Jargon buster: beneficiary funds

A beneficiary fund is a specialised type of pension fund that was introduced in 2009 by the government. It exists exclusively to receive lump-sum payments, known as death benefits, on behalf of minor dependants. It was introduced specifically to replace umbrella trusts, which used to receive death benefit payments. Because they were under-regulated, abuse of umbrella trusts led to the Fidentia scandal, which affected thousands of beneficiaries around the country.

The umbrella trust industry is now better regulated and many minors still have funds in umbrella trusts which will run their course. But since January 1 2009, death benefit payments need, by law, to be made into a beneficiary fund.

When a member of a retirement fund dies, leaving children behind who are not yet 18, the trustees of the retirement fund have a duty to establish who the member’s dependants are. They then have to decide how best to divide up and allocate the death benefit.

If a spouse has been left behind and is financially competent, it makes sense to pay the funds to him or her to manage on behalf of the minor children. If the surviving spouse as guardian is not financially competent to manage the minor dependants’ money, the trustees have the option to pay it into a beneficiary fund. But if both parents are deceased and the children are cared for by a caregiver, the trustees will consider paying the funds into a beneficiary fund. This is because the chances are that there will be a different caregiver at some stage (for example, a grandmother may die and someone else will take over).

Beneficiary funds are mainly umbrella funds, which means that they serve multiple retirement funds of different companies. They are properly regulated by the Pension Funds Act and members have recourse to the Pension Funds Adjudicator.

How does a beneficiary fund work?
Assume that a death benefit lump sum of R100 000 is paid into a beneficiary fund on behalf of Andile when his father dies. The trustees have stipulated that a monthly income of R1 000 should be paid to his mother, as guardian, on Andile’s behalf. This will help with monthly living costs. The funds are invested according to an investment strategy that aims to provide a regular income and where possible grow the capital.

Andile and his mother can make special requests for capital to pay for school fees, school uniform or medical bills. The trustees of the beneficiary fund assesses each request and pay out if they consider it appropriate. If Andile’s funds are properly managed, they will allow him to get schooled and a tertiary education, with funds left over. When he turns 18 he is entitled to the funds, but many members decide to leave the money in the beneficiary fund until they’ve finished tertiary education.

Why should I know about beneficiary funds?
You have the right to state that you would like the trustees to consider a beneficiary fund for your minor children. If your employer does not know about this, it would be in their interests to address this with the board of trustees of their retirement fund. The board should do a comparison of service providers and decide on a suitable beneficiary fund they can recommend to their membership.

* Giselle Gould is business development director at Fairheads Benefit Services.

1 CommentLeave a comment

  • good day, my name is nomthandazo sibiya, my father was working for shoprite checker and he deceased in 1991, he has left some fund for me and my siblings. during that time I was still a child and so all of my siblings received their shares except for me because I was still young. I have a beneficiary certificate that states I will be receiving the lump sum when I turn 21 years which was supposed to be 2008. I went to Alexander Forbes to claim it but they said they know nothing about it except for the grant money they were paying to my guardian account every month which was being paid until I finished my metric ( grade 12). I would like to find out where must claim this as Alexander Forbes cant help me with the information.

    NS Sibiya.

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