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

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