Understanding Retirement Funds
Many companies offer the benefit of a retirement fund to their employees. In short, a retirement fund is an investment vehicle specifically set up to provide an income to an individual upon retirement. Monthly contributions, both by the employer and employee are invested in different assets, the value of which accumulate over the working lifetime of the individual. This accumulated benefit is then utilised to purchase an annuity to provide a monthly income to the individual upon retirement.
However, circumstances exist whereby this benefit may have to be paid out before a member reaches the retirement age as stipulated in the rules of the fund. In this article we provide some insight into two of these circumstances and how they should be managed.
However, circumstances exist whereby this benefit may have to be paid out before a member reaches the retirement age as stipulated in the rules of the fund. In this article we provide some insight into two of these circumstances and how they should be managed.
Individual Leaves the Employment of the Company
Circumstances might arise where the individual is no longer in the employment of the company that offered the retirement benefit. The benefit that accumulated during the term of employment is however still due to the individual. In most cases this benefit is either paid out as a lump sum, transferred to another retirement fund or, as in interim measure, moved to a preservation fund.
Unfortunately, sometimes individuals do not claim their benefits from the particular fund in which they participated. If a benefit is not claimed it has to be indicated as an unclaimed benefit on the fund’s annual financial statements. This forms part of the liability of the fund and can create unnecessary risks for the fund. The administration of this liability can also be costly to the fund, since any service required to be provided to ensure efficient administration of this “account” has to be paid for.
From the data submitted by the retirement fund industry as at 31 December 2012 there was an unclaimed benefit amount of N$130,223,000 (one hundred and thirty million Namibian Dollars). These are amounts of money still due to individuals, but that have not been claimed. The main reason these benefits remain unclaimed is due to the funds not being able to trace members who exited these funds.
Therefore, individuals who might have been in the employment of a company that provided a pension benefit but never claimed the amount should contact the human resources department of their previous place of employment to enquire if there is still a benefit due to them. Former members of a fund should also be on the lookout for advertisements in the main newspapers that may provide details of members who are still owed some form of benefit from a particular retirement fund.
Unfortunately, sometimes individuals do not claim their benefits from the particular fund in which they participated. If a benefit is not claimed it has to be indicated as an unclaimed benefit on the fund’s annual financial statements. This forms part of the liability of the fund and can create unnecessary risks for the fund. The administration of this liability can also be costly to the fund, since any service required to be provided to ensure efficient administration of this “account” has to be paid for.
From the data submitted by the retirement fund industry as at 31 December 2012 there was an unclaimed benefit amount of N$130,223,000 (one hundred and thirty million Namibian Dollars). These are amounts of money still due to individuals, but that have not been claimed. The main reason these benefits remain unclaimed is due to the funds not being able to trace members who exited these funds.
Therefore, individuals who might have been in the employment of a company that provided a pension benefit but never claimed the amount should contact the human resources department of their previous place of employment to enquire if there is still a benefit due to them. Former members of a fund should also be on the lookout for advertisements in the main newspapers that may provide details of members who are still owed some form of benefit from a particular retirement fund.
An Individual Passes Away While Under Employment
In a world of uncertainty, no one is sure of what the future might hold for them. This is why it is crucial that all your financial matters be in order in the event that you pass away. This is no different with the pension benefit that accrues to you whilst you are still working.
When joining a fund you are required to fill out a beneficiary nomination form, which will assist the fund during the distribution of your benefits upon your death. There are three different types of possible beneficiaries that could be nominated to receive a portion of your benefits:
•Legal Dependents: those for whom the deceased member is legally liable for maintenance (legal spouse, minor children (legitimate and illegitimate, own and adopted), parents and grandparents), or those for whom the member would have become legally liable for maintenance, had the member not died (posthumous-child (born after the member’s death), fiancée);
• Factual Dependents: may not be based on blood relationships. Anyone who can prove that he/she was financially dependent on the member at the time of the member’s death (common law spouses, live-in partners, step children); and
•Nominees: Not a legal or factual dependent, but someone whom the member wishes to receive a portion of his/her benefit.
As some are aware, sorting out the estate of a deceased individual can be a cumbersome experience and have an especially detrimental emotional effect on their loved ones. When it comes to distributing an estate, especially with money being involved, complex relationships might exist, giving preference to certain individuals that might not be clear without written confirmation.
If an individual passes away, chances are that he/she might have been the sole provider in the house and that there might be a spouse or children or other dependents. In this scenario it is crucial that the retirement benefit be distributed as a matter of urgency in order to provide an income to these dependents.
If the beneficiary nomination form is not up to date, it becomes difficult for the fund to decide on the split of the benefit and claims made by possible dependents. This can become a time-consuming process that can delay the payment of the benefit to dependents that might be in urgent need of some form of income, especially when it comes to minors.
Unfortunately, we tend to place these priorities at a very low level with the intention of sorting it out “tomorrow”. For some of us, tomorrow will never come. Therefore it is crucial to make sure that your beneficiary nomination form is always up to date with your most current information or distribution preferences to avoid possible emotional distress to your loved ones if you should suddenly pass away.
From an industry perspective, it will also be a good practice if the company requires their employees to fill out a beneficiary nomination form annually, to ensure that all the information is up to date. However you can contact your human resource manager or retirement fund representative to make sure that your nomination form is indeed up to date with your most recent data.
When joining a fund you are required to fill out a beneficiary nomination form, which will assist the fund during the distribution of your benefits upon your death. There are three different types of possible beneficiaries that could be nominated to receive a portion of your benefits:
•Legal Dependents: those for whom the deceased member is legally liable for maintenance (legal spouse, minor children (legitimate and illegitimate, own and adopted), parents and grandparents), or those for whom the member would have become legally liable for maintenance, had the member not died (posthumous-child (born after the member’s death), fiancée);
• Factual Dependents: may not be based on blood relationships. Anyone who can prove that he/she was financially dependent on the member at the time of the member’s death (common law spouses, live-in partners, step children); and
•Nominees: Not a legal or factual dependent, but someone whom the member wishes to receive a portion of his/her benefit.
As some are aware, sorting out the estate of a deceased individual can be a cumbersome experience and have an especially detrimental emotional effect on their loved ones. When it comes to distributing an estate, especially with money being involved, complex relationships might exist, giving preference to certain individuals that might not be clear without written confirmation.
If an individual passes away, chances are that he/she might have been the sole provider in the house and that there might be a spouse or children or other dependents. In this scenario it is crucial that the retirement benefit be distributed as a matter of urgency in order to provide an income to these dependents.
If the beneficiary nomination form is not up to date, it becomes difficult for the fund to decide on the split of the benefit and claims made by possible dependents. This can become a time-consuming process that can delay the payment of the benefit to dependents that might be in urgent need of some form of income, especially when it comes to minors.
Unfortunately, we tend to place these priorities at a very low level with the intention of sorting it out “tomorrow”. For some of us, tomorrow will never come. Therefore it is crucial to make sure that your beneficiary nomination form is always up to date with your most current information or distribution preferences to avoid possible emotional distress to your loved ones if you should suddenly pass away.
From an industry perspective, it will also be a good practice if the company requires their employees to fill out a beneficiary nomination form annually, to ensure that all the information is up to date. However you can contact your human resource manager or retirement fund representative to make sure that your nomination form is indeed up to date with your most recent data.
Contact for Further Queries
Any further queries on pension-related matters can be addressed to the Corporate Communication Manager of NAMFISA or its Pension Fund Department at 061-290 5000.
The real measure of your wealth is how much you’d be worth if you lost all your money.
– Author Unknown
Summary
Do You Know What Happens to Your Pension Benefit When You Leave a Job or Pass Away?
Many employers offer retirement benefits to their employees through a retirement fund. In simple terms, a retirement fund is a long-term investment vehicle that provides an income upon retirement. Monthly contributions from both the employee and employer are invested in various assets over the course of the employee’s working life. At retirement, this accumulated amount is used to purchase an annuity that pays a monthly income.
However, there are circumstances where this benefit may become due before retirement age. In this article, we focus on two such situations and how they should be handled:
However, there are circumstances where this benefit may become due before retirement age. In this article, we focus on two such situations and how they should be handled:
When an Individual Leaves the Company
If you leave your job, you are still entitled to the benefits accumulated in the retirement fund during your employment. In most cases, this benefit can be:
Unfortunately, many people do not claim these benefits, which then become unclaimed benefits. These must be disclosed in the fund’s annual financial statements and form part of the fund’s liabilities, creating administrative and financial burdens.
As of 31 December 2012, the Namibian retirement fund industry reported over N$130 million in unclaimed benefits. These are amounts still owed to individuals who simply never claimed them—often because they cannot be traced.
If you previously worked for a company that offered a pension benefit and never claimed it, contact the HR department of your former employer. Also, regularly check major newspapers for public notices listing unclaimed pension benefits.
As of 31 December 2012, the Namibian retirement fund industry reported over N$130 million in unclaimed benefits. These are amounts still owed to individuals who simply never claimed them—often because they cannot be traced.
If you previously worked for a company that offered a pension benefit and never claimed it, contact the HR department of your former employer. Also, regularly check major newspapers for public notices listing unclaimed pension benefits.
When an Individual Passes Away While Employed
Life is unpredictable. That’s why it's essential to have your financial affairs in order, including your pension fund. One crucial document is the beneficiary nomination form, which you must complete when joining a fund. This form guides the fund in distributing your benefit after your passing.
There are three categories of potential beneficiaries:
If your nomination form is outdated or incomplete, the fund must conduct a detailed investigation to establish who your rightful dependents are. This can cause delays at a time when your loved ones may desperately need financial support—especially if you were the household’s sole provider.
Review and update your beneficiary nomination form annually, especially after major life events like marriage, divorce, or the birth of a child.
Review and update your beneficiary nomination form annually, especially after major life events like marriage, divorce, or the birth of a child.
Take Action Now!
While NAMFISA is responsible for ensuring a safe and sound financial sector, the success of this mandate also depends on:
For more information on pension-related matters, contact NAMFISA’s Corporate Communication Manager or the Pension Fund Department at: 061-290 5000