DISTRIBUTING YOUR DEATH BENEFIT

How is the fund credit and death benefit shared out?

When you belong to a company retirement fund and have group life benefits, you are always asked to complete a nomination of beneficiaries form, giving your nominated dependants and beneficiaries. It is important to note that a nomination of beneficiaries form is different to your Will.

In the event of your death while still in the service of your employer, the form will be used by the trustees as a guide in distributing your retirement and death benefit amongst your dependants and nominees. The trustees have a duty to identify all qualifying dependants and nominated beneficiaries when a member of a retirement fund dies. In terms of Section 37C of the Pension Funds Act the trustees then take into account relevant circumstances when dividing your lump sum death benefit.

This means that although you advise the Trustees via the form as to who you would like to see receive a portion of the death benefit, the final decision ultimately rests with them on who will receive a portion of the benefit and in what proportions. Further your Will can’t specify how your fund’s death benefit must be shared out.

Who is responsible and how do they decide to share the benefit?

The trustees of your fund are responsible for sharing out the death benefit. They are guided by the rules of the fund and Section 37C of the Pension Funds Act.

Section 37C

  • According to section 37C of the Pension Funds Act the trustees decide who gets some of your death benefit and how much this share should be.
  • It is a very important duty and they have no choice about what the law says.
  • Your trustees – by law - must make sure that those who are financially dependent on you are included when sharing out your death benefit.
  • Section 37C only applies to the distribution of your death benefit paid from your retirement fund if you die while employed.

The trustees must look at the following people when sharing out the death benefits:

  • Legal dependants, like your spouse or children
  • Factual dependants, meaning those who actually depend on you for money to survive
  • Nominees, who are not legal or factual dependants, but are those people you would like to leave a part of your death benefit - whether they are family members or not.

The trustees must also take into account:

  • The age of the beneficiaries
  • The extent of their dependency on the deceased member
  • The financial situation of the beneficiaries
  • The future earnings potential of the beneficiaries
  • The wishes of the deceased member.

Although the trustees must follow the rules laid out in Section 37C, they have a choice about the amounts of money shared out to the people who receive it. They can also decide what part of the benefit needs to be shared by the dependants and nominees.

When making this decision, the trustees, must make sure that all steps have been taken to identify, trace and contact all the people who could qualify as your dependants or nominated beneficiaries.

Once the trustees have identified the beneficiaries, they must divide the death benefit between them fairly, based on the circumstances that apply to each case.

To assist the trustees in this process, you should complete a nomination of beneficiaries form indicating your dependants and/or nominated beneficiaries. Remember that this form is only a guideline for the trustees – they are still responsible for deciding who will receive the benefit.

If you have not completed or updated a nomination of beneficiaries form and your family members are difficult to contact, there can be a delay of up to 12 months before your benefits are paid out – and this is a long time for your dependants to be without income.

Note:

  • If the cost of the insured benefits increases, the level of the benefit can be reduced.
  • The insured death benefit will only be part of the death benefit if the insurance company accepts the claim.
  • The insurer sets limits from time to time for the amount of cover that they will give you before you go for medical examinations to give evidence of good health. Until the insurer accepts your cover over the limit, your cover can be restricted to that limit.
  • There are times when the insurer will not pay a death benefit, such as if you commit suicide.
  • Claims caused by war or civil unrest will not be paid by the insurer.