Almost a quarter of South African households say their access to food is insufficient, according to new statistics released in late May 2024.
Statistics SA’s General Household Survey found that 23.1% of households considered their access to food inadequate or severely inadequate, five percentage points higher than in 2019, before the COVID pandemic.
These sobering statistics from Stats SA are further backed up by The Household Affordability Index published monthly by the Pietermaritzburg Economic Justice & Dignity Group (PMBEJD) which sets out the average cost of providing a child with a basic nutritious diet per month. For May 2024, this was determined as being:
Compare the above average cost of feeding a child of R954.58 with the current food poverty line of R760 and the current childcare grant of R530 and you can see what households are up against.
Where beneficiary funds come into the picture
As a uniquely South African investment vehicle, beneficiary funds can play an important role in alleviating and supplementing the income needed to sustain a child. Retirement fund members may elect on their nomination form, and thereby guide the fund trustees to use their discretion in the use of a beneficiary fund in the event of their death, to accept death benefits on behalf of their financial dependents, usually minors. Once funds have been paid to a beneficiary fund, the fiduciary duty is transferred to the board of trustees of the beneficiary fund who liaise with the administrator.
A beneficiary fund is not a preservation fund but is rather used – primarily – to help educate the minor member and also to provide an income for their sustenance. A fine balance needs to be struck in the optimal and responsible allocation of benefits as we describe below.
Boards of beneficiary funds must take their duty to advance the child’s education and general wellbeing seriously by making sure that they have policies in place which set out how funds can be accessed. These boards should be absolutely driven to remove obstacles preventing guardians and caregivers from accessing benefits for the benefit of the child in their care.
At Fairheads, as a guiding principle, we recognise that as far as possible a child should have access to:
Benefits from beneficiary funds can be distributed in three ways, namely via regular income payments to the guardian or caregiver, via ad hoc capital requests and via the final termination benefit paid to the child when they turn 18.
Regular income payments should be sufficient to cover the first three items mentioned above. It is for this reason that the minimum regular income that we pay is R530 per month, the same as the current childcare grant. This amount, together with the grant, should be sufficient to lift the child out of food poverty and bring them towards the lower bound poverty line.
The remaining items on the list above – in particular relating to education fees – can be met through ad hoc capital distributions which are each individually assessed to ensure it is for the child’s benefit. One can therefore see how important it is to distribute benefits optimally – too much paid in regular income will reduce the amount available for ad hoc capital requests, but too little regular income paid can result in substantial hardship for the child.
It would indeed be a great tragedy if benefits payable to minors are not responsibly distributed during their formative years, depriving them of the chance at a decent education with a full stomach. This is why the decision to place a minor’s benefits into a beneficiary fund should not be seen through the lens of depriving the guardian of their right to administer the benefit, but rather that of providing the guardian with the assistance required to navigate dealing with a large amount of money in a resource-constrained world. The countless success case studies and letters of gratitude we receive from guardians and members alike back up this conviction.
Further sobering statistics
Single-parent households
Unfortunately, South Africa suffers from very high rates of single-parent households, driven by a combination of poverty, unemployment and other social factors. As a result, many children are left in the care of a close relation or friend in the event of the single parent passing away.
This is borne out clearly by the abovementioned Statistics SA’s General Household Survey which found that 19% of children lived with neither of their biological parents, 31.5% with both parents, and 45.4% with only their mothers. Around 12.3% of children are regarded as orphaned – having lost one or both parents.
When deciding whether to pay a lump sum death benefit into a beneficiary fund, it is therefore critically important that trustees make a distinction between a legal guardian, such as a parent or someone appointed by a court, and a caregiver, such as a family relation or friend who looks after the child,
It is a given that aside from legal duties and responsibilities, most parents would move heaven and earth for their children. And so a different test should apply where there is a strong emotional and moral parental connection. A legal guardian has duties and responsibilities to the child codified in legislation but which are also intrinsic to the parental/guardian-child relationship.
Schooling and literacy – age 18
The General Household Survey also found that only 63.6% of learners were still in school by the age of 18 – when they are generally supposed to exit in Grade 12.
Learners who dropped out of school before they turned 18 gave several reasons for doing so, including poor performance (29.1%), a lack of money (19.5%), and family commitments (7.2%).
These statistics feed into Fairheads’ “Age 18” lobbying strategy which we have pursued with other stakeholders for over a decade, unfortunately to date with no legislative action.
In essence, we have advocated and lobbied for the age at which the lump sum death benefits from retirement funds are paid to beneficiaries, be increased from 18 to 21. This is because we have witnessed first-hand the impact of paying out a large lump sum to someone who has yet to finish school. There are very few 18 year olds with the financial wisdom to handle a lump sum wisely – and there is often also pressure from extended family members to access the money for their own purposes.
In the South African context, the assumption is that minors attain the age of 18 in Grade 12, if they are in their age related grade. However, a low percentage of children are in matric at age 18 with many in lower grades and others having already dropped out of school completely without attaining a grade 12 or equivalent qualification.
Since 2015 we have engaged with members when they turn 15 about the option of leaving their assets in a beneficiary fund beyond age 18 which can help them manage their finances and hopefully pay for a tertiary education. Many of our members have opted to do so.
Conclusion
In summary, there are numerous reputable studies and statistics showing the dire state of poverty in South Africa. Beneficiary funds, while not available to all households, can play an invaluable role in supporting guardians and caregivers, supplementing the childcare grant and helping to give our children the best possible chance of leading healthy lives while completing their education.
