We’ve recently been struck by how stressful it is for grieving family members to deal with technical financial decisions in the period just after their loved one has died. We have even seen this lead to devastating decisions which deprive those who are supposed to inherit from what was intended for their benefit.
If you have a pension, here are some pointers as to how you can help your loved ones avoid this type of trouble.
If you die with a retirement fund, the trustees of your fund are tasked with ensuring that your retirement investment is distributed fairly, in accordance with section 37C of the Pension Funds Act. Section 37C protects financial dependents, like spouses, children, and anyone legally entitled to your support, through a maintenance order, for example. Section 37C also overrides any provision you make in your will relating to these benefits, because these benefits from your pension funds do not form part of your estate.
The trustees of your pension investment are not bound by the information you provide, but it remains crucial that you submit written nominations of your beneficiaries and keep your choices up to date, in order to avoid delays and resulting frustration for your beneficiaries. The trustees are required to conduct an inquiry to identify and trace all dependents and nominees, and must then consider various factors, such as the possible beneficiaries’ financial position, age and future income potential, before distributing your death benefit. If your nominees include people who are not your dependents, remember that trustees can distribute your death benefit to them only once the financial needs of all your dependents have been met.
Making clear nominations, supplying complete and transparent information, and keeping them up to date helps trustees
- understand your intentions,
- conduct investigations within the 12-month distribution window, and
- avoid legal complications, where the death benefit may be paid into your estate, which can result in higher income tax and higher estate duty and executor fees.
Does this sound very technical? Well, generally, you would want to nominate your spouse or life partner to receive your pension benefits after you’ve died. If your spouse dies before you, then you would usually want to have your child or children receive that benefit, and if not, for example if you don’t have descendants, you can nominate another family member or friend. So we recommend you provide your pension fund trustees with the required information for your spouse or life partner, remembering to update the information if you become widowed or divorced or separated. Further provide the trustees with all required information relating to your descendants and any other dependents, and also update that information if the situation changes, e.g. once a child becomes financially self-supporting or moves address etc. Indicate your preferences if you’d prefer one of your dependents to be benefitted, and not the others, or for the benefits to be shared in a particular proportion, and explain why to the trustees.
So this serves as a reminder to stay on top of your beneficiaries’ wellbeing. Contact your retirement fund to confirm the process for updating your nominations. It’s also a good idea to share the information on the death claims process at your pension fund with your beneficiaries and executor while you are able to, to spare them the lengthy and confusing parts of the process while they are grieving.
The authors are Gala Morake and Trudie Broekmann