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Category Life Insurance

Age of majority – a real problem for beneficiary funds

05 November 2013 Richard Krepelka, Fairheads
Richard Krepelka, CEO of Fairheads Benefit Services.

Richard Krepelka, CEO of Fairheads Benefit Services.

A key player in the beneficiary fund industry has called on government to reverse the age of majority from 18 back to 21 as an exemption for this fast-growing financial services sector. The age of majority was changed to 18 by the Children’s Act of 2007.

Talking at a trustee roadshow recently, Richard Krepelka, CEO of Fairheads Benefit Services, said: "It is not uncommon for beneficiary fund service providers to pay out R100 000 or more on the termination of an account when the fund member turns 18. Yet the reality ofsocial and educational circumstances means that the average 18-year old in South Africa is not financially mature enough to invest or use large sums of money responsibly.”

Beneficiary funds and their umbrella trust predecessor vehicle manage approximately R19 billion of assets on behalf of orphans or single-parent children. They receive lump sum death benefit payouts from retirement funds in terms of section 37C of the Pension Funds Act. Accounts are set up in an umbrella beneficiary fund which pays out an income to beneficiaries (usually their guardians), as well as capital amounts for expenses such as school fees. Once the beneficiary turns 18, they are entitled to the remaining funds.

Mr Krepelka said: "Exacerbating the problem, only 50% of 18 year olds are in matric, the rest are in lower grades, or have dropped out of school already. This leads to a very low literacy level, and an even lower financial literacy level.

"At Fairheads we make a point of counseling beneficiaries before termination payments are made to advise them to leave the money invested in the beneficiary fund until they complete their education, but most of them opt to have the money paid out.

 
"This leads to more youngsters being insufficiently educated and dropping out of school, and therefore becoming unemployable, which perpetuates an already unacceptable employment rate. This is contrary to a key objective of a beneficiary fund which is to ensure children get sufficient education to be self-sufficient in society and the economy,” he said.

Fairheads has met with over 5 000 guardians and caregivers during an educational national roadshow this year. The age of majority is regarded as a issue by most of those consulted.

Since 2011, Fairheads has been lobbying for the Pension Funds Act to be amended to allow minors benefits to be managed until age 21 so that they can at least complete their secondary education. Mr Krepelka said that Fairheads has made proposals to the FSB and National Treasury which have been met favourably. He called on other industry stakeholders to support the lobbying initiative.

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