What is a beneficiary fund?

Beneficiary funds were launched in January 2009 to replace umbrella trusts, after the latter’s regulation failed to prevent the Fidentia scandal. However, those umbrella trusts with assets still under their care, continue to exist.

Under the Pension Funds Act, beneficiary funds are defined as retirement funds and comply with the same regulatory and governance standards. Unlike the widows and orphans in the Fidentia* debacle, members of beneficiary funds have recourse through the Pension Funds Adjudicator. The beauty of these funds is they are privately run and therefore eliminate the bureaucracy inherent in state-run organs, Gould said.

“They are also completely tax-free. No tax is paid in the fund or on any payment out of the beneficiary fund,” she said.

An avid activist, Gould was involved in drawing up the legislation that governs beneficiary funds.

Over the years, Fairheads has found the average beneficiary fund is around R90 000 per child and if managed carefully, can cater for monthly expenses and finance the child’s education through to tertiary level. When the beneficiary turns 18, the account is terminated and the remaining monies paid out, unless the beneficiary requests monies be kept in the fund.

Fairheads has also found that 75% of the capital is used for education related costs including fees, books and uniform. Trustees of the beneficiary fund consult with the guardian to determine the monthly payment.

The investment of the capital amount in the beneficiary fund is out-sourced to third-party asset managers who are instructed to invest it prudently. “Nothing high risk, we cannot afford to be careless with the children’s money,” Gould said.

Gould’s tips for pension and provident fund members

  • Update your retirement fund nomination form regularly.
  • Appoint a guardian for your children in the nomination form.
  • Stipulate the use of a beneficiary fund on the nomination form.

*In 2007, it was revealed that Cape Town-based asset management company, Fidentia, under the leadership of CEO J. Arthur Brown, has misappropriated in excess of R600 million of client’s funds. Their biggest investment was R1, 47 billion from the Living Hands Umbrella Trust, which paid out money from the Mineworkers’ Provident Fund to widows and orphans of workers killed in mine accidents.