What happens to my retirement savings after I die?

Each year the Pension Fund Adjudicator receives complaints about the perceived fairness in how benefits have been allocated by fund trustees or just generally of expectations not being met. Section 37C of the Pension Fund Act deals with how death benefits should be distributed by pension funds’ trustees after members pass on and places a clear and onerous duty on the board of trustees to determine the fair and equitable distribution of their deceased fund members’ death benefits, putting ultimate decision-making in their hands.

Do you know how your retirement savings will be distributed to your beneficiaries after your passing?

When you pass away, your accumulated pension savings will get treated similarly to how an approved death benefit will be treated. The key points you need to familiarise yourself with are the differences between unapproved and approved death benefits in terms of how premium and benefit taxation works, as well as the pay out procedures after death.

Unapproved death benefits are acquired by you outside of your retirement fund and your contributions are subject to taxes, it is paid from your after-tax income. Its benefit, however, is tax free and is usually paid out within the first month after you pass away. Your beneficiaries will receive their allocations as per how you filled out your nomination form.

An approved death benefit is acquired through your retirement fund. Here the taxation is handled differently – your contributions are untaxed, it is paid from your pre-tax income, but the benefits are taxable when they are paid out. The fund’s board of trustees have a legal right, and obligation under Section 37C of the Pension Fund Act, to distribute your benefit in a manner that is fair, making sure any persons who are financially dependent on you are also considered irrespective of who you nominated. For this reason, paying out death benefits can take much longer because it is subject to investigations first.

How to be prepared

Make sure you know what type of retirement products you have.
If you worry that a death benefit might not pay out immediately, put money aside in a separate fund or account that can be accessed on short notice to tie your loved ones over until the benefits are paid out.
Keep your beneficiary nominations form updated – if your circumstances change, make sure to update your nomination form and allocations with your fund.

Please consult a financial professional to discuss your individual requirements.