Have you ever wondered what happens to your retirement savings if you die before reaching retirement age?
What do you think:
- The retirement fund keeps your money and re-invests it.
- The retirement fund trustees split your money among themselves.
- None of the above.
Definitely no. 3! All your savings to date are paid out – this is called a death benefit. In the old days, you could nominate in writing the recipients of your death benefit. It could be your spouse, your kids, your church, or the SPCA, and upon your death, the money was distributed according to your wishes.
Section 37C of the Pension Funds Act changed all that. Section 37C, promulgated in August 1976, stipulates that the distribution of your death benefits remains the responsibility of the retirement fund trustees.
That doesn’t sound fair you might think – it is your money after all… but the rationale behind Section 37C is to ensure that those who were financially dependent on the member are not left destitute after their death. It also helps reduce the burden on the state by reducing the need for dependants to rely on social grants if they were supported financially by a member before their death.
Furthermore, for that very reason, the state provides significant tax concessions as an incentive for members to provide for spouses, children and dependants in the event of their death.
What is the duty of the board of trustees?
- They must conduct a thorough investigation to identify the dependents of a deceased member.
- The board must allocate distributions on a fair and equitable basis. The trustees must identify the competing needs of the various dependents. This difficult task has many factors to consider such as the age of the dependents, their relationship with the deceased, the extent of their dependency and the wishes of the deceased among others.
- The trustees must determine an appropriate method of payment for the death benefit. They can either pay the dependent directly (lump sum or instalments), into a registered beneficiary fund or a trustee/trust/appointed person that oversees the needs of the dependent.
Ata wants to know…
Who are my dependents?
Your spouse, children (born out of wedlock and adopted), parents, grandparents and grandchildren or anyone who is financially dependent on you at the time of your death. Also, anyone entitled to maintenance; as well as anyone who may in the future become financially dependent on you (such as a fiancé or an unborn child, for example).
What if I live in Johannesburg but have a child staying in the Eastern Cape?
It is the trustees’ responsibility to identify and trace all dependents. While trustees should aim to distribute the death benefit as quickly as possible, this process is influenced by individual circumstances and how long it takes to find dependants. Trustees have at least 12 months to search for dependents, but this time can be extended if necessary.