EVOLUTION OF BENEFICIARY FUNDS AND CHALLENGES AROUND THE AGE OF Majority &ALIGNMENT OF BFs TO RETIREMENT REFORM

TRUSTEE PERSPECTIVE NOW YOU HAVE ARRIVE 18 YEARS(Children Act s38) MAJORITY DILENMA

TO PAY OR NOT TO PAY TO THE MAJORS? GETTING CONSENT TO PAY LATER 21YRS WHAT CONDITIONS/TEST TO BE MET FOR THE TRUSTEES TO PAY

TO OR NOT TO PAY ?CONTINUED

HIGH COST OF PLACING BENEFICIARY MONIES WITH BFS ROLE OF PF TRUSTEES ONCE THE BENEFICIARIES MONIES IS WITH BFs

Alignment of BFs with Current Retirement reforms ?

THANKYOU ANY QUESTIONS

Evolution of Beneficiary Funds: Challenges around age of majority and how beneficiary funds can align with Retirement Reform From a consultants perspective

Reform!? Governance Treating customers fairly Total cost disclosure Lump sum verses income 4 key points as part of Retirement Reform

Current role of consultant Evaluate a beneficiary fund provider Assists with Section 37C allocations Administrator / consultant completes beneficiary fund applications Sometimes assists with queries from guardians / beneficiaries Considering retirement reform is this enough?

Reputation Administration PassionCost Communication InvestmentsTracing Proposed due diligence

Reputation Evaluate service provider Re-evaluate service provider Get good, reliable, dependable and trustworthy advice

Administration Record keeping Reporting ability

Tracing Proactive vs reactive

Cost Full disclosure Appropriate

Communication Methods Comprehensive All stakeholders Regular Problem solving Guiding beneficiaries at majority age!

Investments Appropriate Income, lump sum or trustee enduring power at majority age? Guidance to beneficiaries

Passion

Post reform role of consultant Evaluate a beneficiary fund provider Assists with Section 37C allocations Administrator / consultant completes beneficiary fund applications Sometimes assists with queries from guardians / beneficiaries Regular report backs to the board Comprehensive communication between all stakeholders Re-evaluate provider Is there a greater role for the retirement fund trustee and their consultants?

Evolution of Beneficiary Funds: Challenges around age of majority and how beneficiary funds can align with Retirement Reform

Preservation & annuitisation Improved trusteeship Costs

Preservation & Annuitisation Urgent need to stop the leakage Restriction of lump sum payments on exit Death benefits not treated the same If it is not acceptable to pay a lump sum to a retiree, why is it acceptable to pay a lump sum to a minor dependant (or their guardian)? Taken further, why is it acceptable to pay minor members their lump sum benefit upon attainment of age of majority

Improved Trusteeship Trustees owe a fiduciary duty to members In terms of S37C, they must apply their minds to what is in the best interest of the minor dependant – Fund trustees cannot apply a default position for the disposal of death benefits – Financial competence and level of responsibility on the part of the guardian is important, but not the only criteria Beneficiary fund service providers owe an obligation to retirement fund trustees to report back on the well being of minor members introduced

Costs Beneficiary funds are not the same as retirement funds Retirement funds are geared towards the contribution phase of retirement and are generally distributed through the employer or union Beneficiary funds are geared towards high transactional drawdown phase – Distribution channels need to cater for these high volumes and member choice – Staff to member ratios must be significantly higher in order to assess large volumes of claims

Costs Difficult to compare the cost of various service providers Development of a Comparison Rate Model for beneficiary funds Consider all in costs based on a standard set of assumptions Aim is not to reveal the cheapest provider, but to allow trustees with a tool to accurately compare costs so that they can focus on the really important considerations for a beneficiary fund – Accessibility – Investment approach – Member communication

Comparison Rate Model Information relating to the fees and charges for a range of beneficiary fund providers obtained from an independent source 1 Standard set of assumptions applied – All investment returns paid out in the form of capital distributions, regular income of fund costs – Fund terminated at age 18 1 Arde, A. Beneficiary Funds: look at costs. 2014/09/27. costs #.VLjIxEeUe2w. The fees and costs provided in this article were used by Fairheads to derive the Comparison Rate for each service provider.

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 (FSP18428) and section 13B Admin under the Pension Funds Act No 24 of Business Address: 15 th Floor, 2 Long Street, Cape Town, 8001 | PO Box 4392, Cape Town, 8000 Tel: | | Website: Questions Thank You