Beneficiary funds not just for the lower income market

Retirement fund members need to know more about beneficiary funds as a way of ensuring their minor children’s upkeep and education should they die.

Speaking at a trustee roadshow in Johannesburg, Fairheads CEO Richard Krepelka said there was a perceptionthat beneficiary funds catered for lower income earners but in fact any retirement fund member could consider a beneficiary fund as a cost-effective alternative to a testamentary or inter vivos trust for minor children.

All that retirement fund members need to do is stipulate on their nomination form that the fund’s trustees consider the option of a beneficiary fund when allocating death benefits to minor dependants. At the same time, they should remember to appoint and stipulate a guardian for their minor children in the event of their death.

Members have the right to know the retirement fund’s policy regarding beneficiary funds, including the appointed service provider and information on such funds.

Commenting on costs, Mr Krepelka said that beneficiary funds are umbrella funds and individual member accounts therefore benefit from economies of scale. A beneficiary fund administrator such as Fairheads is able to negotiate favourable rates with tier one banks on account of its size, with some R6.2 billion under administration.

A further advantage of beneficiary funds over testamentary trusts is their tight regulation. Beneficiary funds are governed by the Pension Funds Act, with stringent governance standards such as PF130. They were introduced by government in 2009 as a unique tax-effective South African savings vehicle to accept death benefits in terms of section 37C.

Mr Krepelka said: “Beneficiary fund members have two primary needs: subsistence needs which are met through monthly income payments and other needs such as education which are met largely through capital payments.

“About 75% of all capital payments to our members are related to education and we have thousands of thank-you letters from guardians and beneficiaries reporting their completion of secondary or tertiary education.”