When a member of a retirement fund in South Africa passes away, a death benefit becomes available to be distributed to his/her beneficiaries. The board of trustees (Trustees) of the retirement fund makes the decision how the benefit will be distributed. The beneficiary can either be a dependent of the person who passed away, or a party nominated by the member when he/she was still alive.
The Pension Funds Act sets out how the benefit must be distributed.
The primary purpose is to make sure that people who were dependent on the member are not left without support after his/her passing. There are three categories of dependents to consider:
- Legal dependants: These are persons the member, by law had a duty to support or maintain, for example, a child or a spouse;
- Factual dependants: These are persons the member did not have a duty to maintain but the member maintained such persons;
- Future dependants: The member would have had a duty to maintain such person in the future if he had not died, for example, an unborn child
How the Trustees make their decision
In deciding how the benefit should be distributed, the Trustees will consider relevant factors, which include:
- The ages of the dependants.
- The relationship with the member.
- The extent of dependency.
- The wishes of the member in the nomination form or his Will.
- The value of the benefit that is available.
For the Trustees to be able to decide if a person was dependent on the member, the Trustees need proof of how that person was dependent. Examples of such proof include bank statements, bank deposit slips or receipts for payments that the member made. Such proof helps the Trustees to confirm if the person was dependent and also shows by how much that person was dependent on the member.
Unlike a life insurance policy, which is paid to the nominated beneficiary, the nomination on a retirement fund benefit is not binding. It will be taken into account by the Trustees when making their decision, but does not force the Trustees.
It still remains important for a member to complete a nomination form because if there are no identified dependants or nominees, the benefit will be paid to the member’s estate.