The role of beneficiary fund trustees in protecting the interests of minor beneficiaries cannot be underestimated. By doing their fiduciary duty, trustees play a critical part in changing children’s lives by helping them be financially resilient and as self-sufficient as possible as they approach adulthood. It can be a complex job. There are lots of tricky cases and, although the law governs decisions, trustees do often have final say.
It’s easy to feel overwhelmed by the depth and breadth of responsibilities. Here, Christopher Mwalo, Acting Operations Manager: Sanlam Beneficiary Funds and Umbrella Trusts, advises on the role of trustees and their importance.
Firstly, he says it’s pivotal to have a diversified board of trustees to foster absolute impartiality and ensure there are myriad perspectives being brought to the table. “Diversity is critical for good governance. It facilitates the robust discussions imperative to fair decision-making. It’s the best way to challenge innate biases and ensure the interests of minor beneficiaries are central to every course of action undertaken.”
Mwalo lists trustees’ responsibilities as:
Taking all reasonable steps to ensure that the interests of members in terms of the rules of the fund and the provisions of the Pension Funds Act are protected;
Disclosing and properly managing conflicts of interest where they arise;
Acting with due care, diligence and good faith;
Ensuring proper record keeping of the fund;
Ensuring proper control systems are employed by or on behalf of the trustees;
Ensuring adequate and appropriate information is communicated to members informing them of their rights, benefits and duties in terms of the rules of the fund;
Obtaining expert advice on matters where the trustees may lack sufficient expertise;
Ensuring that the rules and the operation and administration of the fund comply with all relevant laws.
One of the biggest responsibilities is making decisions around pay-outs. Mwalo says payments may be made for the purposes of the member’s education, maintenance, advancement and wellbeing from the member’s fund account at the request of the beneficiary, and subject to trustees’ discretion. When deciding on whether to make a payment, trustees need to consult the beneficiary fund’s rules, the Pension Fund Act, instructions from the retirement fund’s trustees and any court orders in effect (relating to divorce, maintenance, adoption, etc.). The idea is to conserve funds in such a way that the member will have something left upon reaching majority age.
In addition, trustees must consider:
Current capital amount in the member’s fund account;
Age of the beneficiary;
Duration of the fund account;
Guardian’s duty of support;
Long-term objectives, e.g. capital growth to provide for tertiary education.
There are also limitations to bear in mind, for example, school fees or educare payments may be capped, unless there are special circumstances.
Every case must be carefully considered on an individual basis. There are plenty of examples of ‘trickier’ requests – for example, a guardian submitted a claim request asking the beneficiary fund to purchase a house for the two beneficiaries in her care. The trustees considered all the factors above, along with the Children’s Act, and decided to approve the request on condition the house be registered in the beneficiaries’ names. In this case, the beneficiaries had enough funds to sustain them until age 18, after deducting the contributions to be made for the purchase of the house. An even tougher example would be a scenario where that wasn’t the case.
Mwalo advises trustees maintain their fiduciary duty at all times. He says that on top of the extensive training trustees undergo, they need to keep up to date with their annual CPD (continuing professional development) point requirements. “It’s vital to keep learning and to be aware of any unconscious biases. Having a diverse board of trustees will help catalyse greater impartiality and enable you to ‘bounce ideas’ off peers from all walks of life. Ultimately you are safeguarding the interests of a minor child. You are playing a pivotal part in making young people more financially resilient.”