Know Your Money with Bronwyn Waner and Craig Finch
Know Your Money with Bronwyn Waner and Craig Finch
132. Money After Death: Understanding Section 37C
Death and money make uncomfortable bedfellows, yet understanding what happens to your retirement funds after you're gone is crucial for protecting those you love. Section 37C of the Pension Funds Act fundamentally changes how your retirement benefits are distributed—and many South Africans discover this only when it's too late.
Have you nominated your spouse, children, or perhaps a new partner as beneficiaries on your retirement annuity? You might be surprised to learn that these nominations aren't necessarily binding. The podcast reveals how independent trustees have the legal authority to distribute your retirement benefits differently than you intended, prioritizing financial dependents regardless of your wishes.
Through compelling real-world examples, we explore how this legislation has protected families when retirement fund members made impulsive beneficiary changes. One particularly poignant case involves a husband who, after 15 years of marriage, changed his pension beneficiary to his new workplace romance—only for trustees to ultimately award 80% to his wife and nothing to his new partner after his passing. We also discuss scenarios where young professionals forget to update their beneficiary nominations after starting families, leaving outdated designations that could have significant consequences.
Most importantly, we clarify the crucial distinction between retirement funds and life insurance policies. While Section 37C governs retirement benefits, life insurance proceeds go directly to your nominated beneficiaries without trustee intervention—a vital planning consideration for anyone wanting certainty about who receives what. Understanding these differences allows for comprehensive estate planning that truly protects your loved ones according to your wishes.
Want to ensure your financial affairs are properly structured to protect those who matter most? Visit our website at www.growthfp.co.za to learn more about how we can help you navigate these complex decisions with confidence and clarity.
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Hello everybody, welcome to Know your Money. I'm Bronwyn Wehner.
Speaker 2:And I'm Craig Finch, and we are from Growth Financial Planning. We hope you enjoy our podcast.
Speaker 1:Hello everybody. Today we wanted to talk about a concept called 37C, which is a part of legislation that is attached to pension and provident funds, as well as retirement annuities. Craig, do you want to take us away with what the legislation says and then explaining?
Speaker 2:it. Yeah, let me. I'll just read a little short snap here so I get it right. Section 37C of the Pension Funds Act governs the distribution of death benefits from pension funds, ensuring that benefits are allocated fairly to dependents and nominees of the deceased member.
Speaker 1:So what that basically?
Speaker 2:means.
Speaker 3:Does that mean in normal people speak?
Speaker 1:Yes, member, so what that basically means. What does that mean in normal people speak, yes, in normal speaking terms. What that means is, let's say, for example, joe goes to the gym and he meets some lady, but he has a wife and children at home and he decides that I'm going to nominate this girlfriend that I've just met to get my retirement annuity, so he puts her down as a beneficiary. That 37C legislation is there to protect Joe's family, so that Joe's wife and children don't get shimmied out of their inheritance because of some.
Speaker 2:Yeah, rash decision that he made, yes. So what happens is you nominate your beneficiary on your retirement annuity or your company pension fund or provident fund or even your preservation fund, and then you say, like that, joe decided to make his new lady at the gym the beneficiary. The trustees will make a call. So there's a board of trustees at all these companies. They sit and they apply proper legal due diligence to how that money should be distributed so that the family always get a benefit the actual dependence of Joe instead of somebody who, at a whim, gets nominated.
Speaker 1:And also another scenario which we've come across quite often, Craig, maybe you want to explain, is like a person's married and they have children. He then gets divorced and marries someone new and wants to change all of his policies to that someone new Maybe go into that I had this case a number of years ago on a pension fund.
Speaker 2:The husband and wife were married for over 15 years. They had a family home. They shared expenses, they shared their life together. They didn't have children. She had children from a previous marriage that were grown up and then he didn't have children. So she had children previous marriage. She remarried him, married 15 years in a family home.
Speaker 2:He meets the new secretary at work, runs away with her and decides to change the beneficiary on his pension fund to the new secretary and then sadly, I'm sure that got on top of him as well. He committed suicide, which was very sad, and he had changed the beneficiary on his pension fund, which was, in the end, his only asset that he had outside the house. He changed the beneficiary to the new secretary. The trustees had to sit and apply due diligence on that, so he thought that the new secretary was going to get all his pension money. What in fact happened was the current wife who shared the matrimonial home got 80% and the grown-up children in their late 20s who were not dependent on him anyway, the grown-up children in their late 20s who were not dependent on him anyway. They got 10% each and the new nominated secretary got nothing and even though in his mind I'm sure if he was around the table would have felt that was unfair, but it was fair for how they apply the law.
Speaker 3:To 37C that's an interesting thing, because it kind of takes away, albeit a bad decision, your free will, doesn't it? If you decide that I want to give some of it to the secretary, it does seem a bit….
Speaker 1:In a way, the secretary should have gotten just something, but not all of it.
Speaker 2:Well, he could have. You can do that as well, but you can do it through a life policy, so your life assurance policy cannot be questioned. That goes straight to every anomaly.
Speaker 3:Oh, okay, so it was the mechanism by which he did. It was the problem.
Speaker 1:Yes, correct. So back to you.
Speaker 2:Did it on his retirement, yeah and the retirement wrappers and that Right, okay, so this legislation came in a number of years ago, so almost before the cruel system, when you got married under the cruel so then in those days maybe the breadwinner was the male. I'm sorry to say that, but in the 60s and 70s that's how the world was. And then he was working at a big company, he bought the house, everything was in his name, and then somewhere along the line he had an affair and he's got a child, and he's got this child and this lady in a house in a separate environment.
Speaker 1:So now the affair there's a child there that needs caring.
Speaker 2:Yeah, and then he dies. To save face with everybody, he nominates his wife on the pension fund as his sole beneficiary and she would have got all the money. Then that other lady comes forward on the pension fund as his sole beneficiary and she would have got all the money. Then that other lady comes forward with a new child of two years old or whatever. So what about us? Sorry, you're not nominated, you get nothing. And that's where it started. Saying that's unfair. Yes, you're taking away your ability to free will, but your free will actually isn't wise.
Speaker 3:But that makes sense because there's a responsibility of a new child.
Speaker 2:That makes sense.
Speaker 3:Yeah, that makes sense.
Speaker 1:And what I've also found is younger people starting in working. They don't have a girlfriend, they don't have children, they nominate their parents as the beneficiary and all of those things, but then they go and have a child and now the parent's supposed to get all of that money but he doesn't actually need it. That person's child needs to have all of that money, yeah, and I mean we had in our family that happened and the dad got everything because she didn't know that she can go and have a voice and question no, can't I take some of this money because he has a child. So it's just something for both sides to know.
Speaker 3:When did this law come?
Speaker 2:It's a while now, I don't know 15,. I don't know 20, I'm not sure, but it's quite a while now Decades ago. Also, it might delay the payment of a proceeds of a retirement annuity because the trustees have to do their due diligence and they go right back because there might be some disabled dependent brother in a home somewhere that's been….
Speaker 3:Forgotten about.
Speaker 2:Yeah, almost forgotten about. But the policy owner has been paying his little disabled brother for many, many years and that brother's dependent on that money. Obviously the home is They've got to make sure that there's no other people that are dependent. So it could take a while to wind up distribution of that retirement annuity but it is the fairest way of doing it. So obviously it's part of your planning, but if you want to make sure that your life proceeds, go to a specific person, then that's done through a life insurance policy.
Speaker 3:Interesting. You were saying it's up to the what is it? The trustees, trustees and when we've done previous episodes. I'm probably wrong here, but you can appoint two of them.
Speaker 1:So this is a different trustee. It's trustees on the fund, it's not your trustee in your will.
Speaker 3:Oh okay. So who would the trustees on the fund be? Are they all independent? Yes, independent trustees.
Speaker 2:So, for example, the Liberty Retirement Annuity is one policy. Thousands and thousands of people are in that retirement annuity. There's a board of independent trustees that will act for everybody. Alan Gray got the same. Okay, okay.
Speaker 1:And then what happens?
Speaker 2:Pension administrators are the same Right.
Speaker 1:I remember we had a case, this client well, she was my client and then she got remarried and she had a daughter. Her daughter was much older, like in her 30s, and the daughter had two children. On the life policy the new husband was nominated and on the retirement annuity. So the daughter wanted to try see if she could get some of the retirement money and she had to fill out a whole application. But because she wasn't dependent on her mom, they still decided to give it all to the current husband. But in her mind she was sort of dependent because the mom used to cover some of the grandchildren's things, but she wasn't physically dependent on her. Like if you look at the papers. So it can be quite complicated, you know, and how it lands. And that's where what Craig's saying is there's different things. So on your life policy, just make sure, is it all supposed to go to that person? Because that one? There's no question of how that's divided.
Speaker 3:Yeah, yeah, so this only pertains to retirement annuities and pension funds.
Speaker 1:Pension funds, which is your retirement annuity through your employer Right.
Speaker 2:Yeah. And preservation funds if you've left an employer and you preserve that money. Yeah, same scenario. Okay, interesting. Yeah, awesome Good concepts. Thanks everybody, have a good day, thank you.
Speaker 1:Thanks, bye.
Speaker 2:Thank you for listening. If you have enjoyed this podcast and would like to subscribe, please visit our website wwwgrowthfpcoza. The information we have provided in this podcast is our personal opinion. For more detailed information, please discuss your financial situation with a financial planner.