Legal Update - September
2012
Nancy Andrews and Pieter Cronje
AGENDA
 Financial Services Laws General Amendment Bill,
2012
 Taxation Laws Amendment Bill, 2012
 Questions
Financial Services Laws General
Amendment Bill, 2012 (“The Bill”)
Stated aim of the Bill is to:
 ensure a sound and well regulated financial services
industry
 promote financial market stability by strengthening the
financial sector regulatory framework
 enhance the supervisory powers of the regulators, as well
as the powers of the Minister of Finance in dealing with
potential risks to the financial system
Amendments to the Pension Funds
Act (“the PFA”)
Most extensive amendments to the PFA EVER!!!!!
 48 sections have been amended - virtually an amendment
to each section.
 Not all sections will be discussed in this session, but
 A document titled “CLAUSE BY CLAUSE MOTIVATION OF
AMENDMENTS”, available on FSB website
Amendments to PFA cont……..
Sections of the Act to be covered :
 1 - Definitions
 7 - Trustee Boards
 8 - Principal Officers
 12 - Rule amendments
 13A - Contributions
 13B - Administration
 14 - Transfers
 15 - Surplus
 19 - New Section
 25 - Inspections and Investigations
 30 - Pension Funds Adjudicator
 33 - Directives
 37A - 37D
 Implications for Funds, Employers and Administrators
Definitions:
Definitions will be changed to ensure:
 consistency,
 to correct previous errors,
 to deal with current definitions which create practical difficulties on
implementation.
Some changes:
 Actuarial surplus (registrar to prescribe method of calculation)
 Surplus accounts (establish only if rules allow for it)
 Fund return (definition improved to address practical challenges)
 Contingency reserve account (no general account – each for specific
contingencies)
 Unclaimed benefit (to include non-member spouse portion and death
benefits)
 Member (to apply it to beneficiary fund beneficiaries)
 Official Website (Registrar can now communicate through official website
instead of gazette)
Section 7
Section 7A:
 New requirement that composition must at all times comply with rules (and Act)
 Requirement to fill vacancy within 30 days of vacancy arising
 New section imposing whistle blower duties on individual trustees
 New reporting requirements on trustees removed from office
Section 7C:
 New additional duties imposed on the board as a collective, not as individuals
 Duty to act independently
 Duty to comply with requirements prescribed by the Registrar
Section 7D:
 The duty to give adequate info to members is amended to provide that:
 Info requirements may be prescribed (PF 130 and King III)
 New amendment to clarify what was already the practice:
 Board can delegate its functions under the Act to, administrators
 That delegation must be in writing and provided for in rules
 Board remains responsible despite delegation
Section 8: Principal Officers
 Relaxation to the previous requirements
 Effectively, you can now go without a PO for 45 days
 Effect will be that PO must now be out of country for at
least 45 days before need arises to appoint another
person
 Duty to appoint another person within 30 days (from the
45 day period)
 Submission to allow for Deputy Principal Officers (in
principle acceptance)
SECTION 9A: VALUATORS
 Also additional requirements for appointment, similar to
auditors
 New whistle blowing duties imposed on valuator
Section 12 - Rule Amendments
 The 60 day period will be replaced by 180 day period
 This is period from resolution to change rules to
submission of rule amendment to Registrar
 As under s 4 (unregistered rules), Registrar can call for
more info
 If info not provided within 180 days, amendment lapses
Section 13A Contributions
SIGNIFICANT AMENDMENTS:
 New subsection 8 imposes personal liability on:
● every shareholder who controls the company and director who is
regularly involved in the management of the company’s overall
financial affairs
● every member who controls or is regularly involved in the
management of the close corporation’s overall financial affairs
● a person who is regularly involved in the management of the
employer’s overall financial affairs if not a Co or CC.
Section 13B: Administration
ADMINISTRATION:
 New provisions exempting certain entities from the need to have s13B
licence:
 Investment Administrators;
 Authorised user as defined in Securities Services Act;
 Long term insurer;
 Manager of a domestic or foreign collective investment scheme
 Sets out further reqs that application for approval must comply with. NB:
fit and proper reqs, capacity, qualifications, financial soundness
 In considering application, Registrar may call for more info or rely on info
from other sources, subject to right to respond
Section 13B: Administrators
ADMINISTRATORS:
 Empowers Registrar to prescribe financial resources to be kept by administrators
to meet their obligations
 Imposes obligation to keep those resources separate from assets of fund
 Provides clearly that info relating to fund belongs to fund, not administrator
 Imposes duty to maintain fund info and records and not destroy without consent of
fund
 Imposes duty to provide fund info to fund upon request
 Imposes whistle blowing duties on administrators
 Registrar will no longer need to wait for an inspection before taking action against
administrator
 Can now rely on info that has come to his knowledge
 Previous administrator, if removed, can be required by Registrar to pay for costs of
new administrator/fund
Section 13B: Administrators
ADMINISTRATORS:
 Draft directive
•
•
•
•
Introduce capital adequacy requirements
Requirement of Quarterly reporting introduced
The appointment of a monitoring person required
Allowance for the using of facilitation accounts
Section 14: Transfers
 Registrar will also be allowed to withdraw or amend s 14
certificates if as a result of legislative amendments, an
approved scheme will be prejudicial to members
 No section 14 approval will be required where the
transferor fund is valuation exempt and a transfer is made
to a long-term insurer registered under the Long-term
Insurance Act
 Registrar may now exempt transactions that would
otherwise fall under s14 from the provisions of s14
Section 14A & B
Section 14A
 Amendment to clarify that a pension increase must be granted
at least once every three years and be made payable within six
months of the effective date of the actuarial valuation
 This doesn't apply to outsourced pensioners or pensioners who
elected to receive level pensions
Section 14B
 Board must now also take into account the balance in
contingency reserve accounts when limiting pension
increases
Section 15: Surplus
Section 15B:
 Fund return (instead of nett investment earnings of fund) to be added to former members
minimum benefits
 A new provision which provides that on a dissolution of a contingency reserve account in
circumstances where fund is not being liquidated credit balance must be transferred to
member surplus account or be used for the benefit of members and former members
 Some requirements the Registrar had to satisfy himself of are being removed because they
are apparently too onerous
 A fund or stakeholder can now apply to Registrar to withdraw approval of a surplus scheme
Section 15C
 It is now made clear that future surplus can be apportioned directly for the benefit of members
and former members
 No need to pay to surplus account
Section 15D
Moneys in the MSA can only be used for the benefit of former members who left after SAD
Section 15: Surplus
Section 15 E
 Credit balance in employer surplus account can be used to pay debt due by employer
for s15B(6) improper use
Section 15F:
 Now requires agreement (no longer negotiation) for approval of transfer from reserve
account to employer surplus account
 Now requires that prior allocation to reserve account be equitable and reasonable
 More onerous requirements than before
 Very few funds will be affected as most 15F applications have been submitted by now
Section 15K
 Tribunal appointed will now make a determination instead of performing duties of a
board
 Fund no longer selects tribunal, it can only propose
 Implication is that only Registrar appoints tribunal members
All amendments to surplus legislation will apply prospectively.
Sections 19(5)D
Section 19(5)D
 A fund may not without prior approval of the
Registrar take control of another entity
 Control means having more than 15% voting rights
Sections 25 and 26
Section 25
 The Registrar may publish the outcome of on-site
visits and inspections
 Details and outcome published when deemed in
public interest
Section 26
 Registrar can appoint one or more trustee
Section 30: The Pension Funds
Adjudicator
Section 30T:
 The Board of the FSB is the accounting authority of the
Adjudicator for purposes of PFMA
 Board of FSB must comply with PFMA
Section 30V:
 Insulting, anticipating determinations or interfering with
functions of Adjudicator
 Amount of fine : not exceeding R 1 million
 Imprisonment not exceeding 1 year (increased from 3
months)
 Or both imprisonment and a fine
Sections 33 A & 37: Directives and
Penalties
Section 33 A
 Registrar can now publish directive on website
 Also other information
Section 37
 Reinstatement of penalties
 Any person who:
 breaches s4, 10, 13A, 13B, 31 or 35
 Induce someone to become member of unregistered fund
 If in any application to the Registrar you deliberately make a misleading, false or
deceptive statement or conceals any material fact
 guilty of an offence and liable to a fine not exceeding R10 million or imprisonment for
period not exceeding 10 years, or to both such fine and such imprisonment
Section 37A: Pension benefits not
reducible ……
 New subsection 4 allows funds to pay benefit to a third
party if member provides proof that he or she cant open a
bank account
 Such payment then regarded as payment to member
 Poorly worded and may lead to abuse by among others,
loan sharks
Section 37C: Payment of death
benefits
 Now makes it clear that any benefits that remained unpaid
by the fund on the date of the death of a member can be
dealt with under 37C
 Specifically allows for payment of death benefits to
unclaimed benefit funds
Section 37D: Deductions
 Addition of a paragraph providing that employees’ tax due
to SARS ito fourth schedule can be deducted from
member’s share.
 Current 37D(4)(c):
“A non-member spouse is entitled to the accrual of fund
return from the expiry of the
period referred to in paragraph (b) (ii) until payment or
transfer thereof, but not to any
other interest or growth.”
 That was 120 day period of election
 Proposed amendment says from date of deduction
Implications for Funds,
Administrators and Employers
PENSION FUNDS
 When amendments passed by parliament
 Review rules to ensure compliance
 Review communication and other policies
 Review SLA’s and other docs issued to fund to ensure they are in line with new law
AMINISTRATORS
 Review SLA’s with funds
 Amendments dealing with docs important
 Take note of info given to Registrar (s37 penalties)
EMPLOYERS
 s13A amendments very serious
 Management of small and medium sized companies are at risk
Taxation Laws Amendment Bill,
2012
1. Co-ordination of deduction and exemption rules in
respect of Employer-owned employee-related insurance
policies
2. Cession of Employer-owned insurance policies to
Retirement Funds
3. Exemption for compulsory annuity income stemming
from non-deductible retirement contributions
4. Clean break principle when dividing retirement interest
on divorce
Deduction and exemption rules
for employer-owned policies
 The principle
• Premiums with post tax contributions then policy
proceeds tax free
• Premiums with pre tax contributions then policy
proceeds taxable
 Bill realigns the link between taxable proceeds and
deductible premiums
Cession of employer-owned
policies
 To cover the transfer of deferred compensation
policies to retirement funds for the benefit of the
member
 Bill to allow the cession of such a policy to a pension
and provident fund without triggering a tax event
 Cession to RA fund will result in fringe benefit tax to
be paid on the portion that fall’s outside the annual
deductible contributions
Exemption from compulsory
annuity income
 Bill proposes that non-deductible contributions will be
exempt from income tax regardless if it is paid as a lump
sum or annuity
 All non-deductible contributions will be aggregated
 Will be applied first against lump sum then against annuity
income
Clean-break Principle
 Bill introduces clean-break principle in public sector funds
 All pre 13 September 2007 divorces exempt from tax
 Any amount payable after 1 March 2012 in respect of
divorce order after 13 September 2007 be taxed in the
hands of the non-member spouse
QUESTIONS?