The importance of nominating your beneficiaries

A valid nomination of beneficiary form completed by a member plays a critical role in facilitating the speedy payment of the death benefit to the ultimate beneficiaries

901

Retirement fund members who are entitled to death benefits must keep their nomination of beneficiary forms up to date to ensure their beneficiaries receive these benefits timeously in the event of a member’s death.

Whether you are dealing with an approved or unapproved policy, a valid nomination of beneficiary form helps to ensure dependants are not excluded from the distribution of death benefits in the event of a member’s death.

A valid nomination of beneficiary form completed by a member plays a critical role in facilitating the speedy payment of the death benefit to the ultimate beneficiaries. Without a valid, up-to-date form, investigating who is entitled to the benefits could take much longer and some potential beneficiaries might even end up being excluded.

Members of retirement funds are typically covered for death benefits through a group life assurance policy that is either owned by a retirement fund (“approved”) or by an eployer (“unapproved”). The terms “approved” or “unapproved” refer to the vehicle (retirement fund or insurance policy) which pays the death benefit out to beneficiaries and its tax treatment.

An “approved” benefit is recognised by the Registrar of Pension Funds and approved by the South African Revenue Service for tax deduction purposes. An “unapproved” benefit is not offered under a tax approved retirement fund in terms of the Pension Funds Act. Instead, unapproved benefits are offered through a separate insurance policy. Whether you are dealing with an approved or unapproved policy, a valid nomination of beneficiary form helps to ensure dependants are not excluded from the distribution of death benefits in the event of a member’s death.

Death benefits under approved policies

In the event of death of a member under an approved policy, the deceased member’s savings accumulated in the fund plus the death benefit are paid to the member’s beneficiaries as a fund death benefit. Fund death benefits are subject to Section 37C of the Pension Funds Act, which means that the fund trustees need to investigate to determine who the beneficiaries are and distribute the benefit to those beneficiaries in an equitable manner, based on among other factors their extent of dependency on the deceased member. A completed nomination of beneficiary form guides the fund trustees in their investigation to determine the member’s beneficiaries. The ultimate decision on who to distribute the death benefit to, and in what proportions, lies with the trustees, with the nomination of beneficiary form serving as a good guide in identifying beneficiaries. It is also important to note that financial dependency on the member is one of the key elements considered by the trustees during the Section 37 investigation and distribution of the death benefit.

What happens to approved policy benefits/fund death benefits if there is no valid nomination form in place?

If the fund has not been given a completed nomination of beneficiary form, the trustees will have to conduct their investigation without an expression of the deceased member’s wishes. This could delay the investigation process and so delay the ultimate payment of the benefit to beneficiaries who may be in desperate need of financial support. It could also result in other dependants being omitted from the distribution of the death benefit (eg a child born out of wedlock and not known to the deceased’s family).

Death benefits under unapproved policies

Section 37C of the Pension Funds Act does not apply to unapproved policy benefits, although the deceased member’s savings accumulated in the fund are paid as a death benefit from the fund and Section 37C applies to this portion. Therefore, in the case of an unapproved policy, the death benefit due from the policy is dealt with slightly differently to the death benefit due from the fund itself.

With unapproved benefits such as a benefit payable under an employer-owned group life policy, a member may nominate anyone who they wish to receive the benefit, including non-dependants and payment will be made accordingly. There is no Section 37C investigation which takes place and payment is strictly made according to the completed nomination of beneficiary form.

Adv. Beverly Jubane, Specialist Customer Service, Liberty Consultants and Actuaries

What happens to unapproved policy benefits if there is no valid nomination form in place?

In the absence of a signed, valid nomination of beneficiary form, the insurer is required, in terms of policy terms and conditions as well as legislation, to pay the benefit to the deceased’s estate (or according to a written instruction by an authorised person confirmed by a letter of authority issued by the Master of the High Court where applicable).

Having a valid nomination of beneficiary form in place, particularly in the case of benefits from an unapproved policy, makes it easier for death benefits to paid timeously to beneficiaries.

Nomination of beneficiaries and funeral policies

Nomination of beneficiary forms are also required for the payment of benefits from employer-owned funeral policies. When the main member of a funeral benefit policy passes away, the benefit will be paid out in terms of the signed nomination of beneficiary form.

If the nomination of beneficiary form has not been completed, the payment will be made to the deceased’s estate. Payment of the benefit cannot be made to the employer or any other person with control over the deceased’s affairs. This could result in hardship as the funeral policy is meant to assist with the cost of the funeral and the money to cover the costs is normally required urgently.

When preparing for the future and for unforeseen circumstances such as death, the main priority is that members can care for their families and ease the burden on them. Ensuring that members have completed the necessary nomination of beneficiary forms and keeping them up to date is the best way to ensure members are able to care for their loved ones.