Your group life benefits may be provided for through the rules of your retirement fund as part of what is known as an approved scheme.
An approved scheme is one that operates through a retirement fund registered with the Financial Sector Conduct Authority and approved by the Commissioner of the South African Revenue Service.
In this case, your retirement fund owns the policy and pays the premiums from the contributions you and your employer make to the fund.
Alternatively, your employer may offer these benefits in a standalone scheme. In this case the scheme is known as an unapproved one.
Your employer will own the policy and pay the premiums.
There are some important things to note about the two types of schemes:
| Approved scheme through your employer-sponsored pension or provident fund* | Unapproved scheme through your employer | |
| What happens if you die while you are still employed | 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 |
|---|---|---|
| What happens if you are disabled while you are still employed | 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. |
| Income tax implications on premiums you pay | 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. |
| Tax implications of the benefit paid in the event of your death before retirement |
|
|
| Tax implications of the disability benefit paid |
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. |
|
*Funds under the Pension Funds Act – not those under other laws such as that governing the Government Employees Pension Fund
 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 your life policy. |
