Can a company reconsider whether a beneficiary should get funds from a living annuity?

We are sorry about the passing of your late husband and certainly hope we can provide insight into your situation.

The term ‘annuity’ is often used rather broadly, so to answer your question it is important to first understand the difference between retirement annuities, life annuities and living annuities – and for you to confirm whether it is indeed a living annuity that you are referring to.

Retirement annuity

A retirement annuity (RA) is a pre-retirement funding vehicle governed by the Pension Funds Act (PFA). This type of vehicle is used to save towards retirement and the funds held in an RA can only be accessed after the age of 55.

On the death of the policyholder, the funds held in the RA will be distributed by the retirement fund trustees in accordance with Section 37C of the PFA.

The act requires that the funds are distributed to those people who were financially dependent, in whole or in part, on the policyholder at the time of their death.

The fund trustees are therefore required to determine exactly who was a financial dependant at the time of death, and then allocate the funds among those dependants.

While the beneficiary nomination of the policyholder will be considered by the trustees, the final decision as to the allocation of the funds lies with the trustees.

Life annuity

A life annuity is a contract entered into with an insurer whereby the policyholder effectively swaps a capital lump sum in exchange for a predetermined, guaranteed income for life.

In purchasing a life annuity, the policyholder gets to structure the terms of the contract with the insurance company upfront, and as such, no changes can be made to the contract once it has been signed.

A notable disadvantage of a life annuity is that the policy comes to an end on the death of the policyholder.

This means that no financial legacy is available for distribution among the heirs (except in the case of a joint life annuity or guaranteed period annuity).

This means that on the death of the policyholder, there would be no proceeds to distribute to any beneficiaries.

Living annuity

A living annuity, on the other hand, is not an insurance policy but an investment owned by the retiree.

On retiring from a retirement fund, the proceeds are invested in a living annuity structure with the investor retaining full control over how and where their money is invested.

A notable advantage of a living annuity is that any residual capital held in the living annuity on the death of the annuitant passes to the nominated beneficiaries on the investment.

The beneficiaries nominated can choose to withdraw the capital amount from the living annuity or continue to receive an ongoing annuity or accelerated annuity income.

It is important to note that the investment provider is obliged to honour the beneficiary nomination of the policyholder and has no authority to interfere with the wishes of the policyholder.

In conclusion …

If your husband had a living annuity in place – which appears to be the case as you mention that he went on pension – the investment provider is obliged to honour the beneficiary nomination on record.

We strongly recommend that you seek the advice of an independent advisor who can navigate this matter with you.