Issue: December 08/February 09
Old Mutual Corporate

Rush against time to prepare for beneficiary funds

Assistance and guidance for trustees is offered by GISELLE GOULD, marketing director of FAIRHEADS BENEFIT SERVICES. It is vital that trustees are up-to-speed with this new legal concept, created to protect minors should there be another Fidentia-type debacle, or they’ll be seriously amiss in their duties.

Gould... urgent checklist

‘Beneficiary funds’ have been introduced with effect from the beginning of January 2009. Legislated through amendment to s37C of the Pension Funds Act, in an effort to better protect the assets of minor beneficiaries following the Fidentia umbrella trust scandal, they are added to the options available to trustees for payment of lump-sum benefits upon the death of a retirement fund member.

We predict that beneficiary funds will attract significant interest because of the advantages they offer. Amongst them, stakeholders will have recourse to the Pension Funds Adjudicator and the Financial Services Board. Similar recourse does not apply with umbrella trusts.

Also unlike umbrella trusts, these beneficiary funds will need to comply with Regulation 28 of the Pension Funds Act. The regulation provides prudential guidelines for fund investments. Compliance with the regulation will serve to improve protection further.

There are tax incentives too. Again unlike an umbrella trust, capital transferred to a beneficiary fund is tax-exempt at the beneficiary level. And the beneficiary fund is itself exempt from tax.

Umbrella trusts will continue to run their course alongside the new beneficiary funds. The former can still be used under certain circumstances, particularly in the case of unapproved benefits. Only approved benefits may be paid into the new beneficiary fund vehicle.

The deadline for implementation of beneficiary funds is tight, so here is a quick checklist to help boards of trustees:

Internal administration

  • Is your retirement fund adequately geared up for the changes taking place from 1 January 2009?
  • Do your resolutions now refer where relevant to a beneficiary fund specifically, not to a trust fund generally?
  • Are you aware that you do not need to obtain or await a tax directive before paying monies over to a beneficiary fund?
  • Has your service provider correctly supplied you with the necessary documentation of beneficiary fund details?
  • Have you entered a service-level agreement on beneficiary funds with your service provider, properly setting out the necessary commitments?
  • Are you satisfied that you fully understand how to deal with approved benefits as opposed to unapproved benefits?
  • Has your service provider assisted you and updated you with the transition from trust fund to beneficiary fund?
  • Have you informed beneficiaries and/or guardians that you are making payments to a beneficiary fund on their behalf?

External service providers

  • Does your administrator have a s13b licence, indicating whether its systems, capacity and liquidity meet the required standards?
  • Does your service provider have a FAIS licence, ensuring that it offers a professional intermediary service?
  • Is your beneficiary fund registered with the Financial Services Board?
  • Do you possess a summary of the beneficiary fund’s rules?
  • Is there an independent trustee on the beneficiary fund’s board?
  • Is fidelity cover in place?
  • Is the beneficiary fund compliant with Regulation 28?

If we can assist in any way, we shall be happy to do so without any obligation to you. Please feel free to contact Giselle Gould on 011 883 9755 or Website

Excerpt from amended Section 37 C of the Pension Funds Act

Section 37C of the Pension Funds Act , 1956 (Act No. 24 of 1956), is hereby amended by-

(a) the substitution for subsection (2) of the following subsection:
  *(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
      (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”;