What does it mean if my group scheme is approved or unapproved?

The benefit is paid to the fund and distributed to your dependants along with the fund value. The trustees will decide how to distribute the money (in terms of section 37C) of the Pension Funds Act. Read more: What happens to my retirement savings if I die before retirement?

The benefit is paid to the beneficiary you name in the policy, or, if no beneficiary is named, the money should be paid into your deceased estate

You will take Ill-health early retirement. A lump sum benefit will be paid to the fund and paid to you together with the value of the fund. You will then be required to buy a pension with any part of the fund you cannot take in cash. If there is an income benefit, it will be paid directly to you for as long as you remain disabled.

The lump sum will be paid to you if you are permanently disabled, or an income benefit will be paid to you as long as you remain disabled typically until, you reach retirement age.

Contributions to the fund, including group life premiums paid by your employer, are a taxable fringe benefit. However, all your and your employer’s contributions to your retirement fund, including those for group life and lump sum disability cover, are tax deductible up to 27.5% of your taxable income or remuneration (whichever is greater). The deduction is capped at or limited to R350 000 a year. Contributions paid for an income protection benefit are not tax deductible, but the benefit is paid tax free.

Contributions paid by your employer for group life are added to your income for tax purposes as a taxable fringe benefit.

• If a lump sum benefit is to be paid to your dependants or nominees, they can choose to receive the benefit all in cash or as an annuity (ongoing pension), or a combination of the two.
  
  
• Any lump sum paid to your dependants, nominees or estate will be tax free up to R500 000. This R500 000 will be reduced if you have enjoyed a tax-free withdrawal from your fund previously on resignation, retrenchment or retirement. The balance taken as a lump sum will be taxed at either 18%, 27% or 36% depending on how much you take above R500 000.
  
  
• Any income benefit will be subject to income tax.
  
  
• The death benefit will be free of estate duty.

• The benefit will be tax free since it was bought with after-tax money.
  
  
• The benefit will be a treated as a deemed amount in your estate even if it is paid directly to a beneficiary. It will therefore potentially attract estate duty.
  
  Estate duty is levied on the net amount in your estate that is greater than the R3.5 million estate duty exemption (or up to R7 million in the case of a second-dying spouse when the first dying spouse did not use all their estate duty exemption).
  
  After the exemption is deducted, the first R30 million in your estate attracts estate duty at 20%. Amounts  above R30 million, attract estate duty at 25%.
  
  Amounts left to a spouse do not attract estate duty.

• An income benefit will be taxed at your marginal tax rate as and when it is paid to you.
  
  
• Any lump sum paid to your dependents, nominees or estate will be treated as if it was paid to you the day before you died. The lump sum will be tax free up to R500 000. This R500 000 will be reduced if you have enjoyed a tax-free withdrawal from your fund previously on resignation, retrenchment or retirement. The balance taken as a lump sum will be taxed at either 18%, 27% or 36% depending on how much you take as a lump sum above R500 000. Amounts used to purchase an annuity will be taxed at your marginal rate as and when you receive it.
  
  
• Remember: you can only take one-third of any lump sum from a pension fund as a cash sum. The same rule applies to provident fund contributions made after March 1 2021, but amounts contributed below a certain limit are excluded from this rule and it does not apply to members who were 55 or older on March 1 2021.

• The income benefit will be tax free when it is paid to you.
  
  
• The lump sum disability benefit will be tax free.

REMEMBER 

Naming your dependants or nominees on a group life scheme is important. Even if the trustees have a duty to find your dependants, you can speed up the process by naming them.

If your group life scheme is not approved, here’s why is it important to name beneficiaries on a life policy?.