Why you should not nominate your estate as “beneficiary” of your retirement fund death benefits

Members of retirement funds that are subject to the Pension Funds Act are always asked to provide their retirement fund with the names of the persons or beneficiaries whom they would like to receive the pension benefits on their death (excluded are spouse and children’s pensions which must be dealt with in terms of the retirement fund rules) . These nominations give the trustees an idea of the wishes of the member, such as to whom and in what proportion the member would like the benefit to be paid.

However, these nominations are not binding on the trustees (except where a member has no “dependants” as defined in the Pension Funds Act). Instead, trustees are obliged to find a member’s “dependants” and first consider them. “Dependants” include a spouse, children, and any person factually dependent on the member.

Unfortunately, many retirement fund members are not aware of this. According to Liezel Momberg, Head of Legal Services at Nedgroup Investments, a common mistake that members make is to nominate their estate as their beneficiary in the belief that the trustees are obliged to give effect to their nomination.

However, says Momberg, the Pension Funds Act clearly defines the very limited circumstances when the trustees may pay a member’s estate.

It therefore serves no purpose for a member to nominate his or her estate, and members of retirement funds may find that their retirement fund will not accept the nomination of their estate as their beneficiary.

The Pension Funds Adjudicator ruled in Rory Martin v Beka Provident Fund (1999) that a nomination of a member’s estate as his beneficiary ought not to carry any weight at all in the trustees’ considerations and that a nomination in favour of the estate would be with the intent or view of evading section 37C (of the Pension Funds Act). The Pension Fund Act refers only to nominees who are dependants and nominees who are not dependants, and an estate cannot be either.

However, Momberg points out that members of retirement funds who have no dependants and who do not want to make nominations of nominees do not have to be concerned as the law ensures that the pension benefits on their death will be paid to their estates.