When a loved one passes away, finances are the last thing families should have to worry about. Yet, time and again, grief is compounded by confusion and conflict over pension fund payouts. The truth is, ensuring what happens to your pension fund after you die isn’t as simple as naming a beneficiary or drafting a will. Legislation, cultural nuances, and the issue of ‘dependency’ all play a role in who ultimately receives what.

The type of pension or group life fund you belong to — whether approved or unapproved — directly affects how your death benefits are distributed. In the case of unapproved pension or group life funds, these are not governed by Section 37C of the Pension Funds Act, meaning the employer or the terms of the policy determine who receives the benefit.

To ensure fairness, employers typically follow the most recent beneficiary nomination form completed by the member. However, Siphamandla Buthelezi, Head of Platforms at advisory firm NMG Benefits explains, "If the member hasn't updated their beneficiary nominations, there's a risk that the benefit may go to individuals the member no longer intended to support after their death."

For this reason, it is especially important with unapproved funds to regularly update your beneficiary nominations to ensure your wishes are accurately reflected and honoured.

Buthelezi, says that in the case of approved pension funds, the rules are different. Death benefits are distributed in accordance with Section 37C of the Pension Funds Act. This means the fund's trustees are legally obligated to investigate and identify the deceased member’s dependants and/or nominated beneficiaries, and then allocate the benefit based on financial dependency and other relevant legal considerations. The final decision rests with the trustees, not necessarily with the nominations made by the member.

In these cases, Trustees of the funds are legally obliged to prioritise financial dependents over nominated beneficiaries. When a member of the approved pension fund passes away, the Trusteed of their pension fund begins an investigation into who financially depended on the deceased, and to what extent. These investigations often include a deep dive into the deceased’s financial records, looking for recurring payments such as rent, school fees, or allowances.”

This means that even if you have named beneficiaries in your pension fund policy, they may receive nothing if they were not financially dependent on you. Conversely, someone you never intended to benefit – like a former partner or someone you are having an affair with – could end up receiving a significant portion of your pension savings.

“It’s a hard truth,” says Buthelezi, “but financially dependency trumps relationship in the eyes of Section 37C of the Pension Funds Act.”

Financial dependency extends to children born out of wedlock or any other individuals that can prove financial dependency on the deceased. In some instances, a wife may even find herself financially responsible for children she never knew existed, especially if she and her husband were married in community of property, and he supported these children during his lifetime.

Having a will is important, but it will not override Section 37C pension fund rules. Your Will governs your estate, meaning your assets, investments, and personal belongings, but pension funds do not consult your Will after you have passed away.

The takeaway? “Update your beneficiary nominations regularly, and talk to your family about your relationships and commitments. We see all too often how spouses only find out how their partners lived, and who they supported, after the partner has passed. But, by then, it’s too late to influence their decisions or safeguard your financial wellbeing”, says Buthelezi.