10 things you need to know about the death claims process

When a retirement fund member passes away, there is a journey to get a death claim paid.

The distribution of retirement fund death benefits is governed by section 37C of the Pension Funds Act (the Act). The Board of Trustees (Trustees) of the fund must investigate and gather information that they will use to decide how the benefit must be distributed. Each death claim is assessed by the trustees based on its own merits.

What you should know about the death claims process

Understanding the death claims process helps ensure your loved ones are financially protected, as fund trustees are legally required to investigate and equitably distribute retirement benefits to all qualifying dependants and nominated beneficiaries. Here are 10 things you should know:

1. The trustees of the fund decide how the benefit will be allocated

This means that the Trustees will assess the death claim and decide how the benefit will be allocated to the beneficiaries. Even though the deceased member may have nominated a beneficiary, the benefit may not be allocated according to the nomination. The Trustees will consider the nomination, but may not necessarily follow it depending on their investigations.

2. When the fund is notified of a member's death

• Identify potential beneficiaries: Dependants (defined in point 3 below) or nominees (persons who do not qualify as dependants whom the deceased member nominated to receive the benefit).
• Determine the level of dependency of the persons who qualify as dependants: This includes asking for proof of what the member paid for in respect of the person claiming financial dependency, such as bank statements, proof of medical scheme payment, or a copy of a maintenance order. Such proof also helps the Trustees determine that person's level of dependency.
• Obtain details of other benefit payouts: The Trustees consider other benefit payouts to determine to what extent they may meet the dependant's financial needs.

3. There are different categories of dependants

• Legal dependant: A person to whom the member had a legal obligation to maintain, for example, a minor child, or a former spouse with a maintenance order.
• Factual dependant: A person the member maintained, even though there was no legal obligation to do so, for example, someone who lived with the member..
• Spouse: This includes a person to whom the member is legally married, a customary law spouse, and a permanent life partner.
• Child: Includes a major child and a stepchild.
• Future dependant: Someone whom the member would have had to maintain if the member did not die, for example, a fiancé or a child who was not born yet at the date of the member's death.

4. A person may not be allocated a portion of the benefit

Even though they qualify as a deceased member's dependant or nominated beneficiary, the Trustees may decide that it is fair not to allocate a portion to specific dependants and/or nominees. The Trustees will decide how to allocate the benefit based on the facts of each claim.

5. The initial decision on the allocation may differ to the final one

After the Trustees decide on the allocation, all interested parties are given time to provide extra information that may impact the Trustees' decision. That extra information may affect the decision, and the Trustees may allocate a higher or a lesser amount, or even change the allocation to a specific beneficiary to zero.

6. Child of deceased not automatically entitled to portion of benefit

Although a child qualifies as a legal dependant, the Trustees may still decide not to allocate a portion of the benefit to that child. The Trustees will look at several factors, such as each dependant's financial needs, their ages, whether they are employed, or their chances of becoming employed, to decide on the allocation.

7. A life partner can be treated the same as a spouse

Although a person may not have been legally married to the deceased member, that person may be treated as the deceased member's spouse. The Trustees will look at the information to see if the relationship was permanent, for example, by looking at whether they lived together and for how long, whether they shared expenses or were medical aid dependants.

8. Being married in community of property doesn't mean the spouse is entitled to the whole benefit

A spouse married to a deceased member in community of property is not automatically entitled to 50% or the entirety of the benefit. The benefit does not form part of the joint estate, and the death benefit will be distributed according to how the Trustees decide it should be allocated.

9. Benefit is not part of the deceased member's estate

The benefit is meant to replace the loss of support that dependants suffer when a member dies. To achieve this, the benefit is allocated to the dependants directly. This means that the benefit will not be used to settle the estate debts, and no estate duty or executor fees will be paid on the benefit. The benefit may be paid to the estate if there are no dependants, and the Trustees allocate the benefit to a non-dependant nominee, and the estate has a shortfall. The shortfall is settled first, and the nominee will pay any remaining amount. If the member was in arrears with their maintenance obligation when they passed away, this can be claimed from the deceased member’s estate. The person entitled to maintenance cannot claim the arrears of maintenance from the fund.

10. Beneficiary cannot renounce their portion of the benefit in favour of another

Suppose a beneficiary does not want the portion of the death benefit allocated to them and renounces their right to receive the benefit. In that case, the Trustees will decide how the benefit will be reallocated.

Securing your family’s peace of mind starts with a clear plan. Whether you need to update your details after a major life event or want guidance on your overall retirement strategy, our expert team and benefit counsellors are here to help. Speak to a Momentum financial adviser today to get started.