Beneficiary funds – we all share the responsibility

Has the beneficiary fund been able to build enough trust with members so that they may actually trust them to take further care of their assets while they are at a tertiary institution or acquire other employable skills? At Fairheads we are noting a growing rate of “discretionary money”, that is accounts that are not terminated at age 18 through the choice of the member as they know that their money is safe with us – indeed safer and more beneficial than some bank accounts.

 

Corporate governance

 

As a trustee, you should make sure that the benefits promised in terms of the beneficiary fund rules are actually delivered; that the benefits are optimal with minimal risks; and that the process of delivery of these benefits is credible and worthy of the trust of the beneficiaries.

 

The benefits

 

At a time like this, it is important to remember the many benefits provided by beneficiary funds:

 

Protection of minors’ assets

  • Minors’ funds are taken care of, invested in prudential investment vehicles and stretched as far as possible to cater for educational and other wellbeing needs.

  • Lump sums that are paid out to a minor’s guardian or caregiver are not guaranteed to be used in the best interest of the child, and in many cases,  this leads to money being squandered, leaving little for the child’s care.

  • The guardian or caregiver will be paid a regular stipend, with additional amounts requested being subject to the scrutiny of the trustees. These capital payments are usually paid directly to the provider of the goods or service (eg the school) to ensure the money is used appropriately. 

Expert investments and institutional pricing

  • The investment management and asset allocation of beneficiary funds allows members to benefit from expert investment knowledge which has been gained over many years of managing minors’ money, which is quite different from the investment management of contributory retirement funds.

  • Investments are pooled, creating an opportunity for significant savings when it comes to fees.

Significant tax advantages

  • Beneficiary funds are wholly tax exempt, both in terms of income and capital distributed from the fund. There are few better investment vehicles available in South Africa today from a tax perspective.

Value for money pricing

  • Beneficiary fund costs, like those of retirement funds, have reduced over time despite the extensive benefits of a very well-tailored service.

 

In conclusion, trustees are well advised to remind themselves of the many benefits that beneficiary funds offer. And to do the checks that are listed above. Returning to my opening theme, perhaps above all it is important to interrogate a potential service provider about how committed they are to the responsibility of governance. Unless they can deliver in the way they promised and are 100 per cent compliant, do not appoint them.

 

ends

 

 

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