Three big new changes to SA Pensions
Three new changes to make savings more transparent.
Finance Minister Malusi Gigaba has amended the Pension Funds Act, bringing a number of changes to how contributions and pensions work in South Africa.
The changes are an attempt by the minister to make the pensions and savings process more transparent, allowing for employees to better understand where their money is going.
The amendments, which come into effect on September 1, 2017, also provide an update on various outdated savings definitions and introduces a number of new ones.
All employers and employees must comply with the changes within the next 18 months.
Default investment portfolios for employees
Boards or funds, to which members belong as a condition of employment, must now include in its investment policy statement the provision of one or more default investment portfolios.
This includes making the objectives, underlying asset allocation, fees and charges, and any expected risks and returns available to all employees.
The board is also required to ensure:
- The composition of assets and performance of the default investment portfolio is adequately communicated to members.
- Default investment portfolios are reasonably priced and competitive.
- All fees and charges are disclosed.
- That both passive and active investment are considered as investment options.
- That there are no loyalty bonuses or other complex fee structures.
- Members are not locked into the default investment portfolio.
- The default investment portfolio is reviewed.
- The fund may ask to exempt itself from all or any of the provisions of these regulations upon written application and subject to any further conditions.
What happens to your retirement fund when you change jobs
When members are enrolled into a pension or provident fund as a condition of employment, the fund must now provide for members who leave the service of a participating employer before retirement to become “paid-up members”.
A “paid-up” or “deffered member” is one that has stopped paying into the scheme but is not yet receiving a pension.
If you are a deferred pensioner your benefits are frozen. These benefits, however, attract an annual increase and keep up with the cost of living – even though you no longer work for the employer.
As a deferred member you will receive an Annual Benefit Statement which shows the benefits you have accrued and any pensions increase that has been applied and how much they will be worth on retirement.
In addition, the new laws state that investment fees and charges in respect of the portion of retirement savings that is invested in the default investment portfolio may not differ on the basis of whether members are paid-up members or are still in the service of the participating employer.
Annuity strategy now required for all pension, pension preservation and retirement annuity funds
The boards of all pension, pension preservation and retirement annuity funds must now establish an annuity strategy.
Under this strategy these funds must show:
- The level of income that will be payable to retiring members.
- The investment, inflation and other risks inherent in the income received by retiring members.
- The level of income protection granted to beneficiaries in the event of the death of a member enrolled into the proposed annuity
In addition these annuities must have reasonable and competitive fees and charges, members must be given access to retirement benefits counselling, and the annuity strategy must be reviewed annually.
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