Ensure your child gets the most from a beneficiary fund

For children under the age of 18, the loss of a breadwinning parent does not have to mean the loss of financial security. Government’s 2009 amendments to the Pension Fund Act require that trustees of pension funds must ensure that some funds from the pension of a deceased parent meet the basic needs of any minor children, such as food, clothing and school fees.

Based on the circumstances of the children, the trustees decide what portion of the pension to allocate to them and then hand over the money to beneficiary fund managers, like Standard Trust Limited, who create a separate fund for each child.

Standard Bank’s Institutional Channel Manager at Standard Trust Limited, Mthokozisi Bhengu explains that the money is paid to the official guardian of each child on a monthly, quarterly, or yearly basis, as decided by the trustees in consultation with the guardian.

“The amount of the regular payment will depend on the value of the parent’s pension at the time of death, as well as the number of years before the child turns 18 or the year in which the trust is set to terminate,” says Mr Bhengu.

For example, if a child is six, then the money must be stretched over the next 12 years, until she/he turns 18. If the overall pension amount is low, then the regular payouts to the child over a 12-year period will also be quite small.“In other words, each child will receive a different amount of money; there is no standard amount,” Mr Bhengu says.

To avoid confusion, guardians of beneficiary fund members need to stay in contact with the beneficiary fund administrator assigned to their child’s fund and make sure that they understand what amounts are due and when they will be paid.

“The child’s needs take priority. So, our beneficiary fund managers work closely with the guardian to be certain that all decisions are taken in the child’s best interests. This is one of the reasons we speak all eleven official languages at Standard Trust Limited.” There may also be financial emergencies. A guardian might be short of the money for school fees, or the child might need a computer or clothes for the matric farewell. The regular communication between the trustees and/or beneficiary fund managers ensures the respond to requests for special payments like these is always with greater clarity and prompt.

“What the trustees have to consider is the degree to which paying out for special requests will deplete the overall amount in the child’s fund. Each request is looked at individually and at times the ad-hoc requests may mean that the regular payments have to be reduced or that the fund runs out before the child turns 18, we need to be able to discuss such issues with the guardian.”

Standard Trust Limited has, however, taken steps to minimize the risk of depletion. The subsidiary has partnered with Edcon, ensuring that beneficiaries get discounts on school clothes, stationery and electronic equipment. Beneficiaries are also categorised according to age. In each of these categories, different emphasis is placed on the need to provide the child with income versus preserving the amount in the child’s fund.

“To do this effectively, however, we need to understand the child’s circumstances and that means keeping the lines of communication between our administrators and guardians open,” says Mr Bhengu.

It is vital, too, that guardians ensure that the beneficiary fund manager or trustees have all the requested paperwork related to the child. To ensure that money is being paid to the right people, guardians must submit every year a Certificate of Existence signed by a commissioner of oaths to confirm that they are still looking after a beneficiary.

Appropriate documentation must also be submitted and applied for when a child is about to turn 18 and if there are still funds due to her. The child will need an official ID document and a bank account, so that the funds can be paid directly to her rather than to the guardian. Some beneficiaries choose to keep the remaining amount in the fund until a later date, but the beneficiary fund managers must be officially notified of that decision.

“The process of ensuring that a minor child gains financial protection from a deceased parent’s pension is a delicate and complicated one that works best when there is active collaboration between specialised expertise and the child’s official guardian,” concludes Mr Bhengu.