act is to protect dependants, even over the clear wishes of the member. At its core the Act serves a social function, striving to ensure that no one who was financially dependent on the member is left without support i.e. couples who leave together but are not married or children from a previous marriage.

The member cannot leave the death benefit to a specific person via the terms of their last Will, and the executor of the member’s estate does not deal with the payment of these death benefits.

The difference between dependants and nominees

To understand how the trustees allocate the benefit, it is useful to understand the difference between a dependant and a nominee.

Dependant: The Act defines dependants as spouses, children, anyone proven to have been financially dependent on the member at the time of their death, anyone entitled to maintenance, as well as anyone who may in the future have become financially dependent on the member.

Nominee: A nominee is any party (natural person, trust or legal entity) whose details the member provided to the retirement fund in writing indicating that they should be considered by the trustees for a possible allocation of the death benefit. Examples would be one or more dependants, or a person who is not a dependant, such as a friend of the member.

When deciding how to allocate the death benefit the trustees are duty bound to consider various factors, including:

  • The financial position of the person.
  • Other sources of income and financial support available to the person.
  • Age of the person.
  • The person’s future income or their ability to earn an income.
  • How much money the person needs.
  • How the person was related to the member.
  • The value of the death benefit that is available to allocate.
  • The written wishes of the member.

Example

Bongani Dlamini left his hometown of eNkandla in the late 90s to start a new life in Johannesburg. He’s been living with Gloria Makwetla for 12 years and they have two kids aged 8 and 10 but they are not married. Bongani didn’t have any other kids outside of his relationship with Gloria. At the time of his death, he was employed by ABC Corporation for 18 years.

So how will his pension fund be distributed at death?

This answer will make the uncles from Bongani’s family eNkandla dislike Gloria. We know that from the information provided above Bongani only had Gloria and his two kids as his dependents. If he wasn’t sending money back home than that makes them his only dependents. In this case, Gloria and her children will receive all of his pension benefits unless there are other dependents that are discovered by the trustees of his pension fund that he kept as a secret i.e. kids from another relationship. The trustees may pay the benefit to a beneficiary fund or to Gloria since her kids are minors.

It’s very important to remember that Gloria didn’t have any influence on the allocation of Bongani’s pension benefit at death. So the dislike of Gloria by Bongani’s uncles is not justified. The allocation of death benefits was an independent decision of the pension fund trustees. The goal of the trustees is to allocate a death benefit to anyone who may in the future have become financially dependent on Bongani.

Sphelele Mncube

Head of Investments

Sphelele joined Inkunzi Wealth Group in 2013 and has 9 years’ experience in the investment management industry, having had previously worked for Allan Gray and Regarding Capital Management. Apart from being an active member of our investment team, Sphelele is also responsible for the management of our business. He holds a BCom degree in Economics from the University of Pretoria.