30 Jan

The President signed the General Laws Amendment Act on 16 January 2014.  The amendments to the Pension Funds Act have thus now come into effect.  A couple of important aspects of the amendments are listed below. 

Defined Contribution Funds

The definition of a ‘defined contribution’ fund has changed, so has the calculation of a member's individual account (member's share) in the fund.  The change allows for ‘reasonable’ expenses to be deducted from contributions received i.e. both member and employer contributions.

Boards of Trustees

Section 7A(1A) was added to the Act which has the effect that the composition of the board shall always comply with the requirements in the rules and a vacancy must be filled within such period as prescribed.  

Section 7C now requires trustees, in pursuing the object of the board, to have a fiduciary duty to the fund and members and beneficiaries in respect of accrued benefits.

Section 7D now allows the Registrar to prescribe communication requirements (the current PF circulars in place provide a guideline in respect of fund communication and can now be prescribed by the Registrar).  

Section 7D(2)(a) now allows the board to delegate certain of its functions to a person, group of persons or a committee of the board e.g. a sub-committee.

Section 7F provides some protection to trustees in that a court of law may excuse an individual board member of responsibility.   Trustees were previously individually and severely liable.

A board member must, within six months of appointment/election, attain such levels and skills as may be prescribed by the Registrar by notice in the Gazette.  To date, no levels and skills have been prescribed by the Registrar, but the Registrar did establish a working committee that is in the process of drafting a curriculum for trustees.

Principal Officer and Deputy Principal Officer

An amendment to Section 8 allows the board to appoint a Deputy Principal Officer.  The Principal Officer may delegate some of his/her functions to the Deputy Principal Officer.

Note:

The duties of the Principal Officer include:

 

           Ensuring that decisions of the board are executed;

           Ensuring that the fund complies with the formal requirements of the law, including directives from the Registrar, SARS and other relevant regulatory authorities;

           Liaising on behalf of the board with service providers to the fund;

           Contributing at board meetings even though Principal Officer has no voting rights;

           Ensuring that governance of fund complies with applicable legislation;

           Meeting regularly with the chairperson of the board of trustees to enable the chair to monitor the operations of the fund.

 

In summary, the Principal Officer has to ensure compliance with the legal requirements and otherwise.  The Principal Officer should have a sound knowledge of the employee benefits environment in order to ensure that all compliance requirements are met.  The Financial Services Board and other role players are currently discussing the professionalization of the role of the Principal Officer. 

 

The Act now allows for the appointment of a Deputy Principal Officer.  Boards should consider appointing a Deputy Principal Officer.  It is suggested that such Deputy Principal Officer specialises in compliance and is independent from the board, employer and service providers.

 

Disclosure (whistle blowing)

Certain disclosures made to the registrar by a trustee, principal officer, deputy principal officer, valuator, or other officer of the fund or employee of the fund or an administrator will be protected.

The administrator and each individual trustee now have a whistle blowing responsibility on any matter which in their opinion may prejudice the fund or its members.

Payment of contributions

The following persons will be personally liable for compliance with section 13A (contributions and schedules) -

o                         every director of a company that is regularly involved in the management of the company's overall financial affairs, or every member of a CC who controls or is regularly involved in its financial affairs; and

o                         if not a company or CC, every person on whose instructions the body acts or who controls or is regularly involved in the management of its financial affairs 

 

·       Disclaimer:   The information contained in this document does not constitute professional advice.    The contents should be used at your sole discretion and Independent Trustee Services is not liable for damages that may be caused by the use of this note.   The information is intended as a guideline only and it is recommended that you discuss your benefits with your personal financial planner.

03 Oct

RETIREMENT BENEFITS - DEFAULT OPTIONS: 

WHEN YOU CHANGE JOBS AND AT RETIREMENT

 

Recent changes introduced by National Treasury make it easier and more cost effective for individuals to save their benefits when they change jobs or to select an annuity at retirement.  One of the main reasons people cannot afford to retire is that they do not preserve their funds when they change jobs.  National Treasury has therefore recommended changes to company retirement funds that make it easier for members to preserve their money when they change jobs or retire.

 

OPTIONS AVAILABLE TO YOU WHEN YOU CHANGE JOBS

 

The benefit due to you in the event of your resignation or dismissal can be settled as follows:

 

-      You can take your money in cash in which case you will be required to seek “retirement benefits counselling” before making a decision.  The benefit will be taxed as follows:

 

The taxable portion of the benefit due to you when you leave the fund in the event of your resignation or dismissal will be taxed as follows:

 

Lump sum(Taxable Income)      Rate of Tax

R 0 – R 25 000                              0% of taxable income

R 25 001 – R 660 000                  18% of taxable income above R 25 000

R 660 001 – R 990 000                R 114 300 + 27% of taxable income above R 660 000

R 990 001 and above                   R 203 400 + 36% of taxable income above R 990 000

 

It is important to note that tax relief on retirement lump sum benefits is allocated once in a lifetime in other words if it’s used up you can’t claim it again. For example, if a person used R300 000 of the R500 000 with the first lump sum, the balance left is R200 000 and once this is used up this relief is not available again.

 

Or

 

-      You can transfer your benefit to a retirement annuity fund, a preservation fund, or your new employer's pension and/or provident fund.  There will be no tax payable if you transfer from - a pension fund to another pension fund, pension preservation fund or a retirement annuity fund or if you transfer from - a provident fund to a provident fund, provident preservation fund or a retirement annuity fund.  The entire benefit will be taxable should you choose to transfer from a pension fund to a provident fund or a provident preservation fund;

 

Or

 

-      You can preserve your benefit in your current fund.  All retirement funds are now required to offer a default preservation fund and default investment portfolios.  This means that you can preserve (save) your benefit in your current fund when changing jobs. The fund’s default investment portfolio has to be appropriate, reasonably priced, offer good value for money and be well communicated to members. This makes the investment choice far easier for you.  Preservation of your benefit in this manner is also a less expensive option as you will not pay consulting fees on your valuable retirement benefit.

 

OPTIONS AVAILABLE TO YOU WHEN YOU RETIRE

 

The benefit due to you in the event of retirement can be settled as follows:

 

-      You can take a portion of your money in cash (the benefit will be taxable).  Pension fund members can take up to a maximum of one-third of the benefit in cash whilst provident fund members can take up to 100% of the benefit in cash.  Any benefit taken in cash will be taxed as follows:

 

Lump sum(Taxable Income)     Rate of Tax

0 – R 500 000                             0% of taxable income

R 500 001 – R 700 000              18% of taxable income above R 500 000

R 700 001 – R 1 050 000           R 36 000 + 27% of taxable income above R 700 000

R 1 050 001 and above              R 130 500 + 36% of taxable income above R 1 050 000

 

This amount applies to the aggregate of all retirement lump sums received over your lifetime.  Your retirement benefits from all sources will be added together and the first R 500 000 will be tax-free.  The balance will be taxed according to the scale above.  Any withdrawal benefit previously received tax-free, as well as tax-free portions for amounts paid out in respect of divorces or maintenance orders after 1 March 2009, will also be deducted off the tax-free amount. 

 

Or/And

 

-      The balance has to be utilized to purchase an annuity of your choice to provide you with an ongoing income after your retirement.  The amount which is transferred to the annuity will not be taxed at the time of transfer but the annuity payments will be taxable as income.

 

Or

 

-      The trustees of the fund have to put a “default annuity strategy” in place. What this means is that the trustees of the fund need to make a recommendation to their members on their annuity income in retirement.  The endorsed annuity should provide for better rates and lower costs.  This could be in the form of a living annuity, a life annuity or a combination.  As annuities are very complex, the endorsed annuity will make it easier for members to make decisions in respect of their retirement benefits.  The balance of your benefit can thus be used in terms of this default strategy to provide you with an annuity which provides you with an ongoing income after your retirement.  The annuity payments will be taxable as income.

 

The default options are intended to lower costs and make retirement savings easier for members when they retire or leave jobs i.e. the changes are intended to encourage a culture of savings with regard to member’s retirement savings.

 

Disclaimer:      The information contained in this document does not constitute professional advice.    The contents should be used at your sole discretion and Mont Blanc Employer Benefits is not liable for damages that may be caused by the use of this note.   The information is intended as a guideline only and it is recommended that you discuss your benefits with your personal financial planner.

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29 Jul

ALLOWABLE DEDUCTIONS FROM YOUR RETIREMENT BENEFIT

 

The Pension Funds Act affords protection to the retirement benefit in your pension or provident fund i.e. the benefit cannot be reduced, pledged or hypothecated.     There are however certain deductions which can be made from your benefit i.e. as allowed for in the Pension Funds Act, the Income Tax Act, the Divorce Act, the Maintenance Act and the Magistrates’ Court Act.   This communique provides you with more information regarding the allowable deductions which may be made from your benefit.

 

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