The death benefit explained

The death benefit is usually made up of two parts: the retirement investment and the life insurance pay-out. The retirement investment is the value of your late husband's retirement fund; the life insurance is an amount equal to a pre-determined multiple of your late husband's pensionable salary eg. 3 times annual pensionable salary. (The specific multiple is determined by the employer in the policy).

The Fund trustees determine who should receive the retirement investment and approved life cover benefit. Approved life cover refers to any life cover attached to the fund, not taken out directly by the employer. The Fund trustees allocate this money. They must ensure that all dependents (usually spouse and children, but it may also include parents receiving financial support, for example), are taken care of.

If the life cover is taken out separately by the employer, the life cover benefit is referred to as an unapproved life cover. This is paid out according to your husband's nominated beneficiaries, although trustees tend to override this if the beneficiaries are not the deceased's dependents.

The benefit is paid out with reference to the fund rules. Unless the rules specifically provide for an annuity to be purchased, the after-tax benefit must be paid as a lump sum, both for a pension or provident fund. However, most fund rules give the beneficiaries the option to choose between receiving an annuity or a lump sum. If the lump sum is taken then this taxed as though it had been received by the deceased, subject to the tax table applicable to retirement.

We appreciate this is all very technical. You should contact Alexander Forbes and ask then to update you on the payment of the death benefits - the amounts involved, how they were allocated, the tax deducted and the manner in which the amounts will be paid out. It normally takes some time to finalise such benefit payments, so the amount deposited in your bank account may not relate to the retirement fund death benefits.

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