The truth is that most people don’t want to think about leaving their kids or the prospect of death.
But the reality is that we as responsible parents need to think about the future once we are gone and how this will impact our children’s financial future.
If you’re saving for retirement in a retirement annuity or in your employer’s retirement fund, you may wonder what would happen to this hard-earned pot of savings if you passed away.
Giving your options some consideration is important to ensure your wishes are respected.
What happens when your retirement fund matures: a refresher
“When you retire, you are allowed to take up to one third of your retirement savings as a lump sum,” says Waldette Stoffberg, a Business Development Manager at Glacier by Sanlam.
“With the remaining two thirds, you need to buy an annuity that will provide you with a regular retirement income.” There are some exceptions to this rule which your financial adviser can outline.
But what happens if you pass away on or before retirement? Do your family or dependants automatically receive your retirement savings?
How beneficiary nomination works
With private retirement funds, you need to nominate beneficiaries whom you’d like your retirement benefit to be paid to if you were to pass away. Every retirement fund has a board of trustees that manages it, and it’s on your death that they would get involved, according to a statement by Glacier.
“It is the duty of the trustees of the fund to determine who was dependent on the investor at the time of their death, and then make an equitable distribution of the benefits. Once this has been determined, and the allocations have been approved by the trustees, the beneficiaries receiving the benefit have the option to take that amount in cash, buy an annuity, or a combination of both”, Stoffberg advices.
How an annuity is treated on your death
On retirement, you can choose either a life annuity or a living annuity from which to receive your income. Your choice will have implications for your dependants though,
If you choose a living annuity, for example, whatever capital is left when you pass away can be inherited by your beneficiaries.
Life annuities, whether single or joint annuities, work slightly differently.
“If you as a retiree choose a single or joint life annuity, a term certain of up to 20 years can be added. “For a single life annuity, this means that if you as an investor pass away within the first 20 years (if this is the term chosen), the remainder of the term’s income is available for your beneficiaries,” explains Stoffberg.
She goes on to add that in the case of a joint life annuity, after both you and whoever was the joint life have passed away and it is within the first 20 years (if that is the chosen term), the remainder of the term’s income will be available for the beneficiaries.
It should be noted that if a capital retention type of life annuity is chosen, after death (for single life after the death of the investor and for joint life after the death of both the investor and the joint life) a capital amount that is chosen at inception by the investor to the maximum of the initial investment amount is paid to their beneficiaries.
How to ensure your wishes are respected
To have the peace of mind that your retirement benefit goes to the right beneficiaries when you pass away, review and update your beneficiary nominations regularly.
With the help of a financial adviser you can ensure your beneficiaries are well taken care of when you pass away.
BUSINESS REPORT