Yvonne Makwela, Key Accounts Manager, Fairheads Benefit Services

As a country, South Africa spends a significant portion of its national budget on education, with around 20% of total government expenditure allocated to the sector. However, the quality of education is frankly not yet commensurate with the amount spent.

According to the Department of Basic Education, the national graduation rate for Grade 12 varies widely across provinces and schools, with some schools achieving rates as low as 20%.

Children from poor households and rural areas are more likely to drop out of school or not complete their education. Many learners’ education was severely disrupted by the COVID-19 pandemic where inequalities were more glaringly obvious than ever, with poorer households unable to access or afford internet for remote learning. The COVID legacy is still there and of course now, with severe loadshedding, many learners are once again disadvantaged in terms of accessing the internet.

The authorities been working to address inequalities in education through various policies and initiatives, but the private sector also has a role to play, specifically the HR departments of companies and the trustees of retirement funds. This is where beneficiary funds come into the picture.

Beneficiary funds – their use

As a reminder, retirement fund members can indicate on their nomination form that their minor dependants’ inheritance – the so-called section 37c death benefit – may be paid into a beneficiary fund upon their death. We believe that far more should be done in educating and training at the corporate level, for example for HR to know that they should include mention of a beneficiary fund on the nomination form and to explain their use to members, and for retirement fund trustees to carefully use their discretion in allocating death benefits due to the minor dependants of deceased retirement fund members.

By using a beneficiary fund, the guardians or caregivers of minors can be relieved of the burden of investing and administering the assets on their own, and be empowered to work closely with the beneficiary fund service provider to “stretch” the money as far as possible to allow for basic subsistence costs to be covered – and, most importantly, to allow the minor child to complete their education.

Education and health

The Rules of the Fund allow the Board the discretion to distribute benefits for the “education, maintenance, advancement and well-being” of the child. The trustees of the beneficiary fund (who take over responsibility from the trustees of the deceased member’s retirement fund) have a fiduciary duty to distribute the benefit for the benefit of the child, with a priority towards health and education. So, for example, if a request comes through for funds to buy clothes or go on holiday, the trustees will first check if that beneficiary is still at school and whether school fees are up to date before considering the request.

Best practice is absolutely to ensure that the main use for and advantage of beneficiary funds is education of the minor child. Guardians and caregivers need to know that the Fund can pay the school directly as an ad hoc capital payment. In our experience, the sooner one engages with members the better, say before Grade 10 so that they can think about a career path and choose their Matric subjects optimally.

Beneficiary funds form the pillar for education for thousands of South African minors at school and majors who move on to tertiary education.

The size of the beneficiary fund market currently stands at around R20 billion. This figure is set to grow as knowledge of this uniquely South African powerful savings vehicle improves.

Let us all do our bit to close the education inequality gap.

ENDS