Lower age of ma­jor­ity en­ables 18-year-olds to squan­der death ben­e­fits

Weekend Argus (Saturday Edition) - - PERSONALFINANCE - BRUCE CAMERON

The low­er­ing of the age of ma­jor­ity from 21 to 18 in 2007 is hav­ing a dis­as­trous ef­fect on the de­pen­dent chil­dren of re­tire­ment fund mem­bers who died be­fore re­tire­ment.

The rea­son is that, in most cases, when th­ese chil­dren turn 18 they are en­ti­tled to claim any resid­ual money from the fund mem­ber’s re­tire­ment sav­ings that is held in trust. And when they re­ceive the money, most chil­dren drop out of school with­out any idea of how to pre­serve their newly ac­quired wealth.

Richard Kre­pelka, chief ex­ec­u­tive of Fair­heads Ben­e­fit Ser­vices, says the sit­u­a­tion is very se­ri­ous and gov­ern­ment needs to in­ter­vene.

Fair­heads is the big­gest ad­min­is­tra­tor in South Africa of ben­e­fi­ciary funds and um­brella trust funds.

Kre­pelka says that re­tire­ment fund trustees, who have the re­spon­si­bil­ity of plac­ing ben­e­fits in a ben­e­fi­ciary fund on the death of a fund mem­ber, can­not stip­u­late that the cap­i­tal amount must be re­tained un­til a ben­e­fi­ciary reaches an age older than 18. This is even where, in a signed ben­e­fi­ciary state­ment, the fund mem­ber stated the pe­riod for which the ben­e­fits should be re­tained.

The age of ma­jor­ity was low­ered to 18 by the Chil­dren’s Act of 2007.

“It is not un­com­mon for ben­e­fi­ciary fund ser­vice providers to pay out R100 000 or more on the ter­mi­na­tion of an ac­count when the fund mem­ber’s ben­e­fi­ciary turns 18. Yet the re­al­ity of so­cial and ed­u­ca­tional cir­cum­stances means that the av­er­age 18-yearold in South Africa is not fi­nan­cially ma­ture enough to in­vest or use large sums of money re­spon­si­bly,” Kre­pelka says.

Fair­heads has been lob­by­ing the Fi­nan­cial Ser­vices Board and Na­tional Trea­sury for the Pen­sion Funds Act to be amended to al­low chil­dren’s ben­e­fits to be man­aged un­til age 21, which would en­cour­age de­pen­dent chil­dren to com­plete their sec­ondary ed­u­ca­tion.

Ben­e­fi­ciary funds and their um­brella trust pre­de­ces­sors man­age about R19 bil­lion in as­sets on be­half of or­phans or sin­gle­par­ent chil­dren in South Africa.

In terms of sec­tion 37C of the Pen­sion Funds Act, when an un­der-age ben­e­fi­ciary re­ceives a lump sum death ben­e­fit from a re­tire­ment fund, an ac­count may be set up in an um­brella ben­e­fi­ciary fund, which pays an in­come to the ben­e­fi­ciary (usu­ally via the guardian), as well as cap­i­tal amounts for ex­penses such as school fees. Once the ben­e­fi­ciary turns 18, he or she is en­ti­tled to the re­main­ing funds.

The al­ter­na­tive is to pay the amount to the guardian of a mi­nor child.

Kre­pelka says: “Ex­ac­er­bat­ing the prob­lem, only 50 per­cent of 18-year-olds are in ma­tric; the rest are in lower grades, or have dropped out of school al­ready. This leads to a very low lit­er­acy level and an even lower fi­nan­cial lit­er­acy level.”

He says that Fair­heads tries to counter the prob­lem by coun­selling ben­e­fi­cia­ries be­fore ter­mi­na­tion pay­ments are made.

“We ad­vise them to leave the money in­vested in the ben­e­fi­ciary fund un­til they com­plete their ed­u­ca­tion, but most of them opt to have the money paid out.

“This leads to more young­sters be­ing in­suf­fi­ciently ed­u­cated and drop­ping out of school, and there­fore be­com­ing un­em­ploy­able, which per­pet­u­ates an al­ready un­ac­cept­able un­em­ploy­ment rate. This is con­trary to a key ob­jec­tive of a ben­e­fi­ciary fund, which is to en­sure that chil­dren get suf­fi­cient ed­u­ca­tion to be self-suf­fi­cient in so­ci­ety and the econ­omy.”

Fair­heads met with over 5 000 guardians and care­givers dur­ing a na­tional ed­u­ca­tion road­show this year, and most of those con­sulted re­garded the new age of ma­jor­ity as an is­sue that re­quires at­ten­tion, he says.

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