Your Final Act of Love: How to Ensure Your Retirement Savings Secure Your Loved Ones' Future
- Pension and provident funds, retirement annuities, preservation funds, and living annuities all have their own rules when it comes to death benefits
- A living annuity provides you with an income after you retire, allowing you to choose how much to withdraw each year
- Employer pension and provident funds, preservation funds, and retirement annuities operate differently
- Rita Cool, Head of Retail Best Practice at Alexforbes, shared some insights with Briefly News about death benefits for retirement products
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Death is one of the most-avoided topics in many families in South Africa. Although it is a tough topic many people would rather avoid, most people need to know what happens to their retirement savings when they pass away. In short, the funds don’t just disappear. Those funds can become a crucial source of financial support for your loved ones, depending on how your retirement plan is structured. It is important to note that it depends on the type of product you have, and the difference between a quick payout and a long wait could come down to the fine print.
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Living annuities: Quick and predictable
According to Rita Cool from Alexforbes are living annuities often the simplest to deal with. Cool said that living annuities are insurance-based products that pay you an income from your retirement savings after you retire. You decide how much to draw each year (between 2.5% and 17.5% of your investment).
She stated that when you pass away, any remaining investment goes directly to the beneficiaries named on your policy. The process is straightforward and doesn’t involve fund trustees or your estate. Because living annuities fall under the Long-Term Insurance Act, not the Pension Funds Act, payouts are typically faster and more predictable.
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Cool noted that the insurer simply pays the people you listed, unless you forgot to update your details. If you never nominate beneficiaries, the money goes into your estate (after tax), which means delays while your estate is finalised.
Retirement funds: The trustee’s role
Cool said that things get more complex with retirement funds such as pension, provident, and preservation funds. She noted that these are governed by Section 37C of the Pension Funds Act, which places responsibility for distributing your benefits in the hands of fund trustees.
Their goal is to protect your dependants, but that means your nomination form is just a guide, not a binding instruction. For example, if you’ve listed an ex-spouse you no longer support, or failed to mention a financially dependent relative, the trustees can override your nomination to ensure a fair outcome.
How it works
Cool explained that you should complete a beneficiary nomination form to guide the trustees, although it isn’t legally binding, as this allows you to list both dependants and others who aren’t financially reliant on you. She said that retirement fund benefits don’t form part of your estate and can’t be distributed through your will.
She further explained that the nomination form also does not replace a valid will, which you still need to manage your other assets. Without one, the Intestate Succession Act will determine how your estate is divided, which may not reflect your wishes. Some funds offer an “Infund Living Annuity,” where the savings remain within the retirement fund and trustees continue to apply Section 37C when deciding how to allocate the benefits.
What trustees consider
Cool warned that before any payments are made, trustees must identify and assess all potential beneficiaries. They consider factors such as financial dependency, the nature of relationships, and the ages of those involved. She explained that this includes anyone you supported financially, even informally, as well as second families or dependants who may not be legally recognised. Adult children are also taken into account, although they may not automatically receive a share.
Trustees focus on fairness, which means the final distribution might not mirror your nomination form. For example, even if your spouse is listed as the sole beneficiary, trustees may still allocate part of the benefit to your minor children. Their share is usually directed into a beneficiary fund or trust to support their needs and keep the money safe until they reach adulthood.
The process can take several months, and in some cases up to a year, as trustees must complete their investigations and confirm all dependants before any funds are released.
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Options for beneficiaries
She explained that whether benefits come from a living annuity or a retirement fund, beneficiaries can decide how they’d like to receive their share, as a lump-sum cash payout (after tax), transferred into their own living annuity with no upfront tax deduction, or a mix of both.
This flexibility gives beneficiaries the freedom to manage their inheritance in a way that best fits their circumstances. Cash withdrawals are taxed in the deceased’s name under the retirement lump-sum tax tables, with each beneficiary paying a proportional share. Knowing how these rules work helps families make smarter financial decisions and avoid surprises during an already difficult time.
3 More stories about death benefits
- Briefly News also reported that having a legal and executable Will formalises your final wishes and ensures your loved ones are provided for.
- Tina Turner's husband, Erwin Bach, will reportedly receive half of the We Don't Need Another Hero hitmaker's fortune.
- King Charles inherits not just the throne after the death of his mother, Queen Elizabeth II, but also her private fortune, without having to pay inheritance tax.
Disclaimer: The views and opinions expressed here are those of the author and do not necessarily reflect the official policy or position of Briefly News.
Proofreading by Kelly Lippke, copy editor at Briefly.co.za.
Source: Briefly News
