Presentation on theme: "IRFA Engagement Legal Update. Topics 1. Taxation Laws Amendment Act, 2013 2. Financial Services Laws General Amendment Act, 2013 3. Information Circular."— Presentation transcript:
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.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 non- member 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.