Investors in RSA Retail Savings Bonds have been informed by National Treasury that, with effect from October 1, the savings bonds will no longer offer the option to nominate beneficiaries to receive the proceeds on the investor’s death.

In a report in the Alexander Forbes Lighthouse newsletter, Jenny Gordon, the head of legal retail at Alexander Forbes, says that, in future, the savings bonds will, on the death of a bondholder, pay directly into the deceased estate.

The intention is to align the savings bonds with the Administration of Estates Act, which states: “Any person who at or immediately after the death of a person has the possession or custody of any property book or document which belongs to or was in the possession or custody of such deceased person at the time of his or her death… shall upon written demand by the… executor … surrender any such property … to the executor… provided that it shall not affect the right of that person to remain in possession of such property under any contract or right of possession or attachment.”

Gordon says: “The right of an investor in an RSA Retail Savings Bond to nominate a beneficiary for proceeds or ownership of the bond was a feature which was inconsistent with the law of succession, which requires property of the deceased to pass on death in terms of a will. 

“An RSA Retail Savings Bond is property that exists in the estate at date of death. All property and assets that exist in an estate should be bequeathed via a will and should be dealt with in the estate of the deceased.”

Gordon says the exception to this rule is the proceeds of a life insurance policy.

“The proceeds of a life insurance policy are payable on death. The proceeds do not exist in the estate before death. A beneficiary nomination on a life insurance policy is a special contract called a ‘stipulation alteri’, or a contract for the benefit of a third party. The policyholder contracts for the insurer to pay the proceeds to the beneficiary on the death of the policyholder and not to the estate. 

“The death benefit did not exist in the estate of the policyholder during his or her lifetime, so it need not be bequeathed via a will. Current practice extends this to beneficiary nominations for ownership on endowment policies and sinking funds, although this is not clear-cut in law,” she says.

Treasury introduced the retail bonds in 2004, and they have proved a popular means of saving. There are fixed-rate bonds with terms of two, three and five years, and inflation-linked bonds, with terms of three, five and 10 years.