Who Gets Your Retirement Savings?

Your retirement fund savings are a huge portion of your wealth. But if you think you have the final say on who inherits the money when you die, you're sadly mistaken.

By the time you reach retirement age, the value of your retirement savings could well be one of the biggest assets (moneywise) in your estate. We're talking potentially more than R1-million, that's been coming off your salary every month since you started working full time.

So when it comes to putting your will together, you're probably thinking that the usual rules apply. It's your money, so if you want to leave that stack of retirement cash to your children, or your poodle named Toby, then that's your choice, right?

Nope. A little-known legal technicality means that your retirement savings have to be paid to your dependants first. Toby the poodle is going to have to wait in line. The law is Section 37C of the Pension Funds Act. If you read the Act (be warned: it's from colonial days and 'Be it enacted by the Queen's Most Excellent Majesty' is not a cute look in 2021), you'll find that it regulates the distribution and payment of lump sum benefits payable on the death of a member of a pension fund, provident fund, pension and provident preservation fund, and retirement annuity fund. Its main aim is to ensure that the deceased fund member's dependants are left with adequate support.

That 'death benefit' (which is a super-nice way of putting it) does not form a part of your estate.

Section 37C in action

So what does this mean in practical terms? Well, nothing – unless you die. And then, even though you may have listed a handful of people (and Toby) as beneficiaries, the retirement fund's trustees will have to determine who your dependants are, and who should actually receive the money. Your carefully planned beneficiary nomination? Yeah, that's more a guideline than anything else.

The trustees have 12 months from your date of death to identify and track down your dependants and determine how to divvy up your death benefit equitably, based on a careful examination of your dependants' needs.

'The deceased member's nominated beneficiaries are [no] more than a "wish list" with which there exists no legal requirement to strictly comply,' explains Xoliswa Mtulu-Dotwana of PE-based BLC Attorneys. 'A member should always have this in mind, not only when completing a Nomination of Beneficiaries form, but also when providing for anyone, including those that he/she has no legal obligation to provide for, more so when he/she wishes for the latter not to benefit from his/her death benefits.'

Don't stress too much about it, though. You can't have just anybody off the street qualifying as a dependant. Your dependants are the people you're legally liable to maintain, and that includes children, parents, grandparents, spouses (including permanent life partners), civil union partners, customary marriage or religious-union partners, sex partners (believe it or not!), stepchildren, foster children, children born out of wedlock, adopted children and unborn children. If you have candidates in every single one of those boxes, then you've lived a full and interesting life – and you probably saw this coming.

Heirs and graces

It's smart to include your retirement savings in your estate planning. Life insurance, funeral cover, last will and testament... these are all things you should have in place so that you're leaving your family a legacy of wealth and not dumping them in a pool of debt.

But be sure to educate yourself on how inheritances work, and how your loved ones will be treated under the law. After all, there could be a big difference between your chosen beneficiaries (those you've selected to inherit from your estate) and your dependants (the people who are counting on you to support them). Just ask Toby the poodle.

This article is for informational purposes only and should not be construed as financial, legal or medical advice.