Nominating beneficiaries of your retirement fund

By Janice Roberts

Kobus Hanekom of Simeka Consultants & Actuaries on nominating retirement fund beneficiariesAs a member of a retirement fund, you have no doubt nominated one or more beneficiaries – and your fund probably asks you to review your decision every year or whenever there is a change in your family situation. But did you know that you don’t have the final say in the matter?

The allocation of your fund’s death benefits is entirely at the discretion of the trustees, and they may in fact be compelled by law to consider beneficiaries not nominated by you, says Kobus Hanekom, head of strategy, governance and compliance at Simeka Consultants & Actuaries.

“The golden rule to remember when nominating beneficiaries is this: the trustees will not be able to honour and respect your nomination if persons dependent on you will be left destitute as a result,” he says.

If you therefore nominate as your beneficiary a person who is not dependent on you and you are survived by a spouse or a life partner who was dependent on you, the chances are that the trustees will have to override your nomination. This is unless you give them additional information and explain to them why the dependent will not be destitute as a result.

Hanekom cites an example where a fund member had nominated her son to receive 100% of the death benefit. After her death, however, an investigation by the trustees showed that she was survived by a life partner who was financially dependent on her, and allocated a portion of the benefit to him.

“The son argued that the full death benefit should have been paid to him in accordance with his mother’s nomination. He said his mother’s life partner of 30 years (who happens to be his father) abused his mother physically, emotionally and verbally. This man relied on and exhausted his mother financially with demands for liquor and food.

“Once the trustees identify a person as a dependent, however, they are duty bound to consider the person for a benefit allocation. The nomination form is merely one of the factors the trustees will look at, and whether or not a dependent is worthy of receiving a benefit or not, is not taken into consideration at all.”

So what can retirement fund members do to ensure their wishes are taken into account when their death benefits are allocated? Hanekom says the best members can do – especially if the matter is a complex one – is to provide enough information and guide the trustees to understand their planning and strategy.

“Members should therefore not stop at making a beneficiary nomination. They should write a motivation (on the nomination form or an attachment) that will assist the trustees to see the full picture and guide them to an outcome aligned with their own objectives.

“So in our example, if the member had made it clear that the relationship was abusive and that she was in the process of ending it and wanted to benefit only her son, the result may well have been different. But there aren’t any guarantees – ultimately the trustees are entitled to deviate from the provisions of the nomination form and distribute the benefit in a matter they deem fair to all concerned,” Hanekom concludes.

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