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Know your retirement fund benefits - Approved group life death benefits are not as simple as you think

18 August 2023 Lungisa Xoseka, Senior Legal Specialist at Liberty Group

Keeping your employer, insurer and retirement fund informed of changes to your personal circumstances, and making sure your beneficiary nomination form is always up to date, are essential to ensure that your lawful beneficiaries receive pay-outs should you pass away.

Many South Africans are unaware of how their group life policies work if they were to pass away. They are ill informed of both the administrative and legal challenges that retirement funds and insurers face following an insured’s death; including the hurdles that retirement fund trustees must clear before they can distribute any death benefits due on a group life policy.

A good starting point is to understand the difference between an employer-owned versus a retirement fund-owned group life policy. In the former case, also called an unapproved group life policy, the insured belongs to a group life policy that is taken out and paid for by his or her employer, In the latter case, also referred to as an approved group life policy, a retirement fund member is covered by a group life policy that is taken out and premiums are paid for by his or her retirement fund.

Those who are fortunate to have a formal sector job should be familiar with the stack of paperwork that their employer’s HR department expects them to fill out when they join an organisation. This paperwork, and the personal information that you share with your employer and retirement fund (if one is a member), is more important than you imagine. How you complete these forms, and whether or not you keep them up to date, can have a huge impact on your dependents should you pass away.

Approved death benefits, delving deeper

Should you join a retirement fund that offers an approved group life policy, you will be required to complete a set of onboarding documents for that retirement fund which you are joining. One of the most important documents in the onboarding ‘pack’ is a beneficiary nomination form. This form serves as the starting point for the complex process that the retirement fund trustees have to follow to honour any claim that your beneficiaries might have against the retirement fund following your death.

It is common practice for an insured to include the names of their life partner, spouse, children and even their parents on this form. You may also include other individuals who are financially dependent on you; just be aware that there is a differentiation between legal dependents, who are usually your spouse and children, and financial dependents.

It is important that you are diligent when completing the beneficiary nomination form, and understand the implications for the beneficiaries you choose to nominate. It is equally important to keep the form up to date each time your personal circumstances change, for example: if you get married; have children; choose a life partner; get divorced; or take on another financial dependent. The more up to date the information on this form is, the easier it will be for the retirement fund trustees to trace your deserving beneficiaries following your death.

Why is it important to keep the form up to date?

The need to keep your beneficiary nomination form up to date becomes clear when you consider what happens in the event of your death. Just imagine for a moment.

Peter is the insured on an approved group life policy. He dies in a car accident, and upon his death his wife goes to his employer to claim the death benefit she believes is due to her, as Peter’s wife. She gets the shock of her life when the retirement fund trustees tell her that she will not be paid immediately. The trustees explain that the benefit cannot be immediately paid out as they are required by law, specifically the Pension Funds Act, to investigate if there could be other prospective beneficiaries to the benefit.

This story may not bode well for Peter’s wife, but the law places a duty of care squarely on the shoulders of the trustees of the retirement fund. They must investigate in order to identify any additional potential beneficiaries so that the death benefit payment is fair and equitable to all identified beneficiaries. This process is guided by the law and can take as long as 12 months to complete.

In the case of Peter, the trustees may discover that his mother was financially dependent on him, or that he was financially providing for his niece on a monthly basis. It is then the duty of the trustees to make sure that Peter’s mother and his niece are not financially disadvantaged as a result of his death.

Put another way, the names you put on your beneficiary nomination form are not guaranteed to receive a portion of your death benefit in the case of an approved death benefit. The beneficiary nomination form is however still very important as it serves as a guide or starting point for the trustees to trace your dependents in accordance with the law.

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