IRFA Engagement
Legal Update
Topics
1.
Taxation Laws Amendment Act, 2013
2.
Financial Services Laws General Amendment Act, 2013
3.
Information Circular 7/2013: Street name rule change
4. Information Circular 1/2014: Late submission of valuation
Reports
5. BN 270/2013: Assumptions for determination of MIR of DB
Members
6.
Notifications of section 13A contraventions
1. Taxation Laws Amendment Act, 2013
•
The Taxation Laws Amendment Act, 2013 was signed into law on 12 December 2013.
•
The main aspects of the Act that will impact on the employee benefits industry are the following:
•
From March 2015 income continuation insurance (PHI) premiums will no longer be tax deductible, but benefit payments will
be tax-free;
•
From March 2015 employer contributions to retirement funds will be taxed as fringe benefits in the hands of employees – for
tax purposes these employer contributions will be deemed to have been made by the employees. Employees may deduct
up to 27,5% of remuneration or taxable income in respect of contributions (employer/ employee) to pension, provident and
retirement annuity funds, subject to an annual cap of R350 000.
•
From March 2015 not more than one-third of the retirement benefit from a provident fund may be taken as a lump sum.
However, this restriction does not apply to the balance in the fund as at 1 March 2015 (and growth thereon) and therefore
funds will have to keep separate member accounts for pre-March 2015 contributions (and growth) and post-March 2015
contributions (and growth). Provident fund members who are 55 years or older on 1 March 2015 will however be able to
commute the full retirement benefit, including contributions made after 1 March 2015 (and growth thereon) to the provident
fund of which he/she was a member on 1 March 2015.
•
From March 2015 the commutation threshold upon retirement will be increased from R75 000 to R150 000 for all retirement
funds.
• The Explanatory Memorandum on the Taxation Laws Amendment Bill, 2013, an extract of which was included in the
October 2013 Legal Report, contains examples of the practical application of the new provisions. The Memorandum can
also be found on www.treasury.gov.za/legislation/bills/2013.
2. Financial Services Laws General
Amendment Act, 2013
•
The Amendment Act (which contains changes to various Acts
including, among others, the Pension Funds Act) was Gazetted
on 16 January 2014 and except for the amendment to the
definition of contingency reserve account referred to below,
comes into operation on a date to be determined by the Minister
in the Gazette. The main changes to the Pension Funds Act that
would affect the retirement funds industry are the following:
Trustees
•
A trustee must attain (within 6 months of appointment) and retain such levels of
and training as may be prescribed.
•
Section 7C has been amplified to provide that the board of trustees must act
independently and comply with prescribed requirements – the fiduciary duties of
the board to members, beneficiaries and the fund have also been confirmed.
•
The trustees will be allowed to delegate any of their functions to a person or
group of persons or a committee of the board. Delegation of the duty to distribute
death benefits (section 37C) should therefore also be possible. The trustees are
however not divested or relieved of a function that was delegated.
•
A new section 7F provides that where a trustee acted in accordance with his/her
fiduciary duties, he/she may be relieved from joint and several liability by a court.
•
The Registrar will be able to prescribe disclosure, communication and other
relevant requirements that the trustees must comply with.
Whistle blowing required
•
Whistle blowing duties have been imposed on trustees, valuators
and fund administrators. On becoming aware of any matter that
could prejudice the fund or members, the trustees, valuator and
fund administrator must inform the Registrar.
Duty to pay contributions
•
As was the case until a few years ago, a contravention of certain
sections of the Act including section 13A (payment of
contributions) will be a criminal offence.
•
Every director of a company (or member of a CC) who is regularly
involved in the management of the company’s (or CC’s) overall
financial affairs is personally liable for compliance with section
13A.
•
The fund must request the employer in writing to notify it of the
identity of the persons who are personally liable. If the employer
should fail to comply, then all the directors of the company (or all
the CC members regularly involved in the management of the CC)
will be personally liable for compliance with section 13A.
Unclaimed benefits
•
The definition of “unclaimed benefit” was amended to include (a) a
death benefit payable to a beneficiary under section 37C and not
paid within 24 months from the date when the fund became aware of
the death and (b) a benefit due to a non-member spouse not paid
within 24 months from the date of election or expiry of the election
period (120 days).
•
Section 37C was amended to provide that, where a deceased
member leaves no dependant, no nominee and no estate, the death
benefit must be paid to either the Guardian’s Fund or an unclaimed
benefits fund.
•
The Registrar may authorise the liquidator of a fund to pay benefits
that the liquidator is satisfied are and will remain unclaimed, to an
unclaimed benefits fund.
Beneficiary funds may accept unapproved benefits
•
The definition of “pension fund organisation” was amended to
allow beneficiary funds to also receive and administer benefits
paid in terms of unapproved group life insurance policies on the
death of a member.
Shareholding by a fund
•
A fund may not without prior approval of the Registrar hold
shares or any other financial interest in another entity which
results in the fund exercising control over that entity.
Business rescue
•
The business rescue provisions contained in the Companies Act
will, subject to the necessary changes, apply to retirement funds.
Payment of benefit to third party
•
A fund will be allowed to direct that a member’s (or beneficiary’s)
benefit may be paid to a third party if the member or beneficiary
submitted sufficient proof that he/she is unable to open a bank
account. Currently such practice is effectively prohibited by
section 37A.
Divorce orders
•
A non-member spouse to whom a member’s pension interest was
awarded in terms of section 7(8) of the Divorce Act will be entitled to
fund return from the date of election (cash or transfer) by the nonmember spouse or, failing an election, from a date 120 days after the
non-member spouse was requested to make an election.
•
In future funds will have to deduct amounts awarded to non-member
spouses not only in terms of divorce orders in terms of section 7(8) of
the Divorce Act, but also “in terms of any order made by a court in
respect of the division of assets of a marriage under Islamic law
pursuant to its dissolution”.
•
These deductions may be made from “a member’s or deferred
pensioner’s benefit, member’s interest or minimum individual reserve
or the capital value of a pensioner’s pension after retirement”.
Contingency reserve account
•
The definition of “contingency reserve account” was amended to
clarify that (a) it may only be established if provided for in the
rules and (b) a separate account must be established for each
specific category of contingency.
Fund return
•
The definition of “fund return” was amended to provide that the
trustees may use a reasonable approximation to allocate a fund
return if there are sound administrative reasons why an exact
allocation cannot be effected. This particular amendment is
deemed to have come into operation on 7 December 2001.
3. Information Circular 7/2013: Street name rule
change
•
Retirement funds have been exempted from the Registrar’s
prescribed fee for a rule amendment where only the registered
address of the fund has to be amended as a result of a street
name change.
4. Information Circular 1/2014: Late submission
of valuation reports
•
The Registrar gave notice of her intention to impose
administrative penalties (of up to R1 000 per day) with
effect from 1 July 2014 for the late submission of statutory
actuarial valuation reports by funds. The penalty will be
computed from the date of a fund’s failure to timeously
submit its statutory actuarial valuation report.
•
No penalties will be imposed if funds submit their
outstanding statutory actuarial valuation reports to the
Registrar’s office on or before 30 June 2014, or within the
time period specified where an extension was granted.
5. BN 270/2013: Assumptions for determination
of MIR of DB members
•
•
The Board Notice prescribes the assumptions which must be
applied in the determination of the “minimum individual reserve”
of a member of a “defined benefit category of a fund” to whom a
benefit has accrued on the termination of his/her membership
before retirement.
The Board Notice replaces the previous Board Notice (37/2007)
with effect from 20 December 2013.
6. Notifications of section 13A contraventions
•
In a letter to funds and administrators dated 11 November 2013
the Registrar advised that contraventions of section 13A of the
Pension Funds Act (regarding payment of contributions) can in
future be reported to the Registrar on www.fsb.co.za/retirement
funds/electronic submissions/FSB retirement funds online
system.
Conclusion
•
There are many changes to the law that make it a priority
for funds to review their benefit structures.
•
Fund rules need to be amended to comply with new law,
both changes to the Pension Funds and Income Tax Acts.
•
Both these changes are an opportunity to improve benefit
designs to improve retirement outcomes.
•
All stakeholders need to inform themselves to ensure
there is compliance as well taking advantage of new
savings opportunities.
Thank you
•
•
For attending the engagement session.
To Sanlam Employee Benefits for setting out the changes to the
law and making it accessible to all retirement fund stakeholders.
• Please remember that this presentation is for information
purposes only and does not constitute advice in any form.