Beneficiary nomination forms: A bitter pill to swallow

The high level of unemployment, which is an unfortunate reality in South Africa, highlights the issue of the distribution of pension funds benefits. A lot of families who are affected by unemployment, rely on the pension benefits of deceased relatives to survive. Beneficiary nomination forms play in key role in these rulings, but does it play a central role?

This was raised after a recent determination by the PFA saw a beneficiary having her contribution decreased in order to make funds available for additional dependents who were not mentioned on the form.

Merely a guideline

When asked why such a ruling was made, the PFA pointed out that while the nomination form is an important document, it is merely a guideline and other considerations take precedence when distributing death benefits.

Fairheads Benefit Services Chief Executive Officer, Richard Krepelka, says that there is a distinct pecking order when it comes to these considerations. “In making the death benefits allocation, Boards of Trustees will make provision for dependants in the following order. Firstly, the dependant’s children born in or out of wedlock, adopted children, legal or cultural spouses and partners, including same sex partners. Secondly are factual dependants who include family like parents, siblings and extended family. Nominees such as those mentioned on the nomination form of the member, who do not fit into the categories previously mentioned, falls into the last category. These can include friends, societies and others,” he says.

Krepelka adds that pension fund trustees hold enormous responsibilities when it comes to the allocation of death benefits. The task is often complicated by uniquely South African challenges such as customary marriages, dual families of migrant workers and the contentious issue of whether guardians are capable of managing monies in the best interests of minor children.

“The power of trustees to override a guardian and place funds in beneficiary funds for minor children, is not without contention. But the reality is that many guardians in South Africa are financially illiterate. By safeguarding minors’ assets, beneficiary funds fulfil a vital social role. What is more is that these funds are cost effective and tax effective, and offer institutional investment returns,” he says.

Decreasing state dependency

There is also a specific legal reason why this form is merely seen as a guideline. According to Norton Rose Fulbright Director, Michelle David, this is done to ensure that there are no unnecessary burdens on the state.

“The dilution of the member's freedom of testation, together with the limited impact of a completed nomination form, is a very clear indication of the legislature's intention of ensuring that no dependants of pension fund members, regardless of whether such dependants are factual or legal, should be left without financial support in the event of the member’s death. This is intended to have the indirect effect of decreasing the burden on the State to provide for these people and promotes social protection, which is to be implemented by pension fund boards.”

Amendment to Pension Funds Act

Fairheads has described the recent amendment to the Pension Funds Act as disappointing. According to the amendment, unresolved death benefits older than 24 months should be paid into an unclaimed benefits fund.

Giselle Gould, Business Development Director of Fairheads Benefit Services, says that unclaimed benefits in South Africa are already a vast problem. “If retirement fund trustees are, after two years, able to give up the search for dependants of deceased members, they are in effect relinquishing their fiduciary duty,” she says.

She adds that not all retirement funds have their own unclaimed benefits fund. This means the untraced benefit may go into an umbrella fund, in which case the beneficiaries are highly unlikely ever to be traced. “We appeal to trustees to attend to their investigation and make the allocation as swiftly as they reasonably can,” Gould concludes.