IN A NUTSHELL: A beneficiary fund ensures that minors or financially vulnerable dependants are looked after once a retirement fund member passes away. It is a separate fund from the retirement fund, with its own board of trustees, and its main goal is to ensure that the dependants receive what they are due in a manner that serves them best. Click here to read the story in isiXhosa.
When a member of a retirement fund passes away, their death benefit — often the biggest payout their family will ever receive — must be distributed to those left behind.
But what happens if the dependent(s) is a minor child?
Trustees have a powerful option: Transfer the child’s share into a beneficiary fund. These funds were established in 2009 to protect vulnerable dependants, especially minors, by providing a secure and regulated way to manage lump-sum death benefits from retirement and group life funds.
In short, the beneficiary fund protects children’s inheritance until they are old enough to manage it themselves.
What trustees need to know
So, you’ve just been informed of the death of a member. You now carry a legal and ethical responsibility to ensure dependants of deceased members are correctly identified and protected.
But families are complex. A father may have children across households. A mother may have never updated her nomination form. Families grieve, argue, hide details, or forget what was promised. You’re not just investigating or working through admin. You’re navigating emotions, culture, conflict, and loss.
Instead of paying a child’s benefit directly to a guardian or family member (which could place the funds at risk), trustees can transfer the money to a beneficiary fund. There, it will be managed professionally and paid out regularly, for example, to cover school fees, transport, groceries or medical costs — in line with the child’s needs.
This is especially important when guardians may not be financially stable or when family conflict puts a child’s inheritance at risk. Money paid into a beneficiary fund is ring-fenced.
In some tragic instances, benefits have been lost because they were absorbed into a guardian’s deceased estate, and the child was not named in the will. Beneficiary funds prevent this by ensuring the child’s money is kept separate and secure.
Trustees must also evaluate the governance of beneficiary funds to ensure they serve the best interests of the beneficiaries. They’re responsible for ensuring sustainable fund management with sound investments that protect children’s long-term security.
It’s not just about compliance. It’s about doing right by the worker or colleague who trusted you with their savings.
It’s the law
Beneficiary funds are regulated under the Pension Funds Act and defined as a “pension fund organisation”. In the past, members could nominate beneficiaries. But Section 37C, promulgated in August 1976, stipulates that the distribution of death benefits remains the responsibility of the retirement fund trustees. This is to ensure that those who were financially dependent on the member are not left destitute after their death. This section applies equally to beneficiary funds.
What fund members should know
The single most important thing members can do for their dependants, especially minors, is to keep their records fully updated. This includes informing your retirement fund of all your dependants: children born out of wedlock, adopted children and any other vulnerable people who are financially dependent on you.
Many South Africans never update their beneficiary nominations. Some hide relationships. Others assume the money will just “go to the right person.”
But the law doesn’t work that way. Trustees must follow a legal process, and if they can’t find or confirm your dependants, your children may get left behind. And that’s not the legacy you want to leave behind.
Quick questions
Can fund members choose a beneficiary fund in advance?
No — the decision is made by trustees after the member’s death.
Does a minor’s death benefit automatically go to a beneficiary fund?
No — it depends on the child’s needs, family circumstances, and the trustees’ discretion.
Does a retirement fund have its own beneficiary fund?
No – a beneficiary fund is a separate legal entity with a different board of trustees.
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