Retirement funds that have had amendments to their rules approved by the Registrar of Pension Funds in anticipation of the changes to the Income Tax Act due to come into effect on March 1 next year, will have to submit further rule amendments to reverse those changes if the changes are postponed to March 2016, as proposed in the recently published Tax Laws Amendment Bill.
Rosemary Hunter, the deputy executive officer for retirement funds at the Financial Services Board, told Cape Town members of the Pension Lawyers Association this week that funds can withdraw rule amendments that have not yet been approved. However, if the amendments have been approved to be effective from March next year, the fund will have to request another amendment to reflect the new implementation date.
The Income Tax Act was amended last year to align the tax deductions for provident funds with those for pension funds and retirement annuities from March 1 next year, and to compel provident fund members to use not less than two-thirds of savings after that date to buy an annuity (pension) at retirement. This was subject to certain exceptions and recognition of the right you enjoy to withdraw as a lump sum what you saved before the law was changed.
However, last week, National Treasury told Parliament it would propose delaying the implementation date to 2016 or even 2017 because of union concerns about retirement reform.
BOARD COMPOSITION
Hunter says the FSB is also looking at the rules governing the composition of retirement funds’ boards and the right of members to elect trustees.
She says there needs to be proof that members have exercised their right to elect at least 50 percent of the trustees. If members have a shop steward, this does not necessarily mean they have elected that person as a trustee, she says.
Some retirement funds give members the right to elect committees that, in turn, choose the “member-elected” trustees. The FSB is considering whether this means members have been given the right to nominate candidates and vote directly for their preferred one, Hunter says.
The FSB is also trying to define the “independence” of an “independent trustee”. It is also considering the roles of trustees in funds that are sponsored by financial institutions, such as umbrella funds, retirement annuities and preservation funds.
Hunter says the FSB is of the view that an “independent trustee” who is appointed by a financial institution to serve on the boards of several funds and who derives more than 30 percent of his or her income in that capacity may not be regarded as truly “independent”.