South-Africa Expat Pensions

Basics

The South-African pension system is composed of a Pillar 1 non-contributory means-tested public benefit program, a Pillar 2 various pension and provident fund arrangements and a Pillar 3 voluntary savings.

The Old Age Pension provided by the government under Pillar 1 used to be the main source of income for 75% of the elderly population in retirement. Thus 75% of the population reached retirement age without a funded pension benefit.

The employer-based retirement funding system has been in place since 1956 when the Pension Funds Act was passed. But occupational retirement plans are limited to those employed in the formal sector. Among those, the coverage rate is quite high by international comparison and is estimated to be between 66% and 84%.

For some professions, employers are free to define mandatory membership as an obligatory condition of employment.

System Reform

However, many people lack effective access to an affordable retirement funding plan due to the economic structure of the country. South Africa has a high rate of unemployment and a substantial part of the working-age population is informally employed, that is, they are involved in non-standard forms of work.

In order to address income poverty among the elderly, the government has proposed a social security and retirement reform. The key objective is to set up an appropriate social security concept that prioritizes the needs of people without any incomes, with insufficient incomes or who are engaged in informal activities leading towards the creation of a comprehensive social security system.

In line with international practice, the government is considering the introduction of a mandatory earnings-related contributory system administered on a payroll-tax basis. In the context of a comprehensive social security framework, a basic social security arrangement is proposed to complement the redistributive social assistance.

The proposed mandatory contributory earnings-related savings and benefits system will be a funded system with contributions accumulating in individual accounts rather than financed on a pay-as-you-go basis.

Principles of Reform

The following principles form the framework for the proposed system:

• Equity uniform rates of contribution and benefits for all participants;
• Risk pooling collective funding arrangements;
• Mandatory participation for employees in the formal sector, the self- and irregular-employed should be encouraged to participate voluntarily in system;
• Administrative efficiency part of the social security reform will be the consolidated administration of basic social benefits;
• Solidarity minimum benefits assured through redistribution and cross-subsidization.

Entitlement

The requirements are as follows:

• You must be a South African citizen and a permanent resident or an official refugee;
• You are older than age 60;
• Unmarried people or married couples jointly must comply with a specific Means Test;
• You must not be maintained and funded by a party funded by the state: prison, rehabilitation centre, state old-age home, etc.

While people are not obliged to claim the public pension on reaching the qualifying age, there is no advantage in deferring a claim.

Eventual public pension entitlement is not affected by periods of unemployment.

Application

• Apply at the offices of SASSA (South-African Social Security Agency) in the area where you live. Or visit their website at www.sassa.gov.za.
• Certain documents have to be submitted. These documents must be originals or certified copies. They include: identity document, proof of marital status, sworn statement regarding income, a list of assets, supporting documents as proof of income and assets, proof of income of dependent children.

The Means Test

It is a test that the State looks at before it grants anybody a pension.

This test first assesses a person’s income and assets to determine whether he or she qualifies for a state pension.

If the person is married, one half of the joint income will be taken into consideration, in other words the total income is divided to see whether the person qualifies for pension. Therefore, if the wife is a homemaker but her husband works, the husband’s income is divided in two to see whether the wife may apply for pension.

The value of properties in the name of the applicant will be taken into consideration, except for the property in which the person lives.

If you are unmarried, your income may not exceed R 73.800,- a year (R 6.150,- per month) and your assets may not be worth more than R 1.056.000,-.

If you are married, your joint income may not exceed R 147.600,- (R 12.300,-) per month and the joint assets may not be worth more than R 2.112.000,-.

Exclusion from Pension if:

• circumstances change, e.g. your financial circumstances change and your income increases;
• the person refuses to cooperate in a review, e.g. the proposal is fraudulent;
• the grant was awarded in error;
• the person leaves the Republic of South Africa for more than 90 days.

Please note that SASSA must give you three days’ notice of a review of the grant.

Amount of Pension

The pension is means-tested with individuals having an income of under R 73.800,- for singles and

R 147.600,- for couples and no more than R 1.056.000,- in assets for a single person and R 2.112.000,- for a couple.

The benefit amount is up to R 1.600,- per month for singles and R 3.200,- for couples.

The benefit is increased to R 1.620,- for those aged over 75.

If an individual is admitted to an institution that has a contract with the state to care him/her, the social grant is reduced to 25% of the maximum amount.

Website

www.sassa.gov.za

Only for Formal Employees

The employer-based retirement funding system has been in place since 1956 when the Pension Funds Act was passed. But occupational retirement plans are limited to those employed in the formal sector. Among those, the coverage rate is quite high by international comparison and is estimated to be between 66% and 84%.

Sometimes Mandatory

For some professions, employers are free to define mandatory membership as an obligatory condition of employment.

However, many people lack effective access to an affordable retirement funding plan due to the economic structure of the country. South Africa has a high rate of unemployment and a substantial part of the working-age population is informally employed, that is, they are involved in non-standard forms of work.

Type of Coverages

Pension schemes can be pure guaranteed Defined Benefit (DB) or not guaranteed premium based Defined Contribution (DC) or some Hybrid of the two.

The industry saw a large shift from DB to DC during the 1980s and 1990s. Today, the majority of employees in the private sector are covered by DC schemes, whilst DB arrangements are more common in the public sector.

DC arrangements appear in the form of either a Pension Fund or a Provident Fund.

The difference between the two is drawn with regards to tax-exempt contribution limits and retirement benefit options.

Provident Funds may provide retirement benefits in one Lump Sum payment.

Pension Funds are only allowed to provide one third of the total value as a Lump Sum.

Underwritten Funds, i.e. policies issued by registered insurers, have been the predominant form of pension provision.

Self-Administered Funds, where the trustees perform either all the functions themselves or outsource one or more of these functions, have however experienced strong growth.

The South African environment has also seen considerable growth of multi-employer or “umbrella” funds, which are DC in nature. One of the reasons thereof is that for many smaller funds it is not financially possible to meet all regulation demands which keep increasing and adding costs.

Amount of coverage

The average contribution rate for occupational schemes is around 15% of earnings, divided between employers and employees.

Taxation

Employer contributions to approved Pension and Provident Funds are tax-deductible up to 10% of the employee’s remuneration. In practice, the Commissioner of the Inland Revenue allows up to 20%, with even higher limits allowed if justifiable.

Employee contributions to Pension Funds are tax-exempt up to the greater of 7.5% of remuneration and R 1.750,-. Employee contributions to Provident Funds are not tax deductible and are therefore normally non-contributory.

Lump sum amounts are tax-free up to a certain level after which a progressive tax system is used.

Benefits from a Retirement Fund to which contributions did not qualify for tax-exemption may be paid out tax-free.

There is a higher tax rebate for those over the age of 65 than for the working age population. Workers are entitled to a tax rebate of R 13.257,- with an additional R 7.407,- for pensioners.

The tax system is under review and changes are expected to align the tax treatment of different retirement savings vehicles.

Conclusion

There are a large number of occupational pension plans and some of them are mandatory. But this only applies to employees with a formal contract which often have the better wages.

As due to the bad economy many workers do not have a formal employee contract or are even unemployed, many lack occupational pension coverage.

I] Retirement Annuity (RA)

Additional tax-incentivised saving for retirement occurs through voluntary savings vehicles.

Mainly in the form of Retirement Annuity (RA) fund policies, which are primarily offered by the insurance sector.

In case of RA’s, benefits become available from age 55 onwards. They are subject to the same regulations as Pension Funds in that a maximum of 33% may be taken as a cash Lump Sum and the rest used to purchase an annuity.

II] Popular Questions About RA

Why Invest In A RA?

A RA can be a suitable long-term investment for persons who prefer to save for retirement.

Specifically, if your employer does not provide pension or provident funds benefits, a RA can be a good way to invest with tax-free money – subject to an annual maximum of 27.5% of taxable income capped at R 350.000 per annum.

RA’s are also attractive investments for business owners and people earning irregular incomes like bonuses/commissions. If you are currently contributing towards your employer’s pension or provident fund but are not making use of the full 27.5% tax deduction, you can set up a RA to invest the balance of your tax-deductible premium.

Insurance RA versus Unit Trust RA

An Insurance RA is a contractual agreement between investor and insurer. The policies typically pay an upfront commission to the advisor and contain a recoupment period of 60 months, from the month of inception, in which a penalty may be applied should you wish to amend the terms of the contract.

A Unit Trust RA is an open-ended investment with no recoupment period or penalties applicable. The investor has complete flexibility to raise or lower their contributions and transfer to an alternative service free of any penalties.

In both cases the investor can choose his underlying investments, subject to the parameters of Regulation 28 and has full investment risk.

RA Tax Benefits

A RA has substantial tax benefits for the investor:

• Investors are permitted to invest up to 27.5% of their annual taxable incomes (subject to the R 350.000 per year maximum) into a RA on a tax-deductible basis.
• No Income/Capital Gain Tax is charged on the investment returns within a RA.
• The funds within your RA do not form part of your estate and thus this capital will not be subject to estate duty or executor fees.
• At retirement, you can withdraw up to 33% of the value of the RA of which the first R 500.000 of the total withdrawal is tax-free.

Type And Amount Of Taxable Income

Besides your wages, there are a number of other income sources that can be taken into account when calculating your maximum taxable income:

• Rental income, after deduction of allowable expenses, is added to taxable income.
• Dividends earned from Real Estate Investment Trusts are subject to income tax in the taxpayer’s hands and can therefore be included.
• Gains derived from the realising of capital assets may result in a capital gain. The first R 40.000 of capital gain is excluded. Thereafter the gain is added to taxable income.
• All interest earned in a tax year is subject to income tax. Currently, the first R 23.800 per year in respect of those under age 65 and R 34.500 for those older than 65 is exempt. All interest earned thereafter is added to one’s taxable income.

Minimum Investment

Most unit trust platforms require a (very low) minimum monthly contribution of R 500.

Number Of RA’s

You can have as many RA’s as you prefer. However, the tax benefit is calculated in aggregate and not in respect of each retirement annuity. Likewise the tax-free portion at retirement may only be claimed once.

Pay-Out

In general you can only access the funds in your RA as of age 55 onwards.

There are just two exeptions:

• Formal emigration from South Africa;
• Early retirement due to ill-health.

Transfer Of RA

Most RA Funds allow investors to transfer their funds to another RA. This process will be done in terms of Section 14 of the Pension Funds Act.

When You Retire

When you retire from your RA, you can withdraw 33% of the investment in cash.

The remaining 67% must be used to purchase an annuity or pension income for your retirement. If you do not wish to make a lump-sum withdrawal, you can choose to purchase an annuity with the full amount.

Any cash lump sum taken from a RA at retirement is taxed on the special retirement fund lump sum benefit table. Currently the first R 500.000 is tax free with a fixed, banded, tax table applying to amounts over R 500.000.

Emigration From South Africa

In terms of the Income Tax Act, if a South African citizen has formally emigrated from the country and if this emigration has been recognised by SARS, he will be permitted to withdraw the funds from his RA subject to tax.

RA Beneficiaries

You can nominate beneficiaries to your RA.

However, the trustees of the fund will make the final decision in terms of equitable distribution amongst your dependants and beneficiaries. The trustees will take your wishes into account but are not bound by them.

RA Not Part Of Estate

The funds in your RA do not form part of your estate when you die. Thus you cannot use your last will and testament to bequeath the money that is housed in your RA.

The funds in your RA will be distributed to your heirs and nominated beneficiaries by the trustees of the fund. The money in your RA will not be handled by the executor of your estate and will therefore be excluded from executor fee and estate duty calculations.

Receipt of the Old Age Pension is not dependent on retirement.

It is therefore possible to combine pension and employment as long as the recipient’s income does not exceed the Means Test Threshold.

While people are not obliged to claim the public pension on reaching the qualifying age, there is no advantage in deferring a claim.

I] Tax Treatment Annuity Income

The two thirds of the retirement interest from a pension, pension preservation or retirement annuity fund is received in the form of an annuity.

If the income from your annuity exceeds the tax threshold, tax is payable on the amount.

2021 Tax Thresholds

• Person below the age of 65                             : R   83.100 per annum
• Person aged 65 and above but not yet 75    : R 128.650 per annum
• Person aged 75 and above                              : R 143.850 per annum

2021 Tax Rates

Taxable income                                  Tax Rate

•                 1           205.900                   18%
•     205.901           321.600                   26%
•     321.601           445.100                   31%
•     445.101           584.200                   36%
•     584.201           744.800                   39%
•     744.801       1.577.300                    41%
• 1.577.301        and above                   45%

II] Tax Treatment Lump Sum Benefits From Retirement Funds

2020 Tax Rates

Taxable income                                  Tax Rate

• 1                       500.000                       0%
• 500.001           700.000                      18%
• 700.001           1.050.000                   27%
• 1.050.001 and above                         36%

III] (Early) Cash Out Pension Claims

If you cash out your pension claims, these are the relevant aspects:

• If you retire, you can only cash out up to 33% and the balance must be used to buy an annuity.
• If you withdraw when you find a new job and resign, you could typically transfer as much of your funds as possible to a preservation fund at a registered financial services provider. Other options would be transferring to a retirement annuity or the new employer pension fund. However, you can cash out the full amount, but the tax you pay on the cash lump sum would be more than if you retired from the fund.
• Conclusion: The more you cash out your pension fund, the more tax you will have to pay for each withdrawal, leaving you with less capital when you retire.

IV] International Tax Aspects

Many Expats receive a pension pay-out from South-Africa or live in South-Africa and receive a pension pay-out from another country.

South-Africa has Double Tax Treaties with other countries which try to prevent and or mitigate double taxation. If you face double taxation and there is no such treaty, then you can only look for national regulations in order to prevent double taxation.

Expats who have a UK Occupational Pension Claim and now live in South-Africa might look at transferring their UK claim in a UK tax neutral manner into a QROPS. ( Qualified Recognized Overseas Pension Scheme).

On internet there is a lot of attention for QROPS and providers and advisors who claim that QROPS are so interesting (for them). The essence of a QROPS is to take the occupational pension claim out of the UK tax regime without being taxed by the UK at the moment of the transfer.

Please look at all relevant (tax) aspects before you decide what to do. If there is no tax and no investment benefit, then why go QROPS?

Finally it is relevant that as of 2018 South-Africa lost its QROPS status which makes a QROPS route not possible anymore unless this status is again provided by the UK government.

Oversight by FSB

Underwritten and Self-Administered Retirement Funds are regulated by the Financial Services Board (FSB) and governed by the Pension Funds Act.

More in general the FSB oversees the non-banking financial services industry, which includes retirement funds, short-term & long-term insurance, companies, funeral insurance, schemes, collective investment schemes (unit trusts and stock market) and financial advisors and brokers.

The FSB’s mission is to promote the:

• Fair treatment of consumers of financial services and products;
• Financial soundness of financial institutions;
• Systemic stability of financial services industries;
• Integrity of financial markets and institutions.

Oversight by other Agencies

Official funds (i.e. funds established by special laws for State employees, certain parastatal institutions and special sector funds) are supervised by other governmental agencies and governed by acts other than the Pension Funds Act.

General Investment Regulations

Boards of retirement funds should establish an investment strategy which should be monitored and reviewed regularly.

Overall, prudential limits apply, with the following maxima in broad terms:

• 75% in ordinary and preference shares (less for investment in smaller companies);
• 25% in property, property shares and property trusts;
• 90% in shares and property combined;
• 25% in claims secured by mortgage bonds on immovable property;
• 10% in commodities;
• 25% in assets outside South Africa, with a further 5% allowed for investment in Africa.

There are also overall limits, e.g.:

• 15% in unlisted equity and private equity funds;
• 25% in any single company;
• 10% in the business of a participating employer.

Latest news about Oversight Regulations

Despite the fact that it is a slow and sometimes painful process, government is still committed to reforming the local retirement landscape.

Finance Minister Malusi Gigaba announced during his budget speech that government has directed the FSB to proceed with measures to modernise and improve the governance of all retirement funds, starting with a proposed requirement that all retirement funds will have to submit audited financial statements annually in future.

Currently all retirement funds have to submit annual financial statements to the regulator but for smaller funds, the requirement that they should be audited is waived.

In an information circular issued by the FSB, Olano Makhubela, deputy registrar of pension funds, notes that it is in the process of implementing a more pro-active approach to the supervision of retirement funds, with a dedicated focus on member protection.

“This process and approach necessitates comprehensive and timeous reporting by funds.”

As a result, the Registrar intends to withdraw the audit exemption for smaller funds for all financial years starting after January 1, 2019.

Makhubela also notes that the current practice – where certain funds submit annual statements six to eighteen months after their financial year ends – is not conducive to effective supervision. As a result, it intends to propose to National Treasury that legislation be amended so that funds have to submit their statements within three instead of six months after year-end.

Government is looking a lot more closely at the governance of retirement funds – how they are run, controlled and managed. Late submission of annual financial statements is often an early indicator of problems at a fund.

While the FSB doesn’t have the financial statements to review, problems can be arising in the fund.

For smaller funds, however, a requirement that statements have to be audited will have cost implications.

Smaller funds, therefore, should consider the viability of continuing as self-standing funds or alternatively consider transferring to an umbrella fund that will be suitable to meet the needs and requirements of the fund, employer and its members, and by ensuring that such an umbrella fund offers good value.

A lot of funds are already having difficulty meeting the six-month deadline and may struggle to adhere to the proposed deadline.

The final proposal is that retirement funds will no longer be allowed to use the non-accrual basis of accounting. It is the Registrar’s view that funds have now been allowed sufficient time to change their accounting basis to accrual accounting and funds will therefore not be allowed to apply the non-accrual basis for financial years commencing on or after January 1, 2019.

2024 Budget Speech: New Pension Fund Withdrawal Options!

For the first time, from 1 September 2024, South African workers who contribute to a retirement fund will be able to withdraw a portion of their retirement savings. This was made official by the Minister of Finance, Mr Enoch Godongwana, during his budget vote speech delivered to a joint sitting of the National Assembly (NA) and National Council of Provinces at the Cape Town City Hall on Wednesday afternoon.

Minister Godongwana said: “Progress has been made on the two-pot retirement system since I last addressed you during the Medium Term Budget Policy Statement. From 1 September 2024, the first cash withdrawals could be made from the savings pot.”

He also announced that contributions to retirement funds would be split, with one-third going into a “savings component” and two-thirds going into a “retirement component”. This initiative, according to Mr Godongwana, would ensure that the government strikes a balance between preserving contributions to safeguard a better retirement for members, while addressing the plight of the people by allowing them to access some of their retirement funds to help ease their financial burdens in times of distress.

Mr Godongwana’s official announcement confirms a presentation made by the National Treasury (NT) to the Standing Committee on Finance on Tuesday, 6 February 2024, in which the NT was briefing the committee on the Pension Funds Amendment (PFA) Bill. The presentation was necessitated by the re-introduction of the Bill to the NA on 30 January 2024.

The PFA Bill was first introduced to the NA in 2023 together with other tax and revenue laws amendment Bills. Speaker Nosiviwe Mapisa-Nqakula then referred the Bills to the Standing Committee on Finance for further processing. Subsequently, the committee published the PFA Bill and invited interested individuals and stakeholder organisations to submit written comments.

On 25 October 2023, the National Treasury briefed the committee on a revised Bill, which had considered the public comments. However, the Bill was subsequently withdrawn to obtain the Cabinet’s approval and certification by the Office of the Chief State Law Adviser, and these processes have since been finalised.

New pension system on the cards for South Africa

The National Treasury is expected to table proposed changes to South Africa’s pension system before the end of December for public comment, says the Congress of South African Trade Unions (Cosatu).

The country’s largest trade federation says it has held extensive engagements with Treasury around the proposed changes, with an official Amendment Bill expected to be tabled in parliament in February 2022, following the discussion document.

The proposals will effectively introduce a new pension system that will allow people to access a portion of their savings early.

In an August presentation to parliament, the National Treasury’s head of tax and financial sector policy Ismail Momoniat said that the proposed system would allow for limited withdrawals but still allow for fund preservation and ensure that people still have enough money for retirement.

Momoniat described the new retirement plan as a ‘two pot’ system:

• The first pot for longer-term financial security –  Members must preserve their contributions and the compounded growth invested. They will not have access to this portion of their funds until they retire.
• The second pot for short-term financial relief – Members may access the fund value for emergencies even while employed and a member of the fund.

Momoniat gave an example of anywhere between 10% to a third of the savings being accessible early, with the rest of the money continuing to be saved for retirement.

The actual split across the two savings pots and how much can be withdrawn is expected to be detailed in Treasury’s discussion document released later this month.

DA proposal

The opposition Democratic Alliance had previously proposed its own pension reform system. However, the private member’s bill was rejected by ANC MPs in parliament this week ahead of Treasury’s proposals.

The DA’s Pensions Funds Amendment Bill proposed allowing retirement fund members to access a portion of their retirement savings in cash before retirement as a guarantee for a loan.

The opposition party has described the draft bill as crucial in the fight for ‘people power over state power’ in South Africa.

The bill proposed amending the current Pension Funds Act to allow pension fund members to obtain a loan secured by a guarantee from a registered pension fund to alleviate financial pressure during an emergency.

In this case, the bill directly references the Covid-19 emergency or any other emergency similar to the pandemic.

By enabling a member to access a pension-backed loan, that member will be able to leverage their pension fund investment before their retirement date without eroding their provision for eventual retirement.

Lending institutions would then offer loans to pension fund members at competitive interest rates and over extended or deferred payment periods, given that the loan is fully guaranteed.

SAP Pensioners In Dire Financial State, 2020 Report Shows

Under 20% of South Africans over the age of 60 are receiving private pensions, a new report has shown.

In addition, state old age grants can provide significant relief to even private pensioners, many of whom receive under R6 000 a month - around a quarter of the country's average salary.

A special report by BankServAfrica –which also manages the BETI report, an indicator of economic activity– has analysed private pension data to gain insight into the lives and pension income of South Africa's older population.

The 60-plus group is one of the fastest-growing segments of the population in South Africa.

"The state’s old-age grants have the potential to provide massive relief for the typical private pensioner who gets paid just R5 531 in their bank account. Receiving another R1 780 pm on top of that means that the typical individual pensioner should then have a combined R7 311 a month available," BankServAfrica said.

The BankservAfrica private pensions data for January shows an increase of 3.1% for the average pension in real terms. Private pensions averaged R8 239 in nominal terms.

But the typical private pensioner receives only R5 531, it noted. The current old age grant is R1 780 monthly. It has been increased to R1 860 per month in the latest Budget.

And, according to a 2019 Old Mutual report, nearly half of survey participants across income groups say they are saving less now than they were a year ago.

Who Gets What?

The SA pension system has about a million people out of an estimated 5.3 million over the age of 60 receiving private pensions, BankServAfrica said.

The government's old age grants, for which private pensioners receiving less than R6 510 per month are eligible in this financial year, cover 3.566 million people.

BankServAfrica believes overlap between the two groups could mean as many as 200 000 pension-age people are receiving no income at all – not from the state or from a pension.It did not verify the estimate independently.

"In January 2020, BankservAfrica had about 649 000 banked private pensions on record," it said. "Of these, about 341 000 received less than the old age grant threshold, which means that more than half of individual pensioners could apply for the state’s grants pay-out […].

"We estimate that there are just over half a million other private pensioners, not on our records, who are also eligible for old age grants."

Taking into account the nearly 3.7 million who receive grants, a million who receive private pensions, around 400 000 who are still employed and around 200 000 who have their own business, according to their records, this should theoretically mean that all pensioners have an income of some sort, BankServAfrica said.

"[A]ssuming that a quarter of a million private pensioners also get an old age grant and, say 100 000 of those are self-employed, then about 350 000 people over the age of 60 get no income directly either from government, work or pension," BankServAfrica said.

"Some could be members of other private pensions or have access to other financial means from their partner or a spouse. An estimated 70 000 people over the age of 60 would love to be employed – an indication of the need for extra income. So we believe that at least 200 000 older people probably do not get any income even if from a partner or a spouse," the authors added.

Government Employees Pension Fund Pensioners: 5.2% pension increase

Government Employees Pension Fund (GEPF) announced today that an annual pension increase of 5.2% to its pensioners with effect from 1 April 2019. 

The GEPF has granted this increase to enable pensioners to keep up with rises in inflation. 

The pension increase is based on the 5.2% inflation rate for the 12 months ending 30 November 2018 released by Statistics South Africa on 12 December 2018 thus making the increase equal to 100% of Consumer Price Index (CPI) and higher than the 75% of Consumer Price Index (CPI) provided in terms of GEP Law and Rules. 

Pensioners whose pensions commenced after 1 April 2018 will receive a proportionate increase based on the number of months they have been in receipt of a pension by 31 March 2019. 

It must be noted that increases such as this increase which is above what is provided for in GEP Law and Rules is granted at the discretion of the Board taking the Fund’s investment performance into account. 

An analysis of the assets held by the Fund in relation to the valuation of its liabilities undertaken in March 2018 showed that the Fund is 108.3% funded, which means that there are sufficient assets in the fund to cover its actuarial liabilities in full. 

New default regulations to the Pension Funds Act will be implemented from 1 March 2019.South-Africe Pensions: 3 Big South African Pension Fund Changes Coming In 2019

This is according to Carlyle Field, a partner at law firm Shepstone Wylie, who notes that retirement funds are scrambling to ensure that they will be compliant by that date.

Field states that the new regulations will effectively introduce ‘three key pillars’ to the Act.
These include:

• The default investment portfolio;
• Default preservation and portability;
• An annuity strategy.

Below, Field outlined what the changes will mean and how they will impact members of these funds.

The default investment portfolio(s)

When a member joins a Defined Contribution pension or provident fund, their savings will be automatically invested in a default portfolio that is designed to be cost-effective and appropriate, unless and until the member opts out and chooses a different portfolio.

“Many funds already offer a default investment portfolio or only have one portfolio (and so this change will not affect too many members) however this will now be a legislative requirement for all Defined Contribution pension and provident funds,” said Field.

The default preservation and portability

When a member leaves employment before retirement, the fund must automatically preserve the member’s benefit in the fund and convert the member to a “paid-up” member.

The benefit will only be paid out to the member or transferred to another fund selected by the member when the fund has been specifically instructed to do so by the member (so the member can still chose to receive payment of their benefit).

“The purpose of this regulation is to encourage the preservation of the benefits payable to a member on leaving a fund in a cost-effective and tax neutral manner, rather than those benefits being withdrawn (and spent) by the member,” said Field.

“Preservation in the fund is designed to be more cost-effective than traditional preservation funds have offered. It should be noted that this regulation will not prevent members from accessing their benefits on leaving service prior to retirement if they are adamant that they would like to do so.”

The annuity strategy

When a member reaches retirement, he or she will be offered the option to secure an annuity (regular monthly pension income) in terms of the annuity strategy that the board of trustees has determined to be the most cost-effective and appropriate.

The choice of annuity (or annuities) remains that of the retiring member.

“The fund’s annuity strategy is designed to assist members who lack expertise, are unsure what to do with their money on retirement and/or cannot access suitable financial advisors regarding an appropriate retirement savings vehicle,” said Field.