Paragraph (iv)(aa) of the definition of ‘pension fund’ in the Income Tax Act provides that if “…the total value of the annuity or annuities which an employee or other person referred to in paragraph (a) becomes entitled to exceeds N$ 50,000, not more than one-third of such annuity or annuities may be commuted for a single payment.

Paragraph (a) refers to “…employees on retirement from employment or for widows, children, dependants or nominees of deceased employees…”. In the previous article I argue that this does not refer to the estate of any of these persons and the commutation provision thus does not apply to such amount payable to an estate.

Clearly the provision on commutation applies when a person becomes entitled to an annuity. Therefore if another annuity becomes payable to a dependant or nominee of an annuitant upon the death of the annuitant, the dependant or nominee of the deceased annuitant only then become entiled to an annuity and may once again commute.

Note that the aforegoing also applies to a preservation pension fund as the definition of ‘preservation fund’ mirrors that of ‘pension fund’.

Note further that in case of a retirement annuity fund, its definition in paragraph (b)(vii) categorically states “…where a member dies after he or she has become entitled to an annuity no further benefit  shall be payable other than an annuity or annuities to his or her spouse, children, dependants or nominees.” In the case of this type of fund the successor of an annuitant must be paid an annuity. Should the successor of an annuity have passed away before the annuity becomes payable, the annuity must continue to be paid to the successor’s estate. This means that the estate must be kept open until the past annuity payment has been made, with obvious implications for the administration of the estate.

Important notice and disclaimer
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.