Making better choices
is not always this easy

 

Newsletter Archive

Retirement Planning: The ins and Outs of Nominating Beneficiaries

Posted On: Thursday, November 2, 2023

Retirement Planning: The ins and Outs of Nominating Beneficiaries

“Two main categories of people are needed in your circle; those who give you the necessary support to accomplish your dreams and those who become beneficiaries of what you achieve.” (Unattributed)

Pension and provident funds and retirement annuities

All retirement funds are governed by the Pension Funds Act, which prioritises financial dependants when distributing death benefits. Nominated beneficiaries may not necessarily receive a portion of the death benefit, as it must provide for surviving spouses, children and other dependants. Your dependants shouldn’t be left destitute.

However, non-dependants can be awarded some of the proceeds. The Pension Funds Act is clear: if there are nominees and dependants, then the benefit must be allocated equitably amongst them.

The good news is that the pension funds fall outside your estate and are not subject to estate duty. Beneficiaries can be paid the benefit as a cash lump sum, taxed at the retirement lump sum rates, and they can purchase a life or living annuity. Or they can opt for a combination of cash and an annuity.

Living and Life Annuities (LAs)

When you retire, you need to transfer at least two thirds of your retirement funds to a LA (Living Annuity or Life Annuity).

A Living Annuity is a financial product that pays you a regular income when you retire from your pension or retirement fund. You can choose how much income you want to receive each year (between 2.5 and 17.5 %) and where to invest your savings. You have greater flexibility and control over your money, but also bear more risk and responsibility.

Living Annuities are post-retirement funds but are not subject to the Pensions Fund Act. They allow members to nominate beneficiaries directly, without any risk of the pension fund trustees intervening. They too bypass the deceased’s estate and are not subject to estate duty.

However, if you do not nominate any beneficiary or your beneficiary cannot be traced, your Living Annuity will fall within your deceased estate and be subject to your Will. In that case, your Living Annuity may also be liable for estate duty.

A Living Annuity is different from a Life Annuity, which is a contract with an insurance company that guarantees fixed or variable payments for the rest of your life. A Life Annuity transfers the risk of outliving your savings to the insurer, and because it ends with your death, nothing goes to your estate, nor can you nominate beneficiaries

Sometimes, when a person has had two marriages, they provide for the first spouse in their Will and the other as a beneficiary of an LA to prevent squabbling.

Tax-Free Savings Accounts (TFSAs)

TFSAs are also considered as a retirement product and they are not subject to the Pension Funds Act. You can freely nominate beneficiaries.

But unfortunately, the investments do form part of your estate as defined in the Estate Duty Act so attract estate duty. In addition to the tax implications, this also means your beneficiaries will have to wait for the estate to be wound up before accessing the funds.

And what about life assurance beneficiaries?

Life policies are excellent estate planning tools, especially for providing liquidity in your estate and making financial provision for your loved ones. Domestic policies are considered as deemed property in your estate and thus are subject to estate duty. (Deemed property is essentially any property that did not exist at the date of death, but which comes into existence as a result of that person’s death.)

Nominating your estate as the beneficiary of your life assurance can have both benefits and drawbacks.

The benefits are that the proceeds can provide liquidity in your estate to cover expenses such as outstanding debt and taxes. The drawbacks are that the proceeds are seen as deemed property in your estate. It may take time to wind up the estate, delaying payment to family members or heirs.

If you want the proceeds to go directly to specific beneficiaries (e.g. minor children), consider naming them as beneficiaries on your policy. Setting up a testamentary trust and nominating the trust as beneficiary is a great way of ensuring effective administration for minor beneficiaries.

Can your Will override your beneficiary nominations?

Your Last Will and Testament cannot override pension fund nominations. Nominating beneficiaries for your pension fund is done via a separate legal document that is excluded from your estate. The board of trustees of the pension fund is thus not bound by the wishes of the deceased as expressed in his or her Will.

Your Will cannot override a beneficiary nomination on any policy unless specifically ordered to do so by the court.

Change – the one constant in life

Regular review of your beneficiary nominations is an essential part of any successful estate plan. Major life changes (marriage, divorce, birth, etc.) should prompt an immediate review of the beneficiaries on retirement funds and assurance policies. It goes without saying that at moments such as these you should also revisit your Last Will and Testament to make sure it still reflects your wishes.

If you have absolutely any questions about this important topic, please consult your financial advisor.
 

Please Register Below Or Login To Continue Reading.

Email
First Name
Last Name

2024

October 4 - Market Update: Reasons for SA Investors to Be Hopeful?
October 3 - Evolving Wealth Part 1: Gen Z, Trailblazers of the Digital Investment Era
October 2 - Why the Rand Shouldn’t Be Your Main Reason for Investing Offshore
October 1 - 6 Winning Strategies That Top Investors and Elite Endurance Athletes Share
September 4 - Market Update: Christmas in September if Rates Come Down as Expected
September 3 - Why You Should Keep Your Investment Strategy to Yourself
September 2 - Aligning Your “Wheel of Life” – A Beginner’s Guide
September 1 - The Big Question: Should You Buy a Home or Rent One?
August 4 - Market Update: Magnificent Seven Lose Their Magnificence in July
August 3 - Unsung Heroes of Insurance: Four Types That Could Save You Money
August 2 - Do You Recognise Yourself in Any of These Client Case Studies?
August 1 - Three Pot System 101: What You Need to Know Before 1 September
July 4 - Market Update: Financial Markets Welcome GNU 2.0 and New Cabinet
July 3 - Busting the Post-Retirement Jargon
July 2 - Safeguard Your Money: Look out for Phishing Scams
July 1 - Why the Marshmallow Effect Could Derail Your Retirement Plans
June 4 - Why Emotions and Investing Don’t Always Mix
June 3 - Demystifying Retirement Planning Lingo
June 2 - The Sandwich Generation: How Can You Deal with Family Always Asking You for Money?
June 1 - How the Elections May Impact Markets in the Months Ahead
May 4 - Market Update: Geopolitical and Economic Risks are on the Rise and Investors are Concerned
May 3 - Need to Know: Annualised Returns Versus Internal Rates of Return
May 2 - Investment Jargon 101: Your One-Stop Primer
May 1 - Do You and Your Partner Share the Same Money Values?
April 4 - Market Update : Will They, Won’t They? The Case for Lower Interest Rates Improved in March.
April 3 - Unpacking Diversification: What Really Counts?
April 2 - Zen and the Art of Financial Planning
April 1 - The Secret to Solving the Financial Rubik’s Cube? Consistency.
March 4 - Market Update: Initial Investor Vote of Confidence Dissipates in Wake of Budget
March 3 - The Most Important Part of a Financial Plan: Room for Error
March 2 - Diversification: Free Lunch or Fool’s Gold?
March 1 - Budget 2024: What it means for you
February 5 - Budget 2024: The Minister of Finance Wants to Hear from You!
February 4 - Market Update: US and SA Markets Diverge on Differing Investor Sentiment
February 3 - Tax Tip: Must-Do Top Ups in February
February 2 - Should Investing Be This Sexy?
February 1 - Is There Really Much Difference Between Investing and Gambling?
January 4 - Market Update: What Lies Ahead for 2024?
January 3 - Think You’re a Rational Investor? Think Again
January 2 - Did 2017 Change the Way You Invest?
January 1 - How to Avoid Getting Burnt by the Next Investment Bubble in 2024

2023

December 4 - Stock Markets Break Three-Month Losing Streak
December 3 - The Differences Between Life and Living Annuities
December 2 - Should you be an Optimist or a Pessimist With Your Money?
December 1 - How to Give Meaningful Gifts This Festive Season
November 4 - Market Update: The Effects of War, Higher Interest Rates and China on Equities
November 3 - Why do People Invest in Property?
November 2 - Retirement Planning: The ins and Outs of Nominating Beneficiaries
November 1 - Retiring Well is About More Than Money
October 4 - Why Your Marital Contract Really Matters
October 3 - How to Avoid Being Scammed by Email Fraudsters
October 2 - The Stock Market Indices to Watch When Monitoring Equity Performance
October 1 - Why do Some People Have a Problem Spending Money?
September 4 - The Difference Between Being Rich and Being Wealthy
September 3 - The Ins and Outs of Buying Offshore Property
September 2 - A Good Budget Doesn’t Limit Spending, it Prioritises it
September 1 - Should you pay off your home loan?
August 4 - How to Take Advantage of the Donations Tax Allowance
August 3 - Five Reasons why a Financial Windfall Must be Managed Carefully
August 2 - What’s Cooking with the Three-Pot System?
August 1 - Make Sure Your Family is Financially Prepared for When You Pass Away
July 4 - A Must-Have for Couples who Choose not to Tie the Knot
July 3 - Can Gratitude Make you Feel Better About Your Money?
July 2 - Four Ways to Make the Most of Retirement
July 1 - How to Invest When There’s So Much Bad News
June 4 - The Ins and Outs of Compulsory Annuities
June 3 - Who is Influencing Your Financial Decisions?
June 2 - R is for Rebalancing
June 1 - Don’t let Money Ruin Your Relationship
May 4 - Five Ways to Teach Kids About Money
May 3 - Much Ado About Risk
May 2 - Living Wills: A Must Have, Despite the Grey Areas
May 1 - What is True Wealth?
April 4 - How the 2023 Budget Will Impact Your Pocket
April 3 - Three Financial Imperatives for Women in Divorce
April 2 - Should You Ask ChatGPT for Financial Advice?
April 1 - Compound Interest: The Eighth Wonder of the World
March 4 - How a ‘Safe’ Fixed Deposit Might Still be Risky
March 3 - Thinking of moving to Australia? Bear these numbers in mind
March 2 - Avoid These 6 Barriers to Wealth Creation
March 1 - How Good do You Think You Are at Investing?
February 4 - Is Money Stress Taking a Toll on You?
February 3 - Why an Endowment is One of the Best Ways to Invest Offshore
February 2 - Why too Much of a Good Thing Can be a Bad Thing
February 1 - Invest With FIRE and Never Look Back
January 4 - Why Lottery Winners End up Broke: The Importance of Your Financial Context
January 3 - Discover the Freedom of a Tidy Portfolio
January 2 - Why You Absolutely Should be Investing in Education
January 1 - Four Simple Steps to Start the Year on the Right Financial Foot

2022

December 4 - What is This Volatility Risk People are Always Talking About?
December 3 - Why You Need to Watch Out for The Butterfly Effect
December 2 - 6 Ways to Achieve Financial Freedom
December 1 - Three Books for the Holidays
November 4 - The Question of Loyalty
November 3 - Why do we Even Have Bull and Bear Markets?
November 2 - Should I Buy a Holiday House?
November 1 - Put Stocks, Rather Than Socks, Under the Tree This Christmas
October 4 - Can You Take Out Life Insurance on Someone Else?
October 3 - Loss Aversion and Lifestyle Creep – How Behaviour Influences Saving
October 2 - Why Timing Might be Everything in Retirement – Especially in a Bear Market
October 1 - Get Rich - Stay Rich Eight Mistakes Wealthy People Never Make
September 4 - Capital Gains Tax: 10 Common Questions Answered
September 3 - The Risk That Many Investors Don’t Think About
September 2 - Much Ado About Regulation 28 and the Private Investor
September 1 - The “Two Bucket” Retirement Savings System: What is it and Why is it Important?
August 4 - Retirement Planning for Age-Gap Couples
August 3 - A Simple “50-15-5” Budget Hack for Women (and Men!)
August 2 - Does Your Family Need a Constitution?
August 1 - Women’s Month: Three Ways You Can Improve Your Money Health
July 4 - Five Things to Check When a Loved One Passes Away
July 3 - Rules of Financial Planning For a Special-Needs Child
July 2 - Why Your Financial Plan Should Cater For Possible Dementia
July 1 - Why Inflation is the Most Important Investment Benchmark
June 4 - How Relevant Is The 4% Rule of Thumb These Days?
June 3 - Why You Should Treat Your Finances Like Your Health
June 2 - Is Your Business Good Retirement Capital?
June 1 - With the Limits Raised, How Much Should You Invest Offshore?
May 5 - Quote of the Month: Challenging the Rejection of an Insurance Claim
May 4 - Financial Products: The Less You Understand, the More You Pay
May 3 - The Miracle of Investment Debit Orders
May 2 - Five Things to Think About as Interest Rates Rise
May 1 - Stay Calm When the Bear Prowls
April 5 - Quotes of the Month – The War in Ukraine
April 4 - Smart Ways to Give: During and After Your Lifetime
April 3 - Take These Three Steps to Break the Money Shame Spiral
April 2 - When Things Don’t Go According To (The Financial) Plan
April 1 - What Amazon and Ford Can Tell Us About Diversification
March 4 - Quotes of the month – What the NFT?
March 3 - How to Avoid Losing Your Life’s Savings to a “Tinder Swindler”
March 2 - The Different Ways to Invest: What Does It All Mean?
March 1 - Three Reasons You Shouldn’t Wait to Talk to Your Kids About Money
February 6 - Quote of the Month – Don’t Cash In Your Retirement Savings
February 5 - Should You Top Up Your Retirement Annuities Now?
February 4 - Don’t Let Delays in the Master’s Office Leave Your Family in Financial Distress
February 3 - Don’t Let Delays in the Master’s Office Leave Your Family in Financial Distress
February 2 - Three Reasons an Insurer Could Cancel Your Policy
February 1 - Investing: Men and Women See Things Differently
January 4 - Quote of the month – Stay invested!
January 3 - What SARS Says About Crypto Assets and Tax
January 2 - Three Ways to Leave a Legacy, And Not Just an Estate
January 1 - Red-Carding the Myth of The Rational Investor