Who gets your retirement fund benefits when you die?

If you’ve nominated someone other than a dependent as the beneficiary of your retirement fund, your wishes might not be honoured when you die, even if you’ve made that person the sole beneficiary of your estate. This is because pension fund legislation favours dependents above all other claimants.

“Dependents” are defined as your spouse, children (biological, adopted or step-children) or anyone proven to be financially dependent on you.

According to Jonathan Turner of Allan Gray, when you die, trustees are legally obliged to identify your dependents. Once they’ve identified them they need to establish what their financial circumstances are, then allocate your retirement benefits to them as they see fit. Only then will the needs and claims of a non-dependent beneficiary be considered.

A minor or a legally incapacitated adult won’t receive the benefit directly — it may be paid into a beneficiary fund, or to a beneficiary’s parent or someone legally responsible for him or her. Alternatively, the benefit can be paid to a trust, according to your stipulation. Even if you haven’t nominated a trust, payment can still be made to a trust if your beneficiary or his or her legal representative nominates the trust, and the nomination is approved by the board of trustees.

If you’ve nominated a beneficiary, no dependents can be found and your estate is solvent, the trustees of your retirement fund will pay your beneficiary a lump sum (from which tax may be deducted). Alternatively, your beneficiary can choose to transfer the benefit to a living or life annuity, which is exempt from estate duty.


If no dependents are found within a year after your death, trustees have to pay the benefits to your beneficiary — but only if your estate is solvent. If it’s not, the retirement fund capital must be used to fund the shortfall of your estate before benefits can be paid. If no dependents are found and you haven’t nominated a beneficiary of your retirement fund, the trustees will pay out a lump sum to your estate.

For obvious reasons, this process takes time: “As much as a year after your death,” says Turner. “This can lead to frustration or financial hardship if your beneficiaries were banking on receiving your benefits sooner.”

The other potential rocky patch is that trustees must identify all dependents and, although this information is confidential, the process might bring to light some information you don’t want your family to know — say, a child from an unacknowledged partnership. If you haven’t been entirely honest with your family, they’ll likely find out after your death.

Read more news, blogs, tips and Q&As in our Smart Money section. Post questions on the site for independent and researched information

Subscribe to the M&G

These are unprecedented times, and the role of media to tell and record the story of South Africa as it develops is more important than ever.

The Mail & Guardian is a proud news publisher with roots stretching back 35 years, and we’ve survived right from day one thanks to the support of readers who value fiercely independent journalism that is beholden to no-one. To help us continue for another 35 future years with the same proud values, please consider taking out a subscription.

Related stories

Advertising

Subscribers only

Poachers in prisons tell their stories

Interviews with offenders provide insight into the structure of illegal wildlife trade networks

Covid-overflow hospital in ruins as SIU investigates

A high-level probe has begun into hundreds of millions of rand spent by the Gauteng health department to refurbish a hospital that is now seven months behind schedule – and lying empty

More top stories

The politics of the Zuma-Zondo showdown

Any move made by the Zondo commission head or by former president Jacob Zuma must be calculated, because one mistake from either side could lead to a political fallout

Museveni declared winner of disputed Uganda election

Security personnel out in force as longtime president wins sixth term and main challenger Bobi Wine alleges rigging.

Pay-TV inquiry probes the Multichoice monopoly

Africa’s largest subscription television operator says it is under threat amid the emerging popularity of global platforms like Netflix and Amazon Prime

​No apology or comfort as another Marikana mother dies without...

Nomawethu Ma’Bhengu Sompeta, whose funeral will be held this weekend, was unequivocal in calling out the government for its response to the Marikana massacre
Advertising

press releases

Loading latest Press Releases…