When you die your retirement savings treatment depends on your actions while you are alive.
Retirement funds usually make up a significant portion of an individual’s net-wealth in South Africa.
By naming beneficiaries on your retirement funds, your retirement assets won’t be dealt with within your deceased estate.
This allows you to:
- Avoid executors fees on these funds
- Ensure that the funds become available to your beneficiaries faster than if they went through the deceased estate settlement process.
If you have not made beneficiary nominations on your retirement funds as yet, there is a form and 5 minutes worth spending today. Get hold of your service provider.
What you need to know
In the event of your death, the treatment of your retirement savings depends on whether you were still saving for retirement (pre-retirement), or if you had already retired and those funds are providing you with an income (post-retirement).
If you die before you retire:
- You will be invested in what are called pre-retirement funds.
- These include; Retirement Annuities, Pension, Provident and Preservation Funds.
- You can and should name beneficiaries on these, but your nomination is a guide, not a certainty.
- Pension Fund Law requires pension fund trustees to pay out the proceeds to your dependents, people that you support financially. These may be different from those you nominate as beneficiaries on your retirement funds.
- The Board of Trustees of your retirement fund have 12 months to investigate and make certain of who all your dependents are before paying out.
- They will decide how to split the proceeds based on their assessment of all dependents needs.
If you die after you have officially retired:
- You will be invested in post-retirement funds which are either a Living Annuity, a Life/Guaranteed Annuity or some combination of the two.
- You can and should nominate beneficiaries on your Living Annuity funds.
- Your Life Annuity is a contract which unless you signed up for a Joint-Life annuity (includes your spouse) or have a guarantee period, your annuity will die with you and there is no beneficiary.
- Your nomination on your Living Annuity is binding and there is no legal requirement for Trustees to determine whether there are other dependents.
- The Trustees will pay to the named beneficiaries in the proportion you determined on your nomination form.
- This means the payout process should be relatively quick.
What your beneficiaries choose to do is key
Your nominated beneficiaries will receive a formal letter to alert them when the time comes that they are set to receive a payout.
It will likely include only a basic outline of the options they have:
- Cash Lump-sum: They can receive the money as a cash lump-sum payment. This is taxable as per the retirement lump-sum withdrawal tax tables published by SARS.
- Buy an Annuity: They can use the funds to buy an annuity income stream in their own name. There are two types of annuity income they can purchase; a Living Annuity or a Life/Guaranteed Annuity.
The lump-sum transfer is tax-free if your dependent goes for the annuity option, but the future income streams will be taxed as per their individual income tax tables.
It is possible for them to take a portion as a cash lump-sum and use the rest to buy an annuity.
How you can help your beneficiaries
Your beneficiaries will likely receive very little, if any, detailed insight into what the implications and consequences of their choices are.
Yet each beneficiary will have to make the decision for themselves – You cannot control or elect what they do with the proceeds.
So it falls upon you to make this process more beneficial for them. You can arm them with the knowledge to understand the consequences of their decisions and I would like to help you do that.
I have created a free guide for you to send on to your beneficiaries to help in this process should the need arise.
| FREE GUIDE: The Real consequences of your Retirement Death Benefit decisions. Valuable insights into the process, their options and examples of how your beneficiary’s decisions play out over time. Don’t waste this great opportunity. If you would like to receive this guide, please send me an Email: info@whiteinvestments.co.za with the Subject line: Retirement Beneficiary Guide Request |
You can only influence what is in your control
Sharing the guide with your nominated beneficiaries is a good start.
On top of that, make sure you have a file which contains the information available for your beneficiaries to share with the Board of Trustees of your pre-retirement funds.
By providing proof of dependency via a marriage certificate, divorce maintenance order, children’s birth certificates and bank statements, you can help them progress their compulsory investigation as quickly as possible.
It will help to avoid unnecessary delays in your beneficiary payouts.