Retirement Annuity
March 2012
General
What is a Retirement Annuity?
A product wrapper which provides a member with an accumulative lump
sum at retirement.
Especially for self-employed individuals as well as a supplement for salaried
employees
Income Tax benefits
Greater of (a) R1 750 or
(b) R3 500 less deductible pension fund contributions (7.5% of retirement funding
income) or
(c) 15% of non-retirement funding income
Designed to provide the member with a lump sum on retirement to buy a
Living Annuity, which will pay an income at regular intervals
General
A transfer from a preservation fund to an RA is not tax free
(RF 1/2011)
Transfers from the Government Employees Pension Fund
(GEPF) are allowed (retaining pre-98 tax-free portions)
Where does it fit in?
Platform Offering
Investment
Voluntary
Investment
Pre-retirement
Endowment
Retirement
Annuity
Preservation
Funds
Post-retirement
Living
Annuity
Retirement builder (max 25%)
Capital Protector (max 100%)
Various Unit Trusts as per Portfolio Selection List
Retirement Annuity: Preservation: Living Annuity
Structured Products
Retirement builder
One year
Three years
Five years
Fixed returned of capital: Market Portfolio: Cash
Capital protector
100% Capital protection over 12 months
Unit Trust, Segregated Mandates, White Labels, Share Portfolios
Pricing
All life investment products are taxed according to the “four
fund approach”
That means a life company classifies its clients into four
different tax categories
01 – Individuals 30%
02 – Companies 28%
03 – Trusts (taxed according to beneficiary status 01 or 02)
04 – Non taxable entities
The tax and fund fees are then taken out of the price and paid
on behalf of the member
Admin and risk management fees are generated by selling
units from the client’s investment
Retirement Funds are not subject to income tax and hence
the client will not receive an IT3(b) or IT3(C)
Pricing
Since we are a LISP, we will make use of NAV pricing for most
of our investments
Where a fund does not have unit trust pricing, life pricing (four
fund approach) will be used according to the tax classification
Investments
Any natural person who wants to save for retirement
Single Premium RA
Minimum R50 000 (R20 000 for PSG Konsult and Online)
“Top ups” allowed into same policy – no minimum
Can be phased in – daily/weekly/monthly phase ins
• Recurring Premium RA
Minimum R500 monthly
Frequency: Monthly, quarterly, half-yearly, yearly
Inflation rate CPI / 5% / 10% / 15% / 20% per annum
Collection date: only on the 1st of the month
• Portfolio selection must be Regulation 28 compliant
• Once all requirements received and submitted, t+1 for
investment to settle
Documents Needed
PSG Application form (fully completed)
Certified copy of client’s ID
Certified copy of client’s proof of address (less than three months)
Certified copy of client’s proof of bank details (less than three
months)
Proof of deposit (match to unallocated spreadsheet)
Recognition of Transfer (if from another fund)
Investment Options
Unit Trusts
Within the RA wrapper – subject to market movements
Retirement builder
Fixed outcome – quoted rate for 1 year, 3 years or 5 years
Rates sent out weekly, trading monthly – inform Admin to open
One month prior to maturity we send out a letter to inform the client that we will switch to PSG
Money Market if we don’t receive instruction
Max 25% due to Prudential Investment Guidelines (Reg 28)
Capital Protector
CPP – option to guarantee CAPITAL, with growth on the upside of the market
Quarterly tranche, if enough investors, info (rates) sent out per tranche (min R 3 million per
tranche)
In for a year, if we don’t receive instruction, we will place the investor in PSG Money Market
May invest 100%
Section 14 Transfers in
Transfer from another RA fund to PSG RA
Preservation to RA = Single Premium Contribution (not a
Section 14)
Follow the Section 14 process
Cannot go directly into a Retirement Builder or CPP, as we do
not know when the funds will be received and rates have to
be accepted by the client by signing the quote (funds invested
in PSG Money Market whilst waiting for signed quote)
Blanket exemption was given by the Registrar, meaning nonValuation exempt funds don’t have to work through the FSB
anymore
Section 14
Transfers Summary
RA to RA – Section 14
RA to Preservation – Not allowed
PresPen to PresPen – Section 14
PresProv to PresProv – Section 14
PresPen to PresProv – Not allowed
PresProv to PresPen – Not allowed (why would you want to
anyway?
PresPen or PresProv to RA – Allowed, but not tax-free
RA/Pres to ELLA - Retirement
Switches
Switch form, fully completed and signed
Where a standing instruction exists on the client’s investment,
confirm with the client that it will follow the switch (complete
on batch form)
Post-switch portfolio allocation has to be Regulation 28
compliant
t+4 (this can differ based on the type of source and
destination fund as well as possible liquidity constraints in the
source fund)
Repurchase
If the value is less than R7 000, client can commute 100% in
cash, subject to tax, no active debit order
May also be commuted in full due to emigration (client to
obtain and submit SARS approval up front, and provide
original tax directive reflecting reason “Emigration”)
Signed and completed Notification of Withdrawal Form
Form C (for application of tax directive)
FICA
Certified proof of bank details (less than 3 months old)
Admin will apply for a tax directive before loading the
instruction on GLS
Benefit paid out will be net of tax
t+7 for tax application, repurchase to settle and paid
Retirement
Clients may retire from age 55
Previously max age was 70, but this cap has been removed
(for investors turning 70 after 1 March 2008)
If the value is <R75 000, the client may commute 100% in
cash, subject to tax (aggregate per lifetime per member)
If the value is >R75 000, the client may commute 1/3 max in
cash (subject to tax), balance to be transferred to a Living
Annuity
Client may select on the Retirement Form whether to stay in
the market or for the entire portfolio to switch to money market
while we wait for the tax directive
Admin will apply for a tax directive before loading the
instruction on GLS
Benefit paid out will be net of tax and transfer portion paid to
receiving fund
t+7 for tax application, repurchase to settle and payment
Retirement
Signed and completed Notification of Retirement Form
Form C (for application of tax directive)
FICA
Certified proof of bank details (less than 3 months old)
Completed Living Annuity application (PSG or new provider)
Retirement due to Ill health
The member may retire before age 55 if the member is
permanently incapable
Documents needed:
Notification of Retirement Form
–
Medical or other evidence as requested by the trustees (member’s
cost) confirming that the member is permanently incapable, due to
infirmity of the mind or body, to carry on his/her current occupation
–
FICA
–
Proof of bank details not older than three months
Disabled member is entitled to the benefits and rights as for
normal retirement
Standing Instructions Change
Static Details Change Form OR
Letter from client instructing change (signed by client or
mandated broker)
Debit order amount/frequency/escalation
Client can switch and confirm how the allocation of the debit
order should change, if required
Should a regular contribution default for 3 months
consecutively, the investment will be treated as “paid up”. The
member may choose to resume payments by informing us in
writing.
Previously only on the 1st, now any day of the month
Static Details Change
Address / Contact details change
Residential Address
Signed and completed Change of Static Details form AND
Certified proof residential address not older than three months (FICA)
Postal Address
Signed and completed Change of Static Details form OR
Letter from client instructing change
Contact Details (email / tel / cell / fax)
Signed and completed Change of Static Details form OR
Original Letter from client instructing change
Static Details Change
Bank Details Change
Signed and completed Change of Static Details form AND
Certified proof of bank details (less than 3 months old)
NOTE: Internet bank statements will not be accepted
Static Details Change
Beneficiary Changes
Signed and completed Change of Static Details form OR
Letter from client instructing change
–
Beneficiary Title
–
Beneficiary name and surname
–
Date of birth or ID number
–
Relationship
–
Share of benefits
Static Details Change
ID Number or Name Changes
Signed and completed Change of Static Details form AND
Certified copy of marriage certificate (if surname change)
Certified copy of ID
Cession
An RA may not be ceded to another client or offered as
security for a loan
Creditors may not attach an RA upon insolvency (Section 37B
of PFA)
Death Claim
Section 37C of the Pension Funds Act: Death claims may not
always be paid according to the deceased’s nominated
beneficiaries
Trustees have up to one year to search for dependents of the
deceased
The benefits may not be split between commutation of a cash
portion and transfer to a Living Annuity.
Death Claim
Documents Required:
Certified copy of death certificate
Post mortem report (if unnatural death)
Certified copy of deceased’s ID
Certified copy of letter of Executorship (If the beneficiary is Estate)
Original signed and completed Death claim application & discharge form
Affidavit of dependants by Executor to be certified by a Commissioner of Oaths (If the beneficiary is Estate)
Affidavit of dependants by independent 3rd party (minister / teachers e.g.) to be certified by a Commissioner of Oaths
Certified copy of marriage certificate (if married within community of property before 1984 or anti-nuptial contract with accrual)
Certified copy of ID of beneficiaries and/or dependants
Dependants details
Letter from Executor confirming the solvency of the estate (If the beneficiary is Estate)
Copy of a will (if applicable)
Certified proof of bank details (less than 3 months old)
If benefit will transfer to beneficiary / dependant– New application form (PSG or other Provider)
Form C (for application of tax directive)
Note that the Trustees may have further requirements in order to draw conclusion to the payment.
Section 14 Transfer out
Signed and completed Application to Transfer Form
Copy of application form for Transferee Fund
Certified copy of member’s ID (if not on file)
An RA may not be transferred to an employer’s Pension or
Provident fund
Same Section 14 process as Transfers IN to be followed in terms of Form H
and Form J
Cut offs for processing
Any instruction for processing has to be batched and
submitted to Admin before 9:00
Ensure that your broker actually SENDS it well within cut off
so that there is sufficient time for batching and submission to
Admin
Recurring contribution RA: 3 working days before collection
Turn around time
Should all requirements have been received:
Before 9:00 – processed for prices on t
After 9:00 – processed for prices on t+1
Tax
No IT3(b) for distributions
No IT3(c) for capital gains/losses
On repurchases – first R22 500 tax free per lifetime
On retirements – first R315 000 tax free
Ill-health – as per retirement tables
Death claims – as per retirement tables
No Dividend Withholding Tax
Legislation
Collective Investment Schemes Act
Pension Funds Act, especially Section 37
Regulation 28 – Prudential Investment Guidelines
Financial Intelligence Centre Act (FICA)
Financial Intermediary and Advisory Services Act (FAIS)
Fees
IFA initial fee 0% - 2.5% excl VAT (Recurring Prem = 3%)
IFA ongoing fee – up to 1%
No initial platform fee
Ongoing platform fee
– PSG – before 1 Aug 2011 = sliding scale
– PSG – after 1 Aug 2011 =
0.4% for Konsult and Online
0.5% for Retail
Neg for Best of Breed
LESS REBATES
Fax and E-mail Indemnity
Faxed instructions will be accepted, FICA docs have to be
certified
Where an advisor did not certify FICA docs, we will check if
Fax and E-mail Indemnity is on file
If a client signed the F/E Indemnity in the application form/
other transaction form, we will accept instructions via e-mail
Disclaimer
The information contained in this document is correct at time
of the presentation. All figures and points must be verified
prior to any business dealings due to the dynamic nature of
legal and financial environments. Though every effort is made
to ensure the accuracy of the information contained herein,
the author cannot guarantee the validity and or current
information in future circumstance when legislation is
adapted.
The author accepts no responsibility for the use of validated
information and the misuse of current information. Individuals
misusing current information or using outdated information will
be personally liable for any damages/consequences incurred.
PSG Asset Management Administration Services Limited
reserves the right to adapt provisions as set out in this
presentation where applicable legislation and practices
change. PSG Asset Management Administration Services
Limited is an approved financial services provider.