In terms of the law, every retirement fund needs to put in place fund default strategies by 1 March 2019. An article to explain these developments was included in the September 2017 Your Life newsletter.
The regulations aim to improve the outcomes for members by ensuring that they get good value for their savings and retire comfortably.
The regulations require all retirement funds in South Africa to ensure they provide:
- Default Investment Portfolio;
- Default Preservation Strategy; and
- Annuity (pension) Strategy.
DEFAULT INVESTMENT STRATEGY (Portfolio)
The regulations require trustees to offer a default investment portfolio(s) to contributing members who do not exercise any choice regarding how their contributions should be invested.
The investment portfolio(s) that members are defaulted into should be:
- reasonably priced;
- well communicated to members; and
- offer good value for money.
The Trustees were required to review the Fund’s investment options prior to 1 March 2019 and decide on a default portfolio that would be appropriate for the majority of the members of the Fund. The Board must monitor investment portfolios regularly to ensure continued compliance with these principles and rules. They must also consider active and passive options.
Your Fund’s LifeStage model comprises the default investment portfolios of the Fund, Performer in the accumulation phase for members up to 5 years from retirement, changing in a phased manner to Conserver for those members between 5 and 2 years from retirement. This change in regulations has already been put into practice and was implemented by the Trustees some time ago. It will therefore not result in any changes to your Fund.
DEFAULT PRESERVATION STRATEGY
The regulations require trustees to offer a default in-fund preservation arrangement to members who leave the service of a participating employer before retirement.
Fund rules are being amended to allow for resigning employees to leave their accumulated retirement savings in the Fund. However, members will have the right to opt out of the Fund and withdraw their fund credit in cash or to transfer to the fund of their new employer or to any other preservation or retirement annuity fund.
From 1 March 2019, if you resign, you will become a Paid-Up member of the Fund. This means your money remains invested in the Fund unless you inform the Fund that you want your benefit to be transferred or paid out. Once you become Paid-Up you will not be allowed to contribute to the Fund and will not receive insured benefits for death and disability. You will remain invested in the LifeStage portfolio(s).
The Fund must provide such members with a paid-up certificate within two months of becoming a paid-up member.
ANNUITY (PENSION) STRATEGY
For retiring members, a fund should have an annuity strategy that provides access to a reasonably-priced pension at retirement.
It is important to note that this is not an automatic default arrangement and members will have to make an active selection/choice to Opt-In to this strategy if they want to make use of the Fund’s pension option.
Members may still elect to take their retirement fund benefits in cash and pay the tax (Provident Fund) or take one third in cash and use the two thirds to buy a pension from an insurer in the market (Pension Scheme). Members may also decide to buy an annuity of their choice (Life or Living annuity) from any registered insurer in the market.
Members will be given retirement benefits counselling at least 3 months prior to their normal retirement age.
Your Funds are ahead of this requirement as it has offered a Default Annuity, the Old Mutual Fund Select Annuity (FSA), since June 2013. The Trustees believe it may be a good solution for members, because it is easy to invest in, and it provides a reliable monthly pension for life.
It is important to note that these changes in essence provide more options to members and there is no need to be concerned. Defaults will only start (affect you) when you as a member neglect to make a choice in a given situation.