Benefits

FSCA Interpretation Ruling 1 OF 2024

FSCA Interpretation Ruling 1 OF 2024

FSCA Interpretation Ruling 1 OF 2024

FSCA Interpretation Ruling 1 OF 2024

Background

On 25 March 2020, the FSCA issued Interpretation Ruling 1 of 2020, which replaced Information Circular PF no. 2 of 2010. The FSCA was alerted those certain aspects of that ruling required revision, since it incorrectly brought an unclaimed benefit within the ambit of section 37C of the pension Funds Act (PFA).

Interpretation Ruling 1 of 2024 was issued to provide clarity, consistency and certainty in the interpretation and application of section 37C of the PFA. It revokes and replaces FSCA Interpretation Ruling 1 of 2020.

The 2024 Interpretation Ruling explains the distinction between a benefit becoming payable upon the death of a member, in which case section 37C will apply, as opposed to a benefit that has already become payable before the member’s death. The latter benefit falls outside the ambit of section 37C, even if the benefit has not yet been paid to the member upon his or her death.

Section 37C of the PFA

Section 37C(1) of the PFA provides that:

Notwithstanding anything to the contrary contained in any law or in the rules of a registered fund, any benefit (other than a benefit payable as a pension to the spouse or child of the member in terms of the rules of a registered fund, which must be dealt with in terms of such rules) payable by such a fund upon the death of a member, shall, subject to a pledge in accordance with section 19(5)(b)(i) and subject to the provisions of sections 37A(3) and 37D, not form part of the assets in the estate of such a member, but shall be dealt with in the following manner…”.

The section therefore provides that benefits payable because of the death of a member do not form part of the member’s estate and sets out how the benefit payable upon the death of a member must be dealt with.

The key distinction is the cause of the vesting of the benefit.

    • Where the death of the member is the cause for the benefit to become payable, section 37C will apply.
    • On the other hand, if a member has become entitled to claim a benefit and if the fund received a written instruction from the member to pay out or transfer the benefit before the member’s death, then it is that written instruction that caused the benefit to be payable (not the death of the member). This applies if a member, before his death, instructed the fund in writing to pay or transfer the benefit. In such cases, the written instruction, and not the member’s death, triggers the payment of the benefit, therefore making section 37C inapplicable

Unclaimed Benefits

Paragraph 4.6 of the Interpretation Ruling provides that:

The unclaimed benefit is not due and payable because of the death of a member, and accordingly section 37C will not be applicable when that member dies. Where the person entitled to an unclaimed benefit die, the benefit, which has vested in that person, must be paid to that person’s estate and must not be dealt with in terms of section 37C.”

Unclaimed benefits are owed to the member, as the benefit has become due and payable to that person. Even when transferred to an unclaimed benefit fund, the nature of the unclaimed benefit does not alter. If the entitled individual is traced, the benefit must be paid to him/her.

An unclaimed benefit is not due and payable because of the death of a member, and section 37C will not be applicable when that member dies. Where the person entitled to an unclaimed benefit dies, the benefit, which has vested in that person, must be paid to that person’s estate and must not be dealt with in terms of section 37C.

Similarly, where an unclaimed benefit arose from a death benefit distributed in terms of section 37C, the section does not apply upon the death of that beneficiary who is entitled to that undistributed death benefit in an unclaimed benefit fund. Such an unclaimed benefit vested in the beneficiary and must be paid to the beneficiary’s deceased estate.

Although the person entitled to the benefit is a member of the unclaimed benefit fund, it is not their death that makes the benefit payable, and the wording in section 37C “payable upon the death of a member” does not apply.

Paid-Up Members and Deferred Retirees

Paid-up members and deferred retirees are, in terms of the PFA, both considered members. If paid-up members or deferred retirees instruct the fund to pay or transfer their benefit, or to treat it as a retirement benefit, the benefit becomes payable. If paid-up members or deferred retirees pass away after giving such instruction to the fund but before the benefit is processed accordingly, it must be paid to their estates.

Application of the Interpretation Ruling

Interpretation Ruling 1 of 2024 is applicable from date of publication, which is 4 March 2024. All claims already in progress at this date will have to be reviewed so that they comply with the provisions of the Interpretation Ruling.

FSCA Interpretation Ruling 1 OF 2024 Read More »

Health Insurance Solution for NGOs in Africa

Health Insurance Solutions in Africa

Health Insurance Solutions in Africa

Health Insurance Solution for NGOs in Africa

Revolutionizing Health Insurance Solutions in Africa: A Modern Approach

In today’s fast-evolving world, underscored by the challenges of climate change and emerging health threats, the necessity for comprehensive health insurance solutions has never been more critical, especially for Employers and non-governmental organizations (NGOs) operating across the diverse and dynamic landscape of Africa. Axiomatic Consultants, an independent advisory practice renowned for its deep expertise and innovative solutions in employee benefits, is at the forefront of addressing these needs with unparalleled dedication and insight.

Our Global Presence, Your Local Solution

With established offices in South Africa and Dubai, Axiomatic Consultants offers a bespoke suite of employee benefit solutions that span group risk, and health benefits. Our proactive response to global health challenges and environmental crises has reinforced our belief in the paramount importance of providing employees with a robust level of risk insurance and health insurance benefits. This commitment not only ensures the well-being of your workforce but also equips employers with the confidence that their teams are comprehensively protected.

Tailored Health Insurance Benefits

Recognizing the unique challenges faced by Employers and NGOs, we have crafted an exclusive health insurance benefits solution designed to meet the demanding needs of your organization. This solution is supported by 24/7 customer service and bolstered by local expertise through our specialist team, ensuring that your needs are met, anytime, anywhere.

Flexible and Comprehensive Plans

Our offering is characterized by its flexibility and comprehensiveness, with a variety of plans that cater to different needs and budgets. Whether your team consists of expatriates, third-country nationals, or local employees, our plans are designed to be customized with optional benefits, ensuring a perfect fit for your organization’s unique requirements.

Core and Optional Benefits

CORE BENEFITS

OPTIONAL BENEFITS

Allowing for a truly tailored benefits package.

Core and Optional Benefits

Accessibility is key in healthcare, which is why we partner with insurers that offer a wide network of contracted medical providers across Africa. This extensive network facilitates direct claims settlement, minimizing out-of-pocket payments and ensuring that your employees have access to high-quality medical care whenever they need it.

Dedicated Client Services Team

Our commitment to your organization doesn’t end with the customization of your plan. A dedicated client services team is at your disposal, ready to assist with hassle-free implementation, administration, and support services, ensuring a seamless experience for both employers and employees.

Life & Disability Protection

Understanding the importance of flexibility, we offer the ability to customize your plan to meet your specific needs. Our optional benefits can provide a combined life and disability cover of up to 2M USD or 10X the gross annual salary of employees, offering peace of mind and comprehensive protection.

In a world where health and well-being are increasingly at the forefront of our priorities, Axiomatic Consultants stands ready to partner with Employers and NGOs across Africa to meet and exceed the health insurance needs of your employees.

Together, we can ensure a healthier, more secure future for your organization and its most valuable asset: its people.

Health Insurance Solutions in Africa Read More »

Interest on late payment of contributions by employers

Interest on late payment of contributions by employers

Interest on late payment of contributions by employers

Interest on late payment of contributions by employers

1. From which day is late payment interest calculated on arrear contributions payable by the employer: the 1st of the month, or the 8th of the month?

In terms of the Pension Funds Act and Conduct Standard 1 of 2022, interest is payable by the employer on arrear/late contributions. This interest is calculated from the first day following the expiration of the period contributions were payable for until the fund receives the contributions – at the prime rate plus 2%.

There is confusion about whether the penalty interest starts to run from the 1st day of the next month or the 8th day of the next month. The Office of the Pension Fund  Adjudicator (OPFA) and the FSCA hold different views:

FSCA’s view:

OPFA’s view:

The FSCA and OPFA will be meeting to discuss this difference of opinion and the FSCA is considering whether to issue an Interpretation Ruling on the matter. There is currently no consensus, which means that administrators and funds have no clear guidance on this matter.

2. Does the in duplum rule apply to the amount of interest payable by an employer on late contributions?

The in duplum rule

The in duplum rule means that the interest on a debt can’t exceed the unpaid balance of the principal debt.

Example: Margaret lends Joe R200. Margaret charges Joe interest on this debt. When the interest gets to R200 (the same amount as the original debt), the in duplum rule means that the interest cannot grow any higher.

Recent High Court case

In the recent High Court case of Municipal Workers Retirement Fund v Umzimkhulu Local Municipality and Others the High Court found that the in duplum rule does not apply to the interest prescribed in the Pension Funds Act for arrear contributions. Therefore, the employer had to pay the full amount of statutory interest owing to the fund.

The FSCA’s and OPFA’s views

Before the case:

Now - after the case:

This means that the interest on arrear contributions payable by an employer can continue to add up and even exceed the original arrear contribution amount owed by the employer.

Interest on late payment of contributions by employers Read More »

Budget Speech 2024

FSCA assessment: Treating Customers Fairly and Regulation 28

FSCA assessment: Treating Customers Fairly and Regulation 28

Budget Speech 2024
  1. An FSCA assessment
  2. Exemption of large funds

1. An FSCA assessment: Treating Customers Fairly and regulation 28 principles applicable in contracting services to the fund or its board

In December 2023, the Financial Conduct Services Authority (FSCA) sent a communication to the Principal Officers of many retirement funds requesting information relating to transformation in respect of certain service providers.

Funds were requested to complete the following assessment:

    • Treating Customers Fairly [1] (TCF) self-assessment with regards to the implementation of measures to meet the TCF outcomes. This part of the assessment is not new – many funds have completed it already.
    • The Regulation 28 principles of self-assessment with regards to the implementation of measures to consider in contracting services to a fund or its board. [1] TCF is an outcomes-based regulatory and supervisory approach of the FSCA designed to ensure that regulated financial institutions (for example, retirement funds) deliver specific, clearly set-out fairness outcomes for financial customers (for example, members). Funds are expected to demonstrate that they have implemented and are delivering the TCF outcomes in the way that they conduct business.

The assessment had to be returned to the FSCA through its online submission portal by 31 January 2024.

Why has the Regulation 28 assessment been circulated?

The FSCA states that it has set itself supervisory priorities for the current financial year, which includes considering the extent to which Regulation 28 principles are embedded within retirement funds.

Regulation 28 provides that retirement funds have a fiduciary duty to act in the best interest of their members, whose benefits depend on the responsible management of assets. This Regulation requires a fund and its board to consider, in contracting services to the fund or its board, the need to promote broad-based black economic empowerment of those providing services.

Questions set out in the FSCA’s regulation 28 assessment

    • Does the fund have a procurement policy in place? If so, furnish us with a copy of the policy. If the fund does not have a procurement policy in place, outline the procurement process of the fund.
    • When contracting services to the fund and its board, does the fund consider the need to promote broad-based black economic empowerment of entities providing services? (Please explain in detail how the fund meets this condition in the comments section).
    • Does the fund request BBB-EE certification from its service providers when contracting services? If so, please furnish us with copies of such certification.
    • Does the fund evaluate whether its existing service providers continue to promote broad-based black economic empowerment?
    • Do you have a mechanism in place to deal with an existing service provider who no longer complies with the BBB-EE requirements? (Please explain in detail how the fund deals with such a scenario in the comments section).
    • When contracting services to the fund and its board, does the fund consider the need to promote broad-based black economic empowerment of independent trustees providing services if applicable? (Please explain in detail how the fund meets this condition in the comments section and if this is not applicable, please indicate such in the comments).

The assessment should create a baseline for the FSCA to supervise and regulate the effect of the Conduct of Financial Institutions and regulatory interventions on the transformation progress of funds.

2. Exemption of large funds from certain prescribed formats for preparing financial statements

The Pension Funds Act (the Act) requires every fund, within six months of the end of every financial year, to provide the prescribed financial statements to the FSCA that have been audited by the auditor of the fund.

From 21 December 2023, the FSCA’s RF Notice 26 of 2023 replaces RF Notice 5 of 2020, (the Exemption of Large Funds from certain prescribed formats for preparing financial statements under section 15 of the Pension Funds Act).

“Large Funds” are defined as funds with total assets exceeding R50 000 000.

The RF Notice has been published because the prescribed format of annual financial statements does not align with the amendments to Regulation 28 of the Act.

To ensure alignment with the amendments to Regulation 28, the FSCA is planning to replace the current BN 77 Notice with a Prudential Standard, which is currently in draft format.

But in the interim, to deal with the issue of BN77 not currently aligning with Regulation 28, the FSCA has published exemptions in relation to infrastructure reporting and certain Schedules.

The exemption of large funds from the provisions of section 15 of the Act provides for three scenarios:

For the preparation of financial statements in respect of a financial year that ends after 1 March 2018, a Large Fund is exempted from the requirement to complete Schedule D1 when preparing financial statements but must complete the Independent Regulatory Board of Auditors (IRBA) approved illustrative “Auditor’s report template: Audit of the Financial Statements of a Large Retirement Fund (Schedule D)”.

For the preparation of financial statements in respect of a financial year that ends between 1 March 2018 and 31 December 2022, a Large Fund is exempted from the requirement to complete Schedule IB1, but must complete IRBA’s illustrative “Assurance Report on Compliance with Regulation 28 of the Pension Funds Act” that was approved by IRBA in March 2019; and

For the preparation of financial statements in respect of a financial year that ends after 31 December 2022, a Large Fund is exempted from the requirement to complete Schedule IB1 but must complete Annexure A to the notice “2023 Assurance Report on Compliance with Regulation 28 of the Pension Funds Act”.

FSCA assessment: Treating Customers Fairly and Regulation 28 Read More »

Regulatory update for retirement funds

Regulatory update for retirement funds

Regulatory update for retirement funds

Regulatory update for retirement funds

Two-pot system

The Revenue Laws Amendment Bill (“RLAB”) (containing the two-pot system changes to the Income Tax Act) went to the Minister of Finance for a response to the Standing Committee on Finance (“SCOF”). The Minister recommended 1 September 2024 as an implementation date and SCOF accepted this date. The RLAB must now go to the National Assembly and thereafter the National Council of Provinces for concurrence. Both the RLAB and Pension Funds Bill (containing amendments to the Pension Funds Act related to the two-pot system) will be tabled on 8 February 2024 when Parliament re-convenes.

The FSCA intends to publish a Guidance Notice (or other instrument) in December 2023 setting out the principles of what should be in the fund rules to address the two-pot system.

Conduct of Financial Institutions Bill (“COFI”)

COFI contains far-reaching changes for financial institutions, including retirement funds.  National Treasury has received the final certificate to request Cabinet to approve the introduction of COFI to Parliament, however, National Treasury has yet to receive the required certification from the State Law Advisor. COFI remains a priority and National Treasury aims to introduce it to Parliament in the first quarter of 2024. The implementation of the COFI requirements will be phased-in and there will not be a big bang approach.

The Omni Conduct of Business Return

As a reminder, The FSCA issued its draft Omni Conduct of Business Return (“Omni CBR”) in June 2022. This was the first phase in a process that was designed to end in June 2026, with many financial institutions, including retirement funds, administrators and Financial Services Providers, submitting online quarterly answers (returns) to the FSCA on an extensive list of questions (risk indicators). This will be the cornerstone of the FSCA’s supervisory approach.

Recently, the FSCA published Communication 33 of 2023 ‘Update on roll-out and implementation of cross-sectoral Conduct of Business Return for financial institutions’, which provides that the FSCA will issue an updated timeline for the roll out of the Omni CBR in 2024 (with updates being provided in July 2024).

The FSCA provided times for certain actions as follows, which times may change depending on when COFI is enacted:

    • continuation of industry engagements on the current version of the Omni CBR until 1 April 2024;
    • publishing a revised version of the Omni CBR spreadsheet template by 1 July 2024;
    • publishing an industry survey on the impact of the revised Omni CBR by 1 July 2024;
    • launch of the industry pilot in the second half of 2024.

Regulatory update for retirement funds Read More »

November Update: Two-pot System

Update: Two-pot System

Update: Two-pot System

November Update: Two-pot System

Are we back to 1 March 2024?

What happened at the Standing Committee on Finance (SCOF) on 21 November?

It was an interesting day at the Standing Committee on Finance (SCOF) on 21 November, with SCOF not accepting Treasury’s proposal to move the two-pot implementation date from 1 March 2024 to 1 March 2025 and retaining the 1 March 2024 date.

Is this decision now final?

This decision is still not final. It will go to the Minister of Finance for 14 days for comment. The Minister of Finance does not have the power to make a different decision. Then the Bill (including the date) will go back to SCOF for a final decision. The Bill will also need to pass through the National Assembly and the National Council of Provinces.

When will the two-pot legislation be finalised?

We still do not know when we will see the final version of the two-pot legislation (Revenue Laws Amendment Bill) and we still do not know when we will see the final version of the Bill which contains the changes to the Pension Fund Act necessary to implement the two-pot system.

Legacy retirement annuity funds can be exempted

All Treasury’s other proposals (barring the date) were accepted by SCOF. We discussed these changes in a previous publication, for example:

    • The cap on the 10% seeded amount proposed to be increased from R25 000 to R30 000.
    • Provident fund members who were 55 or older on 1 March 2021 (and still in the same fund) proposed to be automatically out of the two-pot system and can decide to opt in.
    • Proposed exemptions from the two-pot system for older members (as referred to above), legacy retirement annuity funds (as approved by the Financial Sector Conduct Authority), beneficiary funds, unclaimed benefit funds, and pensioners.

Other discussions at SCOF on 21 November, included:

    • The mechanism for the taxation of savings withdrawals (which are taxed at marginal rates), including a fixed nominal rate and a tax directive process; and
    • The taxation mechanism for inter and intra fund transfers between pots.

There could still be changes

The 1 March 2024 implementation date decision is not yet final. The Income Tax Act and Pension Funds Act amendments for the two-pot system have not been finalised. Uncertainty still prevails. This makes preparation for administrators, funds, and others fraught with difficulty, uncertainty, and risk. In addition, the very necessary communication required about the two-pot system cannot be finalised.

Update: Two-pot System Read More »

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