What happens to your retirement benefits when you die?

By Tokiso TKay Nthebe

It is common for people not to think or talk about death, because it remains such an uncomfortable topic. In essence, it is scary and sombre for anyone (me included) to think about dying, let alone to ‘plan’ for it.  As the saying by Benjamin Franklin goes, ‘Two things are certain in life – death and taxes!’ Sadly, we can all be sure that someday, we will die and leave everything behind. 

Two things are certain in life – death and taxes!

The question then is, do you have a plan outlining what should happen to your retirement benefits when you die?

Though money conversations ranking very poorly on the popular topics ladder, financial planning, especially retirement and estate planning are topics we cannot ignore. In this blog post, I discuss what happens to your retirement benefits when you die and why taking due care is important.

Retirement benefits are not part of the estate.

I often speak about finding the balance between enjoying life today, while planning and saving for the future. I then encourage people to have valid wills or set up trusts to protect their assets. Retirement benefits sadly do not form part of the estate and are treated and distributed differently when you die. 

What does this mean?

Prior to the introduction of Section 37(C) of the South African Pension Fund Act (PFA), 1956 and Section 32 of the Lesotho Pension Fund Act, 2019 all your assets, including retirement benefits could be distributed through your last will and testament. If you die without a valid will however, then your estate would devolve intestate. This means that your assets including retirement benefits would be shared among your surviving spouse (if married) and children or among your parents and siblings (if single) according to the applicable intestate succession laws. Things have changed for retirement benefits!

What will happen to your benefits should you die today?

Should you die today, the retirement benefits (referred to as death benefits) you have accumulated during your working life cannot be distribute through your last will and testament like other assets such as property and investments. These benefits will be treated and distributed differently which I discuss below.

From a South African context, the PFA requires the board of trustees of the retirement fund to ensure the death benefits are distributed equitably and responsibly to the deceased member’s dependents. As such, the trustees will within a period of twelve months:

  • Identify and trace all your dependents (legal, factual and financial dependents), including people you have nominated as beneficiaries.
  • Determine the level of dependency and allocate the death benefits fairly and equitably.
  • Ensure the benefits are paid to the dependents and nominated beneficiaries.

From a Lesotho perspective, Section 34 and 35 of PFA requires that the board of trustees ensure members of retirement funds do the following:

  • Complete a death benefit nomination form stating the nominated beneficiaries.
  • Encourage members to renew and update the death benefit nomination form annually.
  • Should the member die, death benefits be paid within three (3) months in accordance with the rules of the fund, inheritance laws and any other applicable laws.

Simply put, the distribution of your retirement benefits will depend to some extent on the board of trustees of your retirement fund. Therefore, I cannot emphasise the importance of taking care of your retirement planning as a member of a retirement fund. This responsibility lies with you! 

You need to make sure that all your affairs, which include.

  • Updating and reviewing your nominated beneficiary form annually. Speak to your pension fund administrator or human resource office for more information. 
  • Educate yourself on the relevant pension laws and any other applicable laws i.e. Section 37(C) (if you are a South African) or Section 32 of PFA (if  you are a Mosotho).
  • Learn the rules of your fund, keep all your records updated and safe. 
  • Consult a qualified financial advisor for professional financial and retirement advice. 

As sombre and uncomfortable as death is, ignoring to take care of the important decisions or having the necessary conversation is not the solution. Stop procrastinating, take charge and be in control of your finances. 

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