The trust pays monthly maintenance to ensure the day-to-day needs of the minor beneficiary are met. It also pays for the child’s educational needs.
Pension funds play an important role in securing the futures of minor beneficiaries of members who die prematurely.
This is the view of Danie Hattingh, principal officer of the Building Industry Bargaining Council’s (BIBC’s) Pension and Provident Fund, who says a pension fund is so much more than saving for retirement; it is also a crucial vehicle for ensuring the minor children of employees who pass away have a solid financial platform able to meet their daily living requirements.
However, he says that where pension funds were once viewed as part and parcel of most employment agreements, this is no longer the case for many South Africans. A survey of more than 5 000 employees last year established that only 36% of respondents were able to access a retirement fund. Of even more concern was that only 7% of retirees felt prepared for their retirement years.
Yet there is no question that pension funds remain a critical source of financial security.
Furthermore, they carry several advantages.
For one, they encourage long-term savings by allowing individuals to contribute a portion of their income throughout their working lives.
This disciplined method of saving helps them accumulate a nest egg for retirement.
Pension fund contributions also offer tax benefits. Those who save more for retirement tend to maximise the growth of their pension fund investments.
The value of beneficiary trusts
Beneficiary trusts look after money allocated to minor beneficiaries of deceased retirement fund members, using the money to maintain the child and to provide an investment that can be accessed when the child reaches adulthood. These trusts were formalised and introduced in 2008 following amendments to the Pension Funds Act by the Financial Services Laws General Amendment Act, 22 of 2008. The intention was to ensure a stronger regulatory framework incorporating sufficient governance, reporting and annual auditing requirements.
The trust pays monthly maintenance to ensure the day-to-day needs of the minor beneficiary are met. It also pays for the child’s educational needs.
“Minor children stand a better chance of completing their education if their assets are managed in the
beneficiary trust as this money is preserved and managed well to avoid the possibility of the money being squandered,” Hattingh says.
According to Hattingh, most beneficiaries withdraw funds as a lump sum when they reach 18, though some opt to grow and preserve their benefits.
In the case of the BIBC’s beneficiary trust, he gives the example of a medical doctor currently interning at a hospital. This individual chose to keep her funds in trust and only used the benefit for schooling purposes. To this day, her proceeds are managed by a team of professionals.
The minor’s guardian is a vital part of the relationship. “The team will contact the guardian to complete a needs analysis of how much he or she will need to care for the child on a monthly and annual basis. This is to ensure that we take care to adequately meet their needs and try to make the loss of the loved one easier,” Hattingh says.
Each child’s account is carefully monitored and managed to ensure that the money lasts for as long as possible.
Hattingh says that close to the termination date of accounts with a capital value of more than R100 000, the beneficiary will be contacted by a financial adviser who will offer financial guidance as well as tips on the importance of saving.
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