Why outdated living annuity beneficiary nominations could burden families
By Meeta Gosai, Head: Income Solutions SIA at Momentum Corporate
A living annuity is one of the most widely used retirement income products in South Africa.
It allows retirees to invest their retirement savings and draw an income over time, while the remaining capital stays invested.
For many people, a living annuity represents decades of hard work, disciplined saving, and financial sacrifice. It is intended to provide financial security during retirement and to leave a lasting benefit for loved ones after death.
Yet a simple administrative oversight failing to keep beneficiary nominations updated can create unnecessary costs, delays, and financial strain for the very people the investment was meant to protect.
Why beneficiary nominations matter
A living annuity is treated differently from assets distributed through a will. Where valid beneficiaries have been nominated, the insurer can generally pay the proceeds directly to those beneficiaries, without the funds having to move through the deceased estate administration process.
This can allow beneficiaries to access funds more quickly and may help reduce administration costs.
If no valid beneficiary nomination exists, the proceeds will generally be paid into the deceased estate and administered by the executor as part of the estate winding-up process.
The hidden cost of outdated nominations
Many people assume that having a valid will means everything is in order. In practice, beneficiary nomination forms are often completed once and then forgotten, even as personal circumstances change over time.
It is therefore common for living annuities to still reflect outdated information, including former spouses, deceased beneficiaries, or omissions of dependents and children.
When living annuity proceeds are paid into the estate, executor’s fees may apply. Under the Administration of Estates Act, an executor is entitled to a fee of up to 3.5% (plus VAT) on the gross value of the assets administered.
On a R5 million living annuity, this could result in more than R200,000 in executor’s fees alone a cost that may potentially be avoided through a valid beneficiary nomination.
There may also be delays in beneficiaries receiving access to the funds. While benefits paid directly to nominated beneficiaries are often processed relatively quickly, funds paid into the estate can take many months and sometimes longer before they are distributed.
For families already dealing with bereavement, this can place additional emotional and financial pressure on dependents who may urgently require access to money for daily living expenses and ongoing financial commitments.
Estate duty is often misunderstood
Many investors worry that living annuity proceeds may attract estate duty if they are paid into the estate. However, proceeds from retirement funds, including those paid into a living annuity, are generally excluded from estate duty under current South African legislation.
The greater risk is often not estate duty itself, but the unnecessary emotional and financial pressure that can arise when beneficiary nominations are outdated or invalid.
Keeping your beneficiary nominations accurate and up to date is one of the simplest and most important estate planning steps you can take. It can help your loved ones access funds faster, reduce avoidable costs, and simplify the administration process during an already difficult time.
Beneficiary nominations should be reviewed regularly, especially after major life events such as marriage, divorce, the birth of a child, or the death of a beneficiary.
If you have a living annuity, do not assume your existing nominations still reflect your wishes.
A simple review today could save your loved ones months of delays, unnecessary costs, and emotional stress in the future.
Speak to your financial adviser and ensure your beneficiary nominations are accurate, valid, and up to date.
