Edition: Jun - Aug 2014


Start urgently to prepare

At a recent industry conference, a panel offered essential pointers for trustees on how to deal with a landscape about to be remoulded.

From pensions lawyer Hunter Thyne following the 2014 Budget

Retirement reform points highlighted:

  • Implementing mandation or auto enrolment and improving preservation;
  • Simplifying and making transparent the charges levied on retirement funds;
  • Getting default options correct. Currently there are regulations around this. Default policies will create substantial bargaining power on costs both in a fund and on leaving a fund;
  • Moves towards consolidating funds and standardising structures;
  • Simplifying retirement products and making them portable between service providers and between products. Could we see one set of standard rules?
  • Ensuring effective intermediation to improve choice of products;
  • Providing tougher market conduct and more effective supervision.

Suggestions from the presentation:

  • Funds should have two bank accounts, one for incoming contributions and one for outgoing payments;
  • To avoid bogus exits, all exit forms should carry such wording as "the employer warrants that this member is a bona fide exit from the company";
  • Trustees need to know from asset managers:
    • What is in the agreement between the local asset manager and overseas asset managers. Transfer pricing between them is not transparent;
    • Identity of the custodian:
    • Internal policy on insider trading and effectiveness of implementation.
  • After March 2015, life-staging no longer relevant for at least two-thirds of the accumulated credit as members will be buying an annuity. Thus the credit should remain fully-invested assets;
  • No regulations in place to say what a default should look like;
  • Trustees must make their own notes at trustee meetings in case there are comebacks. Must ensure that minutes are accurate and record decisions, including who voted for and against;
  • Date of accrual of benefits in rules must not be ambiguous;
  • Trustees at board meetings must identify potential claims and notify fidelity insurer accordingly;
  • Trustees owe a fiduciary duty to the fund first and to members second.
  • Important sections of the Pension Funds Act have been amended e.g. s1 (definitions), s7A (boards of trustees), s7C (fiduciary duties), s7D (delegation of powers), s7F (limitation of liability), s9B (protection of disclosures), s13A (contributions) and s37A (payments to non-members' bank accounts).


Hettie Joubert
Joubert . . . details defined

From Hettie Joubert of MMI on changes effective 1 March 2015

  • Pension fund members can transfer to provident funds tax free;
  • Retirement-annuity fund members will still only be able to transfer to another RA;
  • Administrators will need to keep separate records. They will require at least two member accounts;
  • Transfer forms to provide for pre 1/3/2015 and post 1/3/2015 benefits;
  • Equal or over age 55 on 1/3/2015:
    • vested rights protected if remain in same fund;
    • Pre 1/3/2015 portion can take entire benefit as lump sum;
    • Post 1/3/2015 portion can take entire benefit as lump sum for contributions to the same provident fund as at 1/3/2015;
    • If transferred to new fund after 1/3/2015, then lose the above benefits and new rules apply;
  • If amount subject to annuitisation is less than or equal to R150k, can take entire benefit as lump sum. It applies to post 1/3/2015 part of benefit;
  • Hybrid funds to consolidate;
    • After 1/3/2015 there'll be certain restrictions e.g. on the limit for housing loans, that will apply to all fund members younger than 55.
  • Amendments to funds' rules will be required for:
    • Investments
    • Divorce
    • Housing loans
  • Communication to members re changes needs to start soon;
  • Some administrators may struggle with system changes required;
  • Concerns around fund transfers after 1/3/2015 not being ring-fenced.

Speaker observations:

  • Move pension fund members to provident fund and not vice versa;
  • Preservation funds should be able to take over housing loans;
  • People over age 55 must remain in same fund until retirement to retain vested benefits. This is a problem if existing fund does not allow for preservation;
  • Communication programmes on the changes should start immediately to employers, shop stewards and members;
  • Nearer the time of implementation, the FSB is likely to be inundated with applications for rule amendments. Funds should thereforemake their appications soonest.


Hettie Joubert
Van Coller . . . member preferences

From Estie van Coller of RetirementWise on communicating changes to members

  • Has conducted a survey on what members want in the way of communication:
    • 2013 survey indicated members want in order of importance:
      1. Access to fund values
      2. Advice on retirement planning
      3. How to invest for retirement
      4. Online benefit statements or frequent paper statements
      5. Advice on choosing an investment portfolio
      6. Details on death and disability benefits
      7. Details on termination benefits
  • Blue-collar fund members want to be informed by:
    1. Face to face
    2. Newsletters
    3. Trade union representatives
    4. Sms
    5. Radio
  • Must prepare members for changes;
  • Understand members: what works, what they want and where are they currently getting their information;
  • Benefit statements are most important document and should be complemented with explanations;
  • Preference for own language;
  • Posters and presentations are effective;
  • People who are not office-bound prefer sms.
  • To build trust:
    • Funds must have a slogan/brand for creating an identity. Communication must always be branded in the same way;
    • Communicate to members after trustee meetings;
    • Keep human-resource personnel up to date by sending them six-monthly newsletters;
    • Communication needs to be at Grade 10 level e.g. short sentences;
    • Have feedback channels;
    • Review effectiveness of the communication strategy every six months.
  • Will the FSB run an awareness campaign about the changes?

From Teri Solomon of Marsh on measuring your fund's limit of indemnity/fidelity cover

  • Marsh and Carmargue have developed an on-line product (called LI-MIT for limit of indemnity) that assists trustees to calculate how much cover they should take out;
  • Most funds are grossly under insured, not even covering legal fees;
  • Ideally all trustees and the principal pfficer should go online to answer the questions. Once this is done FQ Skills (an independent trustee-service group) will analyse the results and provide a summary. Cost is R10 000;
  • LI-MIT is an electronic risk and governance framework that assists trustees to:
    • Identify specific areas of risk within a fund;
    • Better understand the risk and governance profile of the fund from each trustee's perspective;
    • Provide empirical evidence of their board's adherence to PF130;
    • Better understand what the fund is insured for;
    • Identify, based on actuarially risk-weighted data, an appropriate minimum limit of indemnity for the fund's insurance;
  • Some results of samples done:
    • A R54bn fund needs R600m in cover;
    • A R350m fund needs R27m cover;
  • Policy excludes third-party service provider errors. Trustees must ensure that service providers have adequate professional indemnity cover.

Once many funds use calculator, Marsh will be able to provide benchmarks for the industry.

  • Ian Haigh of Liberty Corporate attended the seminar. He kindly supplied his notes for this summary.