A recent and interesting industry trend is that of death benefits being placed into beneficiary funds for elderly parents of deceased retirement fund members. This is notable because beneficiary funds have since their inception been primarily seen as a vehicle to house benefits for minor dependents of deceased retirement fund members.
Much has been written about the “sandwich generation”, those middle-aged individuals who find themselves supporting both their children as well as their elderly parents. In South Africa, we also know about the Black Tax, the financial responsibility borne by many African people who are earning and who provide – or are expected to provide – support to less financially secure family members.
The legal system in South Africa makes provision for a dual support system for the indigent elderly: the common law places the burden of support on their financially able children and the State has a constitutional obligation, as it recognises social assistance as a basic human right within a financially constrained paradigm.
So the scenario where a member of a retirement fund passes away naturally means that their parents, for whom they have provided financial support, must be included as dependents when Boards of Trustees conduct their Section 37C process.
A rise in mental conditions among the elderly
The advances in medical treatment have had an impact on our physical longevity, however there is growing evidence that the mental capabilities of the elderly may not be doing as well. Dementia, Alzheimer’s and numerous other mental conditions appear to be on the rise.
The research bears this out. It is estimated that 36 million people were living with dementia worldwide in 2010, and that this number will increase to 66 million by 2030 and 115 million by 2050 (2012 World Alzheimer Report). Low and middle income countries are the source of nearly two thirds of these statistics, with the sharpest increases in numbers set to occur there as elderly populations grow.
The result is that we are seeing growing numbers of elderly dependents unable to manage their financial affairs. In this case it is usually the adult children who step in to assist, needing to bear the responsibility of managing investments, ensuring the payment of an income, and if the parent is at home, arranging a roster of caregivers etc. For those who can afford it, a care home can be the answer regarding the day-to-day care but finances still need to be managed.
Other trends playing out
Compounding the above family scenario is a rise in emigration figures. Reliable statistics are hard to find but it is known that emigration numbers are on the rise for several reasons – mainly safety and economic stability, as well as quality education. Additionally many people are opting to become “digital nomads”, spending large tracts of a year working abroad. How will they ensure proper care of financially dependent parents?
Beneficiary funds can come to the fore here, with helping to manage the affairs of elderly parents, including for example paying and engaging directly with a nursing home to ensure their needs are met.
Another broad trend is that of client mobility. Socio-economic pressures have resulted in the youth and employable adult population moving from rural areas to urban areas in search of job opportunities. A further six million South Africans are expected to migrate to urban areas by 2035, according to the South African Affordable Residential Developers Association.
It is the elderly, mainly the “gogos” who remain in the rural areas. Who assists them if they develop mental disease? An interesting study titled Dementia Prevalence in a Rural Region of South Africa: A Cross-Sectional Community Study (PubMed, de Jager et al) shows that dementia prevalence estimates were higher than expected for low-income rural communities compared to their urban counterparts. So, if most young people have migrated to urban areas how will they care for elderly parents in rural areas?
Beneficiary funds are a powerful tool to assist
Beneficiary funds can play a very important role as a vehicle for death benefits payable to elderly dependents.
Funds will need to examine a few factors however, specifically to see whether the policies and procedures they have developed over the years are appropriate for older members with such disabilities. One such factor would be the way their funds are invested.
From an investment perspective, there is no defined investment time horizon as the benefit will likely be held until the death of the member, an unknown period. The benefit therefore needs to be invested differently for these members.
We would recommend conducting a proper needs analysis, including reviewing social worker or medical reports, and catering for a tailored approach to capital payments and investments. For example, where support needs are regular and predictable, such as the payment of nursing home fees, the investments can be tailored towards producing enough investment income to cover these costs.
Conclusion
We believe that the beneficiary fund industry as a whole needs to apply its mind to solutions and start informing and educating boards of trustees as well as the broader public about the potential use of beneficiary funds for elderly dependents suffering from mental disabilities.
Some stakeholders are picking up the issue, with the respected financial journalist, Maya Fisher-French, writing on this very topic and suggesting to individuals that they consider including a beneficiary fund on their retirement fund nomination form for the trustees to consider regarding elderly parents who may become incapacitated.