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One of our pension fund clients recently raised the question whether or not a member can nominate a church as beneficiary to his/her death benefit.

An article in Personal Finance, 1st quarter 2016, sets out two diverging views on this topic. The Pension Funds Act clearly does not consider the estate as a nominee, the estate only being referred to as the default recipient in the event of there being neither dependants nor nominees. In our opinion a nominee cannot be a non-natural person based on the definition of ‘nominee’ per Oxford English dictionary that reads “person who is nominated for an office, a position”. We believe that only a natural person can be nominated to an office or a position. In the other definitions of derivatives of ‘nominee’ the dictionary never refers to a non-natural person. Similarly, the definition of ‘person’ also specifically refers to a ‘human being’ in one instance but nowhere to a legal or non-natural person. We agree with the assertion in the attached article that the intention of section 37C is not to provide for inheritance but rather to provide for social objectives of providing for dependants and nominees that survive a deceased member. Only if neither dependants nor nominees exist would the benefit fall into the realm of inheritance through having to be paid into the deceased’s estate.

The answer is thus not clear-cut. In the first instance the trustees must ascertain that the needs of all dependants have been established and will be addressed by the proposed death benefit distribution. Only if this is the case, the trustees can consider any nominated beneficiary who is not a dependant, particularly if it is a non-natural person. If this has been achieved to the satisfaction of the trustees, we would suggest that the trustees obtain a written acceptance of the proposed distribution from the natural beneficiaries designated by the deceased before finalising the distribution that includes an allocation to the church, to mitigate the risk of a dependant or a nominated natural person challenging the payment to the church.

But what about the IT Act prescribing that an annuity must be paid if needs be to the estate?

As we commented in a previous newsletters with reference to Inland Revenue Practice Notes 5 of 2003 and Practice Note 1 of 1998, the former directs that a minimum of 34% of the total capital available upon death in a defined contribution pension fund must be paid in the form of an annuity (and note this proportion is applied at benefit level and not at beneficiary level) while the latter prescribes that no further commutation is allowed of an annuity upon death of the annuitant.

The definition of ‘pension fund’ in the IT Act that Practice Note 5 of 2003 relies upon, states that ‘… the fund is…established for the purpose of providing annuities for employees on retirement from employment or for widows, children, dependants or nominees of deceased employees, or mainly (interpreted to mean 51%) for the said purpose and also for the purpose of providing benefits other than annuities for the persons aforesaid (i.e. the remaining 49%).

So here the IT Act prescribes that annuities must be paid to inter alia to nominees who according to our interpretation of Section 37C of the Pension Funds Act cannot be a non-natural person, i.e. a trust or an estate for that matter. Does this now mean that where the deceased has left neither a dependant nor nominated a beneficiary, the fund cannot rid itself of its obligation to pay a benefit in the event of death of the member or pensioner?

The crucial difference between the Pension Funds Act and the IT Act is that the Pension Funds Act does not define ‘person’ and one has to resort to the dictionary to establish its meaning. The IT Act in contrast does define a person as  ‘…includes any trust and the estate of a deceased person…’.  So the concern that a fund cannot pay an annuity to an estate is evidently unwarranted.

Important notice and disclaimer
This article summarises the understanding, observation and notes of the author and lays no claim on accuracy, correctness or completeness. Retirement Fund Solutions Namibia (Pty) Ltd does not accept any liability for the content of this contribution and no decision should be taken on the basis of the information contained herein before having confirmed the detail with the relevant party. Any views expressed herein are those of the author and not necessarily those of Retirement Fund Solutions.

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