The Allocation of Death Benefits

If you belong to a pension fund and die before retirement, a death benefit is payable to your beneficiaries (dependants and/or nominees).  The death benefit amount is derived in accordance with the rules of the Fund you belong to by realising the investments underlying the Investment Account to cash, after taking all expenses into account.

These benefits do not form part of your estate and will therefore not be distributed according to your Will.  You may nominate beneficiaries to receive the benefit upon your death.  It is important that you update your nominations when your circumstances change.  However, your nomination does not guarantee that your nominated beneficiaries will receive any death benefits.  Legislation requires the Fund’s Trustees to use their discretion and apportion the death benefit between your dependants and nominated beneficiaries as they deem equitable. This means that the Trustees determine who receives the benefit, the proportion in which the benefit is paid and how the benefit is paid.

 Dependants are defined in legislation and are by law given preference to the extent of their dependency when allocating benefits.  Dependants always include your spouse(s) and all your children (irrespective of their age and including those who are adopted, from previous marriages or born out of wedlock).  Anyone else who relies on you for financial support (such as an elderly parent, a family member, a grandchild, a friend or a divorced spouse to whom you are paying maintenance) is also regarded as a dependant.

If you have no dependants, the Trustees must establish whether your estate has enough money to pay your debts.  If not, the Trustees must first use the benefit to pay such debts.  Once all your estate’s debts have been settled, a payment will be made to your nominated beneficiaries.  If you have no dependants and have not nominated beneficiaries, a lump sum payment will be made to your estate.

To distribute your benefits as fairly as possible, it may be useful for the Trustees to understand why you have made certain nominations and allocations.

If you wish to nominate a trust and you have dependants, you should discuss with your Fund how your nomination can be accommodated within the requirement that the Fund must first meet the dependency needs of your dependants from the benefit.

Esmarie Strydom B.Com Investment Management(Hons)

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