The Pension Funds Act is very specific as to how a death benefit is to be disposed of. The principle is that the benefit must be allocated to dependants and nominated beneficiaries. Where there are no dependants or beneficiaries the benefit must be paid into the estate of the deceased. Where there are no dependants but only nominated beneficiaries and a beneficiary has passed away the benefit must be paid into the estate of the deceased beneficiary. In accordance with current Inland Revenue interpretation the greater portion of the benefit must be paid as an annuity where it is payable to “…employees on retirement form employment or for widows, children, dependants or nominees of deceased employees...”.

I would argue that the interpretation of the definition of ‘pension fund’ would allow a death benefit payable to an estate of a deceased employee to not fall under the ‘34% minimum annuity’ rule (i.e. 51% as annuity of which one-thrid may be commuted), and is thus capable of being paid in a lump sum. This is on the basis of the estate not being covered by “…annuities for employees on retirement from employment or for widows, children, dependants or nominees of deceased employees…” but would rather fall under the extension of the clause where it refers to “…and also for the purpose of providing benefits other than annuities for the persons aforesaid;” The reference to “…persons aforesaid…” should in this context also be read to refer to the deceased employee. This lump sum would not be taxable in terms of paragraph (d) of the definition of ‘gross income’.

I would further argue that the definition of ‘pension fund’ as referred to above also cannot intend to prevent payment of a benefit due to a deceased beneficiary (i.e. widow, child, dependant or nominee of deceased employees) in terms of the Pension Funds Act. This is perhaps an omission in the IT Act and hence the taxablility of the benefit would have to be determined in accordance with the general principles of the IT Act. In the case of such a benefit it can only fall under paragrapyh (d) of the definition of ‘gross income’ and is thus also tax exempt

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This article summarises the understanding, observation and notes of the author and lays no claim on accuracy, correctness or completeness. Retirement Fund Solutions Namibia (Pty) Ltd does not accept any liability for the content of this contribution and no decision should be taken on the basis of the information contained herein before having confirmed the detail with the relevant party. Any views expressed herein are those of the author and not necessarily those of Retirement Fund Solutions.