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.
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.
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.
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