IRF Bi-monthly Seminar:
Beneficiary Funds vs Trusts:
Legal aspects,
Benefits to Dependents & Guardians
UPDATE
Trust and Beneficiary Administrator of the Year 2010, 2011 & 2012,
Imbasa Yegolide Awards
Agenda
 Welcome
 Fairheads overview
 Current Legal Structure
 Chronological order of Legal amendments
 Structural differences between Trusts and Beneficiary Funds
 Benefits and Disadvantages for Beneficiaries and Guardians
 Practical Implications
 Questions
Fairheads Benefit Services - Overview
 Group established 1925
 Umbrella trusts established 1989
 Beneficiary funds established 2009
 Executive & staff controlled
 B-BBEE level 3 contributor
 Over R7 billion under management
 Over 110 000 beneficiaries / members
 Offices in Cape Town, Johannesburg and Durban
 Staff compliment of 270
 Industry award winner
Legal Comparison
Beneficiary Fund
Trust
Inflows
Only s37C death benefits
Unapproved funds
Registration
Registered with the Financial
Services Board (FSB)
Registered with the Master of the
High Court
Law Applicable
Pension Funds Act
Trust Property Control Act

Taxation


Lump sum payments from
approved funds are after tax
benefits
The fund is tax exempt
Any payment to a member is
tax exempt.



Lump sum payments into trust
are after tax benefits
The trust is a vesting trust and
therefore has no tax liability
All interest income and capital
gains vest in the beneficiaries
and are subject to individual tax
rates (subject to thresholds).
Chronological order of legal changes
• 1989 -
Payments by registered fund to a trustee contemplated
in the Trust Property Control Act no. 57 of 1988 shall be
deemed to be a payment to the dependent or nominee
• 2008 -
“(2) (a) For the purposes of this section, a payment by a
registered fund for the benefit of a dependant or
nominee contemplated in this section shall be deemed
to be a payment to such dependant or nominee, if
payment is made to(i)a trustee contemplated in the Trust Property Control
Act, 1988, nominated by(aa) the member;
(bb) a major dependant or nominee, subject to
subparagraph (cc); or
Chronological order (cont.)
(cc) a person recognized in law or appointed by a Court as the
person responsible for managing the affairs or meeting the
daily care needs of a minor dependant or nominee, or a
major dependant or nominee not able to manage his or her
affairs or meet his or her daily care needs;
(ii) a person recognized in law or appointed by a Court as the person
responsible for managing the affairs or meeting the daily care needs of a
dependant or nominee; or
(iii) beneficiary fund”.
(b) No payments may be made in terms of this section on or after 1
January 2009 to a beneficiary fund which is not registered under
this Act”
• 2014 - (q) by the substitution for paragraph (c) of the definition of
“pension fund organisation” of the following paragraph:
(c) any association of persons or business carried on under a
scheme or arrangement established with the object of receiving,
administering, investing, and paying benefits that became
payable [referred to in section 37C] in terms of the
Chronological order (cont.)
employment a member on behalf of beneficiaries, payable on the death of
more than one member of one or more pension funds,”;
 Effective date – not yet announced
 Implications: unapproved benefits can be paid into BF
 i.e. unapproved group life, accident cover from employer, any other benefit
related to employment
Structural differences between Trusts and
Beneficiary Funds
TRUSTS
BENEFICIARY
FUNDS
Trust Deed
Fund Rules
No audit required
Annual audit compulsory
No annual reports need be
submitted
Compulsory annual reports
submitted
No Recourse
Pension Fund Adjudicator
No PO required
PO to be approved by FSB
Structural differences between Trusts and
Beneficiary Funds (cont.)
TRUSTS
FAIS licence
BENEFICIARY
FUNDS
FAIS licence, 13B (PFA)
No focus on member interest, PFA 130
Code of Conduct, Performance
Appraisals
No Investment Plan required
Reg. 28 Investments
Ownership concerns
Clear vesting rights
Benefits and disadvantages for Beneficiaries &
Guardians
 1989 - 2008:
 Trusts only, vesting and non-vesting, bewind trusts
 Not well regulated, little/no protection
 Fidentia
 Vulnerable sector – source Retirement Funds
 2009 – 2014:
 Trusts and beneficiary funds
 Approved vs Unapproved benefits
 Complicated for guardians to manage 2 accounts per beneficiary
 Merge accounts only in Trust
Benefits and disadvantages for Beneficiaries
& Guardians (cont.)
 ?2014:
 Employment benefits
 Effective date?
 Remaining Trusts
 Smaller and decreasing, viability
 Merging Trusts into Beneficiary Funds
Practical Implications 2014
 Single account per beneficiary
 Regulatory and legal protection for more minors
 Nomination forms – beneficiary fund
 Administration of Estates Act
 Unresolved death benefit – 24 months → Unclaimed Benefits Fund
Thank you
Regulatory Information
This presentation has been compiled to provide factual information on the product offered and does not
constitute advice. A copy of this presentation is available from Fairheads upon request.
Fairheads is a Financial Services Provider authorised under the Financial Advisory and Intermediary
Services Act 37 of 2002 (FSP 18428) and a section 13 B Admin under the Pension Funds Act No 24 of
1956.
Business Address:
15th Floor, 2 Long Street, Cape Town, 8001 | PO Box 4392, Cape Town, 8000
Tel: +27 21 410-7800 | E-mail: benefitservices@fairheads.com | Website: www.fairheads.com