Your Will Does Not Decide Who Gets Your Retirement Fund

Most people assume a will settles everything. Write it, sign it, and the question of who gets what is answered.

For the largest asset many South Africans own, that is not how it works. A death benefit from a pension fund, provident fund or retirement annuity does not form part of your estate. It is not yours to leave. A will disposes of an estate, and this money is not in one — so the will cannot reach it.

Instead the fund's board decides, and the Act tells it how. The nomination form you filled in on your first day of work is one input into that decision, not the decision itself.

The words the whole thing turns on

The Act says a death benefit shall, "notwithstanding anything to the contrary contained in any law or in the rules of a registered fund", not form part of the assets in the estate of the member.

"Notwithstanding anything to the contrary contained in any law" is doing deliberate work. It means no other instrument gets to override this — not the fund's own rules, and not your will.

There are narrow carve-outs. The section is subject to a pledge under the housing-loan provisions and to the deduction provisions this site covers separately; and a benefit payable as a pension to the spouse or child of the member under the fund's rules is dealt with by those rules instead.

Who counts as a dependant

Everything then turns on who the board finds. "Dependant" has three limbs, and the second and third are wider than people expect.

Legal dependants. Anyone you are legally liable to maintain — your children, and anyone else a court could order you to support.

Factual dependants. Someone you are not legally liable to maintain, if that person:

• was, in the opinion of the board, in fact dependent on you for maintenance at the date of death;
• is your spouse; or
• is your child — expressly including a posthumous child, an adopted child, and a child born out of wedlock.

Future dependants. A person for whom you would have become legally liable to maintain, had you not died.

That last limb is the least known and it is genuinely broad. A person who was about to become your responsibility can be a dependant even though nothing was owed to them on the day you died.

"Spouse" is much wider than "married"

This definition changes outcomes more often than any other part of the section.

A spouse is a person who is the permanent life partner or spouse or civil union partner of a member — in accordance with the Marriage Act, the Recognition of Customary Marriages Act, or the Civil Union Act, or the tenets of a religion.

Read that list. A partner you never married in civil law is a spouse for this purpose if the relationship is a permanent life partnership. A customary marriage counts. A religious marriage counts, whether or not it was ever registered. A civil union counts.

So the person a family sometimes tries to exclude — the long-term partner, the customary wife, the spouse from a religious ceremony — is very often a dependant with a claim the board is obliged to consider.

The twelve months, and the three routes

The Act gives the board a search period and three outcomes.

If a dependant is traced within 12 months of the death, the benefit is paid to that dependant — or, as the fund deems equitable, to one of several, or in proportions among some or all of them.

If there is a dependant and also a nominee, the fund must within 12 months pay to the dependant or the nominee in such proportions as the board may deem equitable. Both are in play; neither automatically wins.

If no dependant is traced within 12 months and there is a written nominee who is not a dependant, the benefit goes to that nominee — with one important proviso. Where the debts in your estate exceed its assets, an amount equal to that shortfall is paid into the estate first, and only the balance reaches the nominee. Your creditors are not defeated by a nomination.

If no dependant is traced and there is no nominee, the benefit is paid into the estate — or, where the Master has received no inventory for the estate, into the Guardian's Fund or an unclaimed benefit fund.

What the nomination form actually does

It is evidence of your wishes and the board must consider it. It does not bind the board where dependants exist, because the Act tells the board to distribute equitably among dependants and nominees rather than to follow an instruction.

Two practical consequences.

Keep it current anyway. It is the clearest statement of intent the board will have, and a board that finds several dependants of similar standing will weigh it. A form naming a spouse you divorced years ago is worse than useless.

Do not rely on it alone. If you want a specific person to receive a specific amount with certainty, a retirement fund is the wrong instrument. That is what life cover and a will are for.

What boards weigh when apportioning — age, the degree of dependency, earning capacity, the number of dependants and their circumstances — comes from the Adjudicator's determinations rather than from the section itself, which says only "equitable". Expect judgement, not arithmetic.

How the money is actually paid

A payment does not have to go directly into the recipient's hands to count as payment to them. It counts if made to:

• a trustee under the Trust Property Control Act, nominated by the member, by a major dependant or nominee, or by the person legally responsible for a minor's affairs or daily care;
• a person recognised in law or appointed by a Court as responsible for managing the affairs or daily care of a dependant or nominee; or
• a beneficiary fund — and since 1 January 2009 no payment may be made to a beneficiary fund that is not registered under the Act.

Minors. A benefit payable to a minor may be paid in instalments, in amounts the board considers appropriate and in the minor's best interests, with interest added at a reasonable rate having regard to the fund's return. Any balance still owing must be paid in full when the minor reaches majority, or dies, whichever happens first.

Adults. Instalments to an adult dependant or nominee require written consent, a written agreement disclosing the amounts, intervals, interest and terms — and the agreement may be cancelled by either party on not more than 90 days' written notice. An adult cannot be locked into a drip-feed they no longer want.

If you think the board got it wrong

There is a free route, and it runs in a fixed order.

Complain to the fund first, in writing. The fund must properly consider and reply in writing within 30 days.

Then the Pension Funds Adjudicator. If the reply does not satisfy you, or none arrives within 30 days, the complaint may be lodged with the Adjudicator. It costs nothing.

Watch the three years. The Adjudicator may not investigate a complaint where the act or omission complained of occurred more than three years before the written complaint is received. A distribution disputed slowly is a distribution not disputed at all.

What to actually do

1. Update your nomination form at every fund you belong to, and after every major life change.
2. Tell the fund about the people who depend on you, especially anyone not obvious from your paperwork — a partner you never married, a child from another relationship, a parent you support. A board can only weigh dependants it can find.
3. Do not use the fund as a will substitute. If certainty matters, use life cover and a will — our guide to wills is the starting point.
4. If you are a claimant, put your dependency in writing to the fund, with evidence: shared address, transfers, school fees paid, an affidavit. "In fact dependent" is a finding the board makes on what it is shown.
5. Diarise the 30 days and the three years if you are disputing an allocation.

If the fund itself has lost track of a benefit, our guide to claiming unclaimed pension funds covers that separate problem, and our comparison of retirement annuities, pension and provident funds explains which of these you actually hold.

For everything else, start at our money guides.

Frequently asked questions

Does my will decide who gets my pension fund? No. A death benefit does not form part of the assets in your estate, notwithstanding anything to the contrary in any law or in the fund's rules, so a will cannot dispose of it.

Is my nomination form binding on the fund? No. Where dependants exist, the board must pay the dependants or the nominee in such proportions as it deems equitable. The form is considered, not obeyed.

Who counts as a dependant? Anyone you are legally liable to maintain; anyone the board finds was in fact dependent on you for maintenance, plus your spouse and your children including a posthumous child, an adopted child and a child born out of wedlock; and anyone you would have become legally liable to maintain had you not died.

Does my partner count if we never married? Yes, where the relationship is a permanent life partnership. The Act defines a spouse to include a permanent life partner, a civil union partner, a customary spouse, and a spouse under the tenets of a religion.

How long does the fund have? Twelve months from the death to become aware of or trace dependants.

What if the fund finds nobody and I named no one? The benefit is paid into your estate, or into the Guardian's Fund or an unclaimed benefit fund where the Master has received no inventory for the estate.

Can my creditors reach it? Where you nominated someone who is not a dependant and your estate's debts exceed its assets, an amount equal to the shortfall is paid into the estate first, and only the balance to the nominee.

Can the money be paid to a trust instead of a person? Yes. Payment to a trustee under the Trust Property Control Act, to the person legally responsible for a dependant's affairs or daily care, or to a registered beneficiary fund counts as payment to that dependant or nominee.

Can a benefit for my child be paid in instalments? Yes, in amounts the board considers appropriate and in the child's best interests, with interest added — and any balance must be paid in full when the child reaches majority or dies, whichever is first.

Can the fund pay an adult in instalments? Only with that adult's written consent under a written agreement setting out amounts, intervals, interest and terms, and either party may cancel it on not more than 90 days' written notice.

How do I challenge the allocation? Complain to the fund in writing first; it must consider and reply within 30 days. If that fails, take it to the Pension Funds Adjudicator, which is free — but the Adjudicator may not investigate an act or omission that occurred more than three years before your written complaint.