Retire: Death and retirement savings

In Latest, Retire by Carina Jooste

You’ve invested enough to secure a comfortable retirement that will see you through the golden years. But what happens to your retirement savings if you pass away a year or two after you’ve entered retirement? The answer to this question depends on the type of retirement product you invested in.

Life and living annuities

If you invested your retirement savings in a life annuity, the payments will discontinue when you pass away and the remaining capital will not be passed onto your beneficiaries or dependants. However, if you bought a life annuity with a locked in guaranteed period, say for example five years, and you pass away after year two, your dependants will receive the payments for the remainder of the guaranteed period. There’s also the option of a spousal benefit, where the payments will be made to your spouse after your death.

If you purchased a living annuity with your retirement savings, your beneficiaries—as per your beneficiaries nomination form—will inherit the remaining capital. In this case, you get to decide who will receive the money. If you did not complete and sign the beneficiaries nomination form, the remaining capital will become part of your deceased estate.

For more on life and living annuities, refer to our Living vs Guaranteed Annuities blog.

Retirement annuity, provident or pension fund

If you were a member of a retirement annuity, provident or pension fund, the value of the investment will be paid out. This is called a death benefit. The distribution of the death benefit is regulated by the Pension Funds Act. A board of trustees, responsible for managing the retirement fund you belonged to, will also be responsible for allocating the death benefit. In other words, they’ll decide who will receive your retirement savings. Nominating a beneficiary or beneficiaries in your Will is a great way to speed up the process, but the Pension Fund Act still requires the board of trustees to go through the right channels to ensure that those who were financially dependent on you or who may have become dependent on you, are not left out in the cold. The Pension Fund Act allows a period of up to 12 months for the trustees to enquire about the dependants. While this process takes place, the death benefit is placed in a money market fund.

If you don’t have dependants or none are identified, the trustees need to ascertain whether you have any outstanding debts and if your estate will cover those debts. If this is the case, the death benefit will be paid to the beneficiaries you nominated. If not, the death benefit will be used to cover the shortfall first and the remaining benefit will be paid to the nominated beneficiaries.

Death benefit payments can be made directly to the identified dependants or nominated beneficiaries, a trust, a guardian or a beneficiary fund. The payment can be received as a cash lump sum, an annuity or a combination of both options.

Death and taxes

If a dependant opts to receive the death benefit as an annuity, they’ll be taxed according to the current income tax table. Tax on a cash lump sum is as per the retirement lump sum tax table.  

Death benefits are not automatically part of your estate. This means that the executor of the estate will not be involved in the death benefit payments. However, in the absence of any dependants or nominated beneficiaries, the benefit will be paid into the estate.


Saving for retirement is the biggest investment most of us will ever make. Sadly, it can also be very complicated. In this monthly blog, we try to answer some of the retirement questions we hear most often, ranging from which products are best suited to different circumstances to efficient tax treatments. Words by Carina Jooste.


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