Retirement benefits may not go where you plan

David Kno

If you’re employed and you’ve joined your company’s contracted retirement scheme, they would have asked you to nominate a beneficiary for the proceeds in case you die before retirement. However, if you chose a beneficiary who isn’t your dependant, chances are the retirement fund trustees won’t honour your wishes.

Legislation surrounding retirement annuities, pensions, provident and preservation funds favours dependants and the fund trustees are obliged to override your wishes if dependants exist. Dependants could be a spouse, biological, adopted or step children, or anyone - like an ex or a parent – who can prove they were financially dependant upon you.

Complications

An example of when things can become complicated is delaying the payment of funds. A man nominates his wife as the beneficiary of his retirement benefits. When he dies the trustees find out he had young children from a previous marriage. In this instance they’d need to consider the claims of all claimants and call for evidence – looking at the financial situation of each before deciding how to distribute the money.

One-year claim period

Any dependant should come forward with their claim as soon as possible, but the law allows up to one year for claims to be considered. So unless it’s easy to identify exactly who the claimants are, there can be delay in payments to needy claimants.

If no dependants come forward and the estate is solvent, the fund trustees will make payment over to the nominated beneficiary once they’re satisfied that no claimants will come forward – or after the one-year period has lapsed. If the estate’s insolvent, the trustees will first satisfy the shortfall with creditors being settled first. Any surplus would then be paid to the nominated beneficiary.

Other factors

If you don’t nominate a beneficiary, or the beneficiary dies before you, the trustees will pay the lump sum over into your estate.

A benefit payable to a minor may be paid to that child’s guardian or alternatively, if the sum is substantial, the trustees may elect to pay to a trust created for the benefit of that minor.

A benefit owed to a dependant may either be paid as a lump sum (after tax) or can be used to purchase an annuity for that dependant’s benefit.

Consult your firm’s HR manager and your financial advisor to ensure your beneficiary doesn’t suffer unexpected consequences.