The document provides an overview of proposed South African retirement reform legislation and its potential effects. It discusses key points of the Taxation Laws Amendment Bill, including eliminating differences between pension and provident funds. It also outlines draft amendments to retirement fund regulations, such as implementing default investment portfolios, preservation funds, and annuities to protect members lacking advice. The document notes debates around these changes and their impact on intermediaries, both potential downsides like reduced fees but also opportunities like advising members directly.

1. GCI EMPLOYEE BENEFITS
RETIREMENT REFORM 2015 DRAFT LEGISLATION
INDUSTRY COMMENTS & POTENTIAL EFFECTS
ON INTERMEDIARIES
• Stacey Leigh Whitwam
• (e) Stacey@gci.co.za
• (c) 082 556 7240
www.gci.co.za

2. Mission
Increasing the Global Savings
Rate through building and
preserving our clients’ wealth
ensuring a Safe and Secure
Retirement
Treat our
clients like
family
Constant drive to
innovate and
develop
Practice what we
preach
Independence
and
Entrepreneurial
Take ownership
of our
responsibilities
Sense of urgency
in all we do
Do or do not, there
is no try

3. SECTIONS COVERED
1. Key point to note in the Taxation Laws Amendment Bill
2. Draft amendments to the regulations issued in terms of S36 of
the Pension Funds Act.
1. ISSUES BROUGHT TO LIGHT
2. DEFAULT INVESTMENTS PORTFOLIOS
3. DEFAULT PRESERVATION FUNDS AND PORTABILITY
4. DEFAULT ANNUITIES
3. Current debates creating uncertainty
4. The effects these changes will have on intermediaries and the
new opportunities identified.
5. Questions?
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4. Section 01
KEY POINTS TO TAKE NOTE OF IN THE TAXATION LAWS
AMENDMENT BILL

5. KEY POINTS TO TAKE NOTE OF IN THE TAXATION
LAWS AMENDMENT BILL
 The amendments which were initially published in 2013, will finally
come into force as of 1st March 2016. (Speculation that this date
will be pushed to March 2017 but not likely).
 Pension fund, Provident Fund & Retirement Annuity Contributions
will now all enjoy the same tax benefits.
 Provident funds will no longer be any different to Pension funds
when it comes to annuitisation. (1/3, 2/3 Rule)
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6. KEY POINTS TO TAKE NOTE OF IN THE TAXATION
LAWS AMENDMENT BILL
 Provident fund contributions already vested on 1st March 2016 will remain
governed by the current legislation, allowing 100% to be taken in cash by
the member on retirement.
 Any contributions made to a provident fund after this date will be subject to
the 1/3 cash withdrawal limitation on retirement.
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7. Section 02____________________________________
DRAFT AMENDMENTS TO THE REGULATIONS ISSUED IN
TERMS OF S36 OF THE PENSION FUNDS ACT
2.1 IMPORTANT CONCERNS WHICH NEEDED TO BE ADDRESSED
2.2 DEFAULT INVESTMENT PORTFOLIOS
2.3 DEFAULT PRESERVATION FUNDS AND PORTABILITY
2.4 DEFAULT ANNUITIES

8. DRAFT AMENDMENTS TO THE REGULATIONS ISSUED
IN TERMS OF S36 OF THE PENSION FUNDS ACT
 Members exiting Employer schemes are not provided with advice or
guidance leaving them to make complex investment decisions on
their own.
 Investment fund selection,
 Whether to preserve funds or withdraw them without knowing the tax
implications thereof.
 No post retirement planning provided unless they can afford private
financial advice
 Poor performance of default portfolios
 Trustees of the funds and Intermediaries have conflicting interests,
 Default investment portfolio fees are too high and complex.
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PART 1: IMPORTANT CONCERNS WHICH NEED TO BE ADDRESSED

9. DRAFT AMENDMENTS TO THE REGULATIONS ISSUED
IN TERMS OF S36 OF THE PENSION FUNDS ACT
 Poor Mobility of Funds.
 Products aimed at middle to high income earners. High
administration charges counter and tax benefits causing Retirement
Funding vehicles not to benefit low income earners.
 It has been proposed that a government managed fund should be
implemented with mandatory contributions to be made by employers
employing any person who earns below a legislated threshold.
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10. DRAFT AMENDMENTS TO THE REGULATIONS ISSUED
IN TERMS OF S36 OF THE PENSION FUNDS ACT
 Current retirement system is characterised by COMPLEX and OPAQUE
products with HIGH FEES and COMISSIONS.
 Funds are being withdrawn before retirement, negating the intention of
retirement funding vehicles.
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11. DRAFT AMENDMENTS TO THE REGULATIONS ISSUED IN TERMS OF
S36 OF THE PENSION FUNDS ACT
 All members who are AUTOMATICALLY ENROLLED into an Employee Benefits
Scheme must be enrolled into the selected default fund unless the employer gives
the member advise in writing otherwise.
 The Trustees must choose a Portfolio which is most suited to all members. Factors
they are obliged to consider are, high level objective, underlying asset allocation,
charging structure, risks and returns, average term, sophistication of members and
the ability of members to access independent financial advice.
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PART 2: DEFAULT INVESTMENT PORTFOLIOS

12. DRAFT AMENDMENTS TO THE REGULATIONS ISSUED IN TERMS OF
S36 OF THE PENSION FUNDS ACT
 Trustees must do ongoing reviews- look at past performance, charges related to
market, number of members utilizing default.
 Members must not be locked into the default Portfolio they must be able to change
their fund selection, at no charge, within 3 months.
 Default Portfolios Fees MUST BE reasonable & competitive, disclosed accurately &
regularly and may not include any performance fees or bonuses
 Passive funds have been suggested.
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13. DRAFT AMENDMENTS TO THE REGULATIONS
ISSUED IN TERMS OF S36 OF THE PENSION
FUNDS ACT
 No current provisions for when members leave the employer. Most
employers automatically pay out the amount in cash to the employee.
Negative tax consequences, negates purpose of retirement
 New procedure is that the member will be made “paid-up” by the
scheme and the funds accumulated will be invested in the default
scheme investment portfolio until withdrawn/ transferred. No new
contributions allowed. Same charges as current members.
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PART 3- DEFAULT PRESERVATION FUNDS & PORTABILITY

14. DRAFT AMENDMENTS TO THE REGULATIONS
ISSUED IN TERMS OF S36 OF THE PENSION
FUNDS ACT
 All funds must accept amounts from previous employer schemes and no
charges allowed on initial amounts. Due to tax amendments provident funds can
be moved to pension funds.
 Members will be issued with “paid-up certificate”. Load these onto central
registry Fees- Reasonable & competitive, disclosed accurately & regularly, no
performance fee, no bonuses, suggesting the use of passive funds.
 No Risk benefits may be continued or transferred.
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15. DRAFT AMENDMENTS TO THE REGULATIONS
ISSUED IN TERMS OF S36 OF THE PENSION
FUNDS ACT
 Can be an in fund policy, either kept within so long as there is sufficient solvency and
no risk to active members/ separate pot started so that the retirees carry the market
risk entirely-must be informed of this.
 Maximum Drawdown table applied <55=7%, <60=8% <65=9%........
 Investment portfolio must be Regulation 28 compliant
 Living/Life annuities can be chosen.
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PART 4: DEFAULT ANNUITIES

16. DRAFT AMENDMENTS TO THE REGULATIONS
ISSUED IN TERMS OF S36 OF THE PENSION
FUNDS ACT
 Members must have access to a retirement planning specialist- this may not be
at any direct/ indirect cost to the member. No commission may be paid for these
services.
 Monitor the default and members in it.
 Life Annuity- must do a due diligence on the long term insurance provider to
ensure, solvency and liquidity to ensure the safety of retirees.
 All costs must be disclosed simply
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17. Section 03
CURRENT DEBATES CREATING UNCERTAINTY

18. CURRENT DEBATES CREATING UNCERTAINTY
 Although much cheaper are passive funds really in the best interest of
the members?
 Huge burden being placed on Trustees regarding default fund selection,
default can never be the best choice for all members?
 No performance fees may make managers push up the overall fees to
compensate, prejudicing all members.
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19. Section 04
The potential effects these changes will have on intermediaries and the
new opportunities identified

20. The potential effects these changes will have on
intermediaries and the new opportunities
identified
POSSIBLE NEGATIVE EFFECTS
– Intermediary advice at member level becomes less necessary
– Retirement planners negate the need for intermediaries.
– Defaults will be used and members will not think to seek independent financial advice.
– Fees/ commissions which we are allowed to charge could be reduced.
– Overly restricted by legislation.
– Limitation of advice due to prohibition of performance/bonus fees (limited funds)
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21. The potential effects these changes will have on
intermediaries and the new opportunities
identified
POSSIBLE OPPORTUNITIES
– Play a more active role at scheme level assisting with best investment choices. Build
relationship with boards/Trustees, gain trust of members.
– Defaults are never going to be best for all members……identify clients nearing
retirement/member exits and provide individualized retirement planning.
– There has been a lot of publicity and awareness brought about by this for retirement
planning, members are now more aware of the importance of correct advice.
– Increased prescribed cost and benefit reporting to members creates more opportunities for
contact with scheme members.
– Monitoring of preservations
– Opportunity to gain member trust by adding value superseding basic requirements
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22. Section 05
Questions?

23. Thank you