Issue: June/August 2008
Edutorials
ABSA

What are the latest changes in the legislation front & how will this impact on employers?

What can Trustees expect in 2008 with regard to the ever-changing Pension fund environment?

Amendments to the Pension Funds Act were promulgated on 29 August 2007, the Taxation Laws Amendment Act, 8 of 2007 was promulgated on 8 August 2007 and the Revenue Laws Amendment Act , 35 of 2007, which was promulgated on 8 January 2008, brought some exciting changes to the retirement arena. The major changes that may have an impact on the manner in which employers and employees wish to structure retirement arrangements are:

Powers of the Registrar

The changes bring the supervisory powers of the Registrar in line with international standards and best practices by increasing them substantially. The Registrar can now issue directives to a fund, a fund administrator or any other person (including the employer)  setting out practices or actions that are required or prohibited. The Registrar may also under certain circumstances where a fund has no properly constituted board of trustees or if the Registrar has reason to believe that a trustee is not fit and able to hold office as a trustee, remove and appoint trustees if the fund fails to do so. The Registrar may now levy an administrative penalty of up to R5 million for every day during which the Registrar believes a fund administrator, a fund or a third party (including the employer) has failed to comply with a provision of the Pension Funds Act.

As can be seen from the above, the employer is now also within the reach of the Registrar's powers in the sense that the Registrar can issue directives to the employer, remove employer-appointed trustees and levy administrative penalties on the employer. Typically the non- or under-payment of contributions is an area where the Registrar will be able to use its new powers over the employer.

Surplus

A new section 40B was introduced into the Pension Funds Act, which provides that a number of the surplus-related changes (for example revised definitions of contribution holiday, fund return, member surplus account and the revised sections dealing with surplus schemes and improper use of surplus), will be effective from 7 December 2001 (i.e. the same date that the original surplus was incorporated into the Pension Funds Act by the Second Pension Funds Amendment Act, 2001).

As a consequence the surplus-related changes will be applied retrospectively to all funds where surplus apportionment schemes have not het been approved by the Registrar.

For an employer participating in a fund where there was improper use of surplus between 1 January 1980 and the fund's surplus apportionment date, these amendments may have a severe financial impact should the employer be liable to repay such improper use to the fund.

Bargaining Council Funds

The provisions in the Pensions Fund Act are now also applicable to bargaining council funds. Bargaining council funds, which have not yet registered in terms of the Pension Funds Act, had to do so on or before 1 January 2008. The Registrar extended this date to 1 May 2008.

The registration of these types of funds may force such funds to change some existing practices, such as the way contributions were collected or the manner in which loans were granted, which may have an indirect impact on employers.

Lump sums on retirement or death

With effect from 1 October 2007 the tax regime for lump sum payouts on retirement or death changed as follows:

  • the first R300 000 lump sum amount will be tax-free;
  • the amount between R300 000 to R600 000 will be subject to a tax rate of 18%;
  • the amount between R600 000 to R900 000 will be subject to a tax rate of 27%; and
  • all amounts above R900 000 will be subject to a tax rate of R36%;

Employers may need to consider the restructuring of death benefits so that employees may fully utilise these tax concessions.

Author: Pieter Cronje
Manager:Legal & Technical
Absa Consultants and Actuaries