By Christopher Mwalo, 28 November 2019
World Children’s Day (in November each year) aims to improve child welfare and children’s rights globally. One of the best vehicles to ensure that your child’s welfare is protected, is having a beneficiary fund. It is a fund that many employers make use of when benefits are left for minor dependants.
Christopher Mwalo, Acting Operations Manager: Sanlam Beneficiary Funds & Umbrella Trusts, explains, “A beneficiary fund is a form of retirement fund where the dependant becomes a member. It prioritises the responsible use of funds for the benefit of meeting the minor beneficiary’s primary financial needs. Benefits can also be paid out to a guardian or caregiver, providing that the funds are used solely for the benefit of the child.”
A significant advantage is that the fund is governed by a Board of Trustees who are tasked to consistently act in the best interest of the child. Their decisions are governed by the beneficiary fund’s rules, the Pension Fund Act, court orders and any instructions from the retirement fund trustees. They are held accountable for matters such as ensuring that children receive an optimal education and to conserve funds so that they have something left when they attain the age of majority.
Who should consider joining one?
Any employer, because there can be minor dependants nominated as beneficiaries of employee benefit proceeds or the trustees can elect to pay funds to minor beneficiaries.
Can you invest in a beneficiary fund in your individual capacity?
A beneficiary fund account can only be established for an individual by the trustees of a pension or provident fund and through an employee benefit consultant.
What is meant by primary financial needs?
A big benefit of a beneficiary fund is that funds are invested in a way that ensures capital preservation and fosters financial security. Funds are paid out to cover a child’s primary financial needs like basic living expenses, food, utilities and education.
How much control do you have over the funds that can be released to your dependants upon your death?
There is limited control regarding how much or to whom the funds can be released. This is because the trustees make the final decision and may adjust your allocations, depending on the needs of your dependants. However, you can guide the trustees by completing your nomination form (in this, you nominate your beneficiaries) and keeping it up to date.
The trustees will determine the age at which funds should be released to minors, however, 18 is the legal age of majority in South Africa. This is when a beneficiary will receive the remaining funds due to them. Should a beneficiary require the assistance of a financial adviser for financial advice, this is also possible at this stage.
Who elects the caregiver/guardian?
The trustees do. They have 12 months to interview the deceased member’s family in order to decide who to appoint. The guardian will only be appointed if they are in a position to take care of the minor.
The current test applied by law and followed by the Pension Funds Adjudicator assesses if a guardian is competent based on factors like education status, financial literacy and the ability to manage his or her affairs. The main risk with guardians is that they might not use the funds for the sole benefit of the child, as intended by the parent. Having a panel of trustees helps mitigate this risk. For example, if a guardian requests money for a house, the trustees may grant the request, but only on the condition that the property is purchased in the child’s name, to protect their funds.
Mwalo concludes, “A beneficiary fund gives you peace of mind, knowing that your funds are protected in a regulated, tax-free vehicle. You know your child’s best interests will always take priority, the money will be managed by professionals and will be preserved to ensure an optimal education. Most employers with pension funds offer this option, so it’s worth understanding if you have minor dependants. When it comes to life policies, you can elect to have these funds paid to a guardian umbrella trust to protect the interest of minor beneficiaries”.