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Retirement annuity benefit allocation: what happens in practice

Oct 30 2019 18:35
Compiled by Carin Smith

Fin24 recently reported on what might happen to your retirement annuity (RA) benefits if you pass away before you have accessed these.

According to the Income Tax Act, an RA is excluded from a person's estate at the death of the member, which is why the nomination of a beneficiary on your retirement annuity is vital, according to Johan Botha from Aon South Africa.

Therefore, it is very important to consider who you support financially and who relies on you for their livelihood and daily living costs when you complete your RA nomination form.

In response to this article, Fin24 reader Andreas Dinkelacker, wrote to share an additional point:

As you noted the administrators of a retirement annuity decide who to award the proceeds to should the owner die.

In practice, what I've experienced is that the beneficiary you have given is used only if the entire succession tree of spouse and dependents does not exist.

Further, in practice, your will is totally ignored. This can result in a totally different allocation of the estate from what the will and beneficiary clause intended.

For example, say you have a spouse that is financially independent and two major children, one of whom you wish not to benefit. Say also have a business partner that has helped you financially over the years.

If you allocate the proceeds of the annuity to your business partner, while your will provides for the full proceeds thereof go to the child you want to benefit, then the will would be followed.

The annuity will then not pay the business partner at all and instead give the majority of the proceeds of the annuity to your spouse, and equal sums to both children.

retirement  |  myfin24  |  money


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