Monthly you save into a retirement annuity, pension or provident fund to provide an income after retirement, but what happens to your pension when you pass away prior to retirement? While a life insurance policy pays your beneficiaries – anyone you nominate to receive the full value of policy or a share of it – the situation is quite different when it comes to retirement products.
Dependents and Beneficiaries
When you take out a life insurance policy, you’ll be asked to list the person or people who will receive the pay out in the event of your death. However, your pension works differently: when you die, your pension will be paid out to your dependents – who are these dependents and how much of your pension will they receive?
Your dependents are the people who rely on you for financial support. While you may assume that your immediate family are classed as dependents by your retirement fund, the trustees take a different view of dependents, working under the guidelines of the Pension Fund Act. The act favours dependants above all other claimants and the trustees on your pension, provident fund and retirement annuity are required to override your will or stated beneficiary and to pay out to your financial dependents. Any person who receives regular financial assistance from you, be it a parent, a sibling, or even the child of an employee whose school fees you may be paying, is entitled to a share of your pension after you die.
Pensions, Dependents, and Estate Planning
After you die, your pension fund will assess who your dependents are, taking a careful look at the financial circumstances of each dependent before distributing your pension benefits between these people. For this reason, it’s important to be very careful about the number of people you support financially on a regular basis where estate planning is concerned.
If you have any doubts about who your dependents are, schedule a consultation with me and I will help you to put your estate planning in good order.