Benefits

The OPFA Magoleng matter

Benefits

The OPFA Magoleng matter

Understanding the Magoleng Death Benefit Determination

A recent press article proclaimed that the Office of the Pension Funds Adjudicator (“OPFA”) had stated the following has been causing some concern:

“But Pension Funds Adjudicator, Muvhango Lukhaimane, said that while section 37C of the Pension Funds Act gives the board the discretion to distribute and allocate death benefits equitably, the beneficiary nomination form was binding.”

The article referred to a determination issued by the OPFA on 23 June in the Magoleng matter. As seen from the information below, this conclusion is misleading, if read on its own, and is not borne out by the determination.

Background

The Deceased had been a member of an umbrella fund (“the Fund”). On his death in 2021, he was survived by his former wife, his current life partner, and two major children. A lump sum death benefit became payable in terms of section 37C of the Pension Funds Act (“the Act”). Having established that the former spouse was employed and was not financially dependent upon the Deceased, the Fund allocated the

DEATH BENEFIT of R662 122.97

to the Deceased’s life partner and two children in the following proportions:

I Magoleng

SON (age 26)

21,5%

T Magoleng

SON (age 25)

21,5%

S Magoleng

LIFE PARTNER (age 54)

57%

PRIOR TO HIS DEATH

the Deceased had signed a beneficiary nomination form, in which he nominated the following beneficiaries to receive the death benefit:

I Magoleng

SON (age 26)

25%

T Magoleng

SON (age 25)

25%

S Magoleng

LIFE PARTNER (age 54)

50%

The Complaint

Both the Deceased’s sons lodged a complaint with the OPFA, stating that in their opinion, the Deceased’s life partner should not have been allocated any portion of the death benefit. Their objections were based on the contention that Ms. Mashiane was not the life partner of the Deceased, nor was she living with the Deceased at the time of his death. The sons further submitted that Ms. Mashiane was not financially dependent upon the Deceased and that she has her own business. In the opinion of the sons, the members of the Board of the Fund had not applied their minds properly to the allocation of the death benefit.

The sons submitted that Ms. Mashiane had not provided the Fund with any proof of financial dependency on the Deceased and that, as the Deceased’s legal dependants, they are entitled to receive the entire lump sum benefit.

The Fund’s Response

The Fund responded by asserting that it had applied the rules set out in the Sithole [1] case, in that it had considered the:

    • ages of beneficiaries;
    • wishes of the Deceased;
    • extent of dependency on the Deceased;
    • beneficiaries’ relationships with the Deceased;
    • future earning capacity/potential of the beneficiaries;
    • financial status of the beneficiaries; and
    • amount available for distribution.

and in so doing, had arrived at what it believed to be an equitable distribution. The Fund further submitted that it had established that:

    • the Deceased’s former spouse was in full-time employment and the Deceased had not been paying her any maintenance;
    • neither son was living with the Deceased at the time of his death, nor was the Deceased financially supporting them and neither son was employed;
    • Ms. Mashiane was unemployed and was financially dependent on the Deceased, with whom she had lived since 2017 and whom she was due to marry soon;
    • the families of the Deceased and Ms. Mashiane had entered into lobola negotiations, which had not been finalized because the Deceased had become ill and subsequently died.

The Fund stated that it had used a “section 37C calculator” to determine what portion of the benefit should be allocated to each beneficiary. It is a system that calculates each beneficiary’s share of the death benefit, based on the length of dependency, the respective beneficiaries’ financial needs, and other factors. The calculator ultimately arrives at a “capitalized Rand value of needs”.

The Fund submitted that it was evident that Ms. Mashiane was the Deceased’s life partner and that she, therefore, qualified as a legal dependant. The Fund was satisfied, from the evidence provided to it, that Ms. Mashiane was financially dependent upon the Deceased.

The Determination

The OPFA confirmed that the factors to be taken into account by the Fund’s Board of Management are those set out in the Sithole case, referred to above. It stated that the Act provides for legal dependants, factual dependants, and future dependants. However, the fact that a person qualifies as a legal or factual dependant does not mean that they will automatically be included in the distribution of a death benefit – the deciding factor is financial dependency [2].

As far as Ms. Mashiane is concerned, the OPFA agreed that, on the evidence provided, she qualifies as a life partner and is, therefore, a legal dependant. So too are his sons – they qualify as legal dependants based on the fact that they are the Deceased’s natural children.

Whether or not a dependant receives any portion of a death benefit must be based on each dependant’s level of dependency, which must be established by the Fund at the time of making its allocation.

The OPFA then went on to consider the situation where the Deceased has left dependants and has also made a nomination. Referring to the Gowing [3] matter, the OPFA held that it is incorrect to assume that once a dependant is identified, the claim of a nominee falls away. A nominee’s level of financial dependency is irrelevant. Nominees qualify for consideration as death benefit beneficiaries purely by virtue of the fact that they have been nominated.

In its submissions, the Fund had stated that it was not bound by the Deceased’s nomination form, which served only as evidence of the wishes of the Deceased. Referring to the Swart [4] matter, the OPFA confirmed that the nomination form is a substantial factor that must be given the necessary consideration by the Fund in making its allocation. In the present case, the Fund stated that it had indeed considered the nomination form but had decided to deviate from it because of other factors. In the opinion of the OPFA, the Fund may well have been correct in deciding to depart from the Deceased’s nomination. But because the Fund did not properly investigate Ms. Mashiane’s dependency on the Deceased, it is impossible to determine whether or not such a departure was justified.

The OPFA found that the Fund had fettered its discretion in relying on a benefits calculator, instead of actively ascertaining the level of Ms. Mashiane’s financial dependency on the Deceased. Because the Fund failed to properly investigate Ms. Mashiane’s level of dependency, it has no basis for departing from the Deceased’s nomination form. This is borne out by the Court’s ruling in the Swart case: although the Fund is not bound by the wishes of the deceased, the wish expressed in a nomination form is not lightly to be ignored.

The Fund was ordered to conduct a proper investigation of Ms. Mashiane’s financial circumstances and to reconsider its allocation of the death benefit.

What can we learn?

    • A nomination form is a substantial factor and should not be lightly ignored.
    • But an investigation can reveal that the board can (and should) move away from the allocation in a nomination form.
    • A calculator cannot replace an investigation into dependency, nor the discretion of the board.
    • Nevertheless, calculators have their place and remain useful.
    • If you use a calculator, ensure that you are careful to explain to the Adjudicator (if you are responding to a complaint) how it is used appropriately.
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Update: Two-pot System

Update: Two-pot System

Benefits

Update: Two-pot System

Update: Two-pot System

An update on the latest draft of two-pot system proposals

The two-pot system, to go ahead on 1 March 2024, tries to marry opposing concepts of access and preservation. On the one hand, ensuring that members retire better by preserving their benefits until retirement (not taking it in cash when they leave employment) and annuitising retirement benefits. On the other hand, Treasury recognises that members may need cash while they are still employed and members of the fund.

Treasury has recently issued an updated version of the two pot proposals (9 June 2023). You may hear the pots being referred to as ‘components’ (a technical term). Draft amendments to the Pension Funds Act have also been released by Treasury.

Contributions to the new pots

One-third of contributions:

will go into a savings pot.

Two-third of contributions:

will go into a retirement pot.

Investment return:

will be added to both pots.

Everything saved:

in a fund before 1 March 2024 (plus investment return on this) will go into the member’s vested pot.

Seeding – immediate withdrawals on and after
1 March 2024

An amount of 10% of the vested pot as of 29 February 2024, to a maximum of R25 000, will be allocated to the savings pot from 1 March 2024. This is called “seeding”. This can be paid out of the fund, at the member’s request, as of 1 March 2024. This creates immediate access to an amount from the retirement fund (savings pot) for members. Withdrawing from a member’s savings pot means they will have less money on which to retire.

A member may also decide to move amounts into the retirement pot from their savings pot and vested pot, but not the other way around.

Some of the benefit payments from the different pots

More detail

A specific category of member

Different rules apply to a provident fund member who was 55 or older on 1 March 2021 and is still a member of the same provident fund: these members will contribute to the vested pot and the same rules apply to them as applied before 1 March 2024.

Treasury will allow these older members to opt into the two-pot system and contribute to a savings pot and retirement pot after 1 March 2024. If they do opt-in, it is likely they would then lose all the compulsory annuitisation vesting on their ongoing contributions after 1 March 2024 (so would have to annuitise more of their retirement benefit).

Emigration – a change for pension and provident funds

If a member emigrates from South Africa and ceases to be a tax resident (amongst other circumstances) they will be able to access their retirement pot and vested pot as a lump sum withdrawal subject to the 3-year rule that currently applies only to members of a retirement annuity fund, pension preservation fund or provident preservation fund. It is envisaged that they will be able to access their savings pot during the three years period along the same lines as other members.

Defined benefit funds are in the two-pot system on the basis of pensionable service

Defined benefit funds will calculate the one-third contributions to the savings pot based on one-third of the member’s pensionable service increase. The two-thirds contributions to the retirement pot will be based on two-thirds of the member’s pensionable service increase with effect from 1 March 2024.

Defined benefit funds members will also have an allocation from their vested pot to their savings pot (seeding) as of 1 March 2024, which will be done through a past service adjustment.

Legacy retirement annuity funds can be exempted

The proposed exemption for “legacy retirement annuity fund” policies from the provisions of the two-pot system is going ahead.  Treasury recognises that, without the exemption, these funds would have to be re-designed.

To qualify for the exemption, the legacy retirement annuity fund will have to submit a declaration to the Financial Sector Conduct Authority (FSCA) and must exhibit the following features:

    • the legacy retirement annuity fund policy must have been entered into before 1 January 2022;
    • pre-universal life policies or conventional policy with or without profits;
    • universal life policies with life or lumpsum disability cover; and
    • reversionary bonus or universal life policies as envisaged in the insurance legislation.

The FSCA may verify that the legacy retirement annuity funds meet the exemption criteria.

Deductions

Deductions under section 37D of the Pension Funds Act, for example for housing loans, divorce orders, and maintenance orders will need some attention and the Pension Funds Act will be amended. It appears that deductions can only be made from the retirement pot and the vested pot, not the savings pot. The draft legislation still needs refinement in this regard, but the process has started.

Necessary amendments to the Pension Funds Act to align it with the two-pot system have been drafted, In addition, there are a number of other amendments included in the draft legislation. For example, to allow for compensation orders in criminal proceedings granted (in terms of section 300 of the Criminal Procedure Act, 1977) to be taken into account when benefits are withheld as a result of misconduct at the employer. In addition, the amendment specifies that future maintenance orders will not be deducted and paid over as a lump sum (as is sometimes sought to be ordered) but, for example, as monthly amounts.

Still, a way to go

The two-pot system proposals (as depicted above) are just that – proposals. Thus, they may change before the legislation is finalised. The draft legislation will go through a comment period, public hearings, and Parliament. There will be a great deal to communicate to members, some of which, for example, the taxation aspects, is complex. While we all must wait for the final legislation, the industry is working on what it can do now, in order to be ready on time.

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PAIA Section 83(4) Report - 30 June 2023

PAIA Section 83(4) Report – 30 June 2023

Benefits

PAIA Section 83(4) Report – 30 June 2023

PAIA Section 83(4) Report - 30 June 2023

A report by funds and companies to the Information Regulator

All private bodies, for example, companies and retirement funds, have been requested by the Information Regulator to provide it with a specific report.

The Information Regulator recently confirmed that providing this report is compulsory

On 7 May 2023, the Information Regulator published a notice requesting the heads of all private bodies (which includes companies and retirement funds) to submit a report to it under the Promotion of Access to Information Act (PAIA) (section 83(4)). 

This report must be submitted by 30 June 2023.

What is a PAIA Section 83(4) Report?

This section [1] permits the Information Regulator to request the heads of private bodies to submit reports to it about requests for access to records that the private body holds.

The Information Regulator must then submit an annual report to the National Assembly. [2] If the Information Regulator chooses, it can include information about access requests that private bodies receive in its annual report to the National Assembly.

Please note the difference between a section 32 report and a section 83(4) report –

    1. The Section 32 PAIA report applies to information officers of public bodies and
    2. A Section 83(4) PAIA report applies to heads of private bodies.

The Information Regulator has not asked private bodies to submit a report like this before.

What is a private body?

According to PAIA “private body” means –

    • a natural person who carries or has carried on any trade, business, or profession, but only in such capacity;
    • a partnership which carries or has carried on any trade, business, or profession;
    • any former or existing juristic person; or
    • a political party,
    • but excludes a public body.

A retirement fund is a private body. The “Head” of a private body has been interpreted by many people to refer to the Principal Officer of a fund. Thus, the principal officer of the fund would have the responsibility to submit this report.

How do I submit the report?

The head of a private body must submit the report through the Information Regulator’s online portal. The following banner appears on the information Regulator’s website:

    • Register the fund/company on the Information Regulator’s portal so that you can sign it and submit the report. This requires you to create your profile using an OTP.
    • Once you sign in on your profile, you should see a PAIA section 83(4) report button.
    • Once you click on the button to submit the report, you can complete the required information. There is a list of questions you must answer and then click “submit”.

Please complete all the questions and fields properly, otherwise, you may find yourself in receipt of an Information Notice from the Information Regulator.

PLEASE NOTE

We have not yet been able to successfully navigate the online portal and were told (at the time of writing this publication) by the Information Regulator’s office that the system was not operational. No doubt this is a teething problem and will resolve itself.

What are the questions in the report about?

We expect that the questions that will be required to be answered in the report will relate to the below. As these are the questions asked currently of public bodies, there may be changes to the questions for private bodies. Once we have seen the questions for private bodies, we can update you further.

    • The number of requests for access to information under PAIA received;
    • The number of requests for access granted in full;
    • The number of requests for access granted in terms of section 46 of PAIA (mandatory disclosure in the public interest);
    • The number of requests for access refused in full and refused partially and the number of times each provision of PAIA was relied on to refuse access in full or partially;
    • The number of cases in which the periods stipulated in section 25(1) of PAIA were extended in terms of section 26 (1) of PAIA (periods relating to granting of requests and notifying of decisions);
    • The number of internal appeals lodged with the private body and the number of cases in which, as a result of an internal appeal, access was given to a record;
    • The number of internal appeals which were lodged on the ground that a request for access was regarded as having been refused in terms of section 27 of PAIA (failure to give a decision is a deemed refusal);
    • The number of applications to a court that were lodged on the ground that an internal appeal was regarded as having been dismissed in terms of section 77 (7) of PAIA (failure to give notice of a decision in an internal appeal).

What happens if I don’t submit the report on time?

Compliance with the Information Regulator’s request for a section 83(4) report is compulsory. All heads of private bodies must submit the report by 30 June 2023.

Failure to comply may result in the Information Regulator, on its own initiative, conducting a compliance assessment on the private body in question [3].

Keeping information about requests

It is important that funds keep information about requests under PAIA as well as certain requests under the Protection of Personal Information Act. This could be done in many ways, but a register should be kept in your chosen manner. Please let your consultant know if you need assistance with this.

It is important that the Information Officers of funds report requests to the Board and that such requests are properly considered and replied to within the relevant time periods. In addition, these requests should be analysed by the fund for possible learnings and improvements.

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Update on legal & regulatory changes – retirement funds

Benefits

Update on legal & regulatory changes – retirement funds

The Conduct of Financial Institutions Bill (‘COFI Bill’)

Treasury is urgently finalising this legislation. COFI is likely to be sent to Parliament by Treasury towards the middle to end of this year.

Two-pot system

The date for implementation of the two-pot system remains 1 March 2024. It is unlikely that the next draft of the two-pot legislation will be seen before June 2023. The relevant legislation is likely to be published in July 2023. Funds and their service providers have pointed out that this severely curtails implementation time.

Two-pot matters that Treasury is still consulting and deciding upon:

How the two-pot system will apply to members of provident funds who were 55 or older on 1 March 2021 (and are still in the same provident fund).

The seeding debate: which is, whether to permit the transfer of some of what has already been built up by a member in a fund before 1 March 2024 into the member’s savings pot and allow the member access to it whilst they are still in employment. Treasury stated that Government is open to allowing once-off seeding, if it does not have adverse implications on liquidity and the costs of such withdrawal are not imposed on members choosing not to withdraw. This requires further consultation to take the relevant risks and benefits into account as well as possible trade-offs on vested rights. (Treasury could consider allowing phased withdrawals from the savings pot if the savings pot is seeded.)

Proposals related to defined benefit funds.

Legacy (old) Retirement Annuity Funds will be given the option to apply to the Financial Sector Conduct Authority (FSCA) individually for exemption from the two-pot system.

Amendments to the Pension Funds Act to allow for the two-pot system, including deductions like divorce and housing loans. These amendments will be made with the Conduct of Financial Institutions Bill.

Access to the retirement pot on retrenchment of a member by an employer will only be considered in phase two of the implementation of the two-pot system and will not form part of the initial phase.

Once the two-pot system legislation has been finalised, we will be able to provide further information to you.

The draft Omni Conduct of Business Return
(Omni CBR)

The Omni CBR requires new quarterly returns to the FSCA by funds and their service providers (among other types of financial institutions) across a number of broad reporting themes. It will be the main supervisory tool of the FSCA once it is implemented.

The FSCA is busy working through the comments and will issue an updated version of the Omni CBR. It intends to issue questions to the industry to allow it to gauge the financial impact of the Omni CBR on financial institutions.

The Financial Action Task Force (FATF) and the grey listing

Implementation of the FATF recommendations is a priority for the FSCA. These recommendations include:

    1. The substantial increase of resources at the FSCA to deal with anti-money laundering (AML) and counter-terrorism financing (CTF). This could affect levies payable by financial institutions going forward as the FSCA
    2. recruits more people in its Financial Intelligence Centre Act supervision department. In addition, it will result in more inspections and meetings; and
    3. The imposition of sanctions in relation to AML and CTF. The FSCA is revising its enforcement methodology and sanctions and will communicate further with the industry on this issue.
The FSCA has said it will focus more on groups in relation to AML and CTF inspections. These inspections will be done jointly by the FSCA and PA.

Update on the Conduct Standard relating to the payment of contributions

What is the date of calculation of penalty interest?

In terms of the Pension Funds Act and the Conduct Standard, interest is payable on arrear 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 as to whether the penalty interest starts to run from the 1st day of the month or the 8th day of the month. The FSCA will provide its view on this.

Naming and shaming

The FSCA has previously said it will name and shame both employers and funds where there are arrear contributions owing to a fund. Recently, it stated that it is finalising its work to ‘name and shame’ non-compliant employers through its website. The FSCA also stated that where employers are in genuine financial distress they must engage with their funds and the FSCA.

Standards in the pipeline

Standards for financial institutions (including retirement funds) on the management of cyber risks.

Objectives:
Sound, robust processes for managing cyber risks; Adoption of cybersecurity fundamental practices; Undertake systematic testing and assurance; Establish & maintain cyber resilience; and Provide notification of material cyber incidents.

When issued:
On 14 December 2022, a revised draft of the Joint Standard on Cybersecurity and Cyber Resilience Requirements Standard was published for a second round of public consultation.

Comment and expected next steps:
The FSCA has stated that cyber-resilience of financial institutions is a priority for it. Comments are now being considered and the Standard will be revised if necessary.  The Standard will then be tabled in Parliament this year.

Fund boards are required to establish an annuity strategy. This Standard establishes the criteria for living annuities forming part of a fund’s annuity strategy.

When issued:
The FSCA first published this draft Conduct Standard in November 2018.

Comment and expected next steps:
Comments received through the public consultation process have been processed and a revised version of the Conduct Standard was shared with industry associations that commented on the draft Conduct Standard for “fatal flaw” input before it is finalised for submission to Treasury (to forward on to Parliament). These comments are being processed by the FSCA.

Deals with the communication of benefit projections to members to standardise the provision of minimum information to them and to ensure that benefit projections are communicated to members through the various stages of fund membership.

When issued:
The FSCA, published this draft Conduct Standard on 8 June 2020.

Comment and expected next steps:
Comments received through the public consultation process have been processed and the Conduct Standard underwent refinement. The FSCA will finalise the Conduct Standard and share it with commentators who submitted comments on the Conduct Standard during the consultation process for “fatal flaw” input only. Thereafter, it will be finalised for submission to Treasury (and then Parliament).

The Conduct Standard sets overarching principles for the use of derivative instruments by funds.

When issued:
On 8 June 2020, the FSCA published this draft Conduct Standard for comment.

Comment and expected next steps:
The Parliamentary period for comment has elapsed and the Standard will be made final within the next two months.

According to the FSCA, fund assets represent a significant portion of investable assets of financial institutions and such assets form a large base of the securities lending in the financial industry. In addition, securities lending enables a fund to earn additional income to the benefit of the fund and its members. Thus, to balance the benefit with the possible risks associated with securities lending, the FSCA will prescribe conditions by providing general principles and requirements pertaining to service providers, agents, counterparties, lending limits and collateral etc.

When issued:
The draft Conduct Standard was issued on 7 October 2020.

Comment and expected next steps:
Due to the broader regulatory developments in respect of Securities Financing Transactions, this Conduct Standard has been pended until further notice.

This Standard includes important new financial statements and audit requirements for retirement funds. This will lead to substantial changes in the financial reporting and audit requirements of funds. In addition, the proposals include that the financial statements of all retirement funds will be required to be audited, irrespective of the asset size of a fund.

When issued:
This Prudential Standard was published for public consultation on 9 November 2022.

Comment and expected next steps:
The draft of the revised format and requirements resulted in an extensive commentary. The comment period closed on 18 January 2023 and submissions are currently being considered by the FSCA. The Prudential Standard will be revised if necessary.

The current Regulation 28 quarterly reporting requirements for retirement funds are to be brought in line with the recent amendments to Regulation 28, including the requirement to report on infrastructure investments.

The timing to revise reporting is tight for retirement funds, and their service providers, including to implement the processes and system changes required to produce accurate and complete quarterly reporting. Thus, the first quarterly report due in 2023 will be given an extended time for submission (that is, submission on or before 30 September 2023).

When issued:
The FSCA published the draft Prudential Standard for public consultation on 4 November 2022.

Comment and expected next steps:
The FSCA is currently considering comments from the industry. The next version will be a final version to send to Treasury to table in Parliament. No further consultation will be done by the FSCA. The FSCA has stated that if the Prudential Standard is not finalised in time for the reporting at the end of September 2023, the FSCA will issue a request for information (which is mandatory) in order to ensure it receives the specified information.

The FSCA recently stated that it will be revising the draft format such that Table 2 (Infrastructure) and Table 3 (ESG) will be removed from the quarterly Regulation 28 report (as revised) and will be required only annually instead. This is because the infrastructure and ESG information is unlikely to change on a quarterly basis.

The FSCA is not yet sure in what format it will require the annual report from funds.

The FSCA stated that the broader definition of infrastructure recently included in Regulation 28 of the Pension Funds Act could lead to possible inconsistent classification of infrastructure assets and it is considering issuing an Interpretation Notice / Guidance Notice.

This Standard will apply to retirement funds as well as their service providers (in addition to other financial institutions).

When issued:
This Joint Standard is in the process of being developed by the FSCA and the Prudential Authority (PA). The industry has not yet seen a draft. The FSCA expects that the draft Joint Standard will be published for public consultation during the latter half of 2023.

Comment and expected next steps:
A Joint Governance Work Group (JGWG) consisting of various representatives from the FSCA and PA has been established to develop the governance framework.

The section 13B conditions applicable to administrators of retirement funds (a replacement of the current conditions)

When issued:
The FSCA made a decision to pend this Standard because of the work it is doing around transitioning to COFI. However, recently it has been said that it has urgent reasons for wanting to proceed with a watered-down version of this Standard. Watered-down in the sense that it will remove issues that could misalign with COFI.

Comment and expected next steps:
There is unlikely to be any further consultation by the FSCA on the Standard, except that it may be issued to industry bodies for a final “fatal flaw” check.

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FSCA Contributions and Prescribed Formats

Benefits

FSCA Contributions and Prescribed Formats

Following our publication about the Financial Sector Conduct Authority’s Conduct Standard 1 of 2022 relating to the payment of retirement fund contributions, we now set out the compulsory reporting format that has been prescribed under the Conduct Standard.

Our payroll and employee benefits consulting expertise fits together to ensure our clients remain compliant with an ever-changing regulatory landscape.

Contributions and prescribed formats

The FSCA has published the following documents, which are available on its website at https://www.fsca.co.za/Regulatory%20Frameworks/Pages/Notices.aspx

FSCA RF Notice 14 of 2022: determination of format of documents in respect of requirements related to the payment of pension fund contributions, and

FSCA Communication 27 of 2022 (RF): publication of determination of format of documents in respect of requirements related to the payment of pension fund contributions.

Finalisation of the Conduct Standard

Conduct Standard 1 of 2022 (the Conduct Standard) about contributions, contributions statements, and reporting has now been published and is the law. The effective date set for the Conduct Standard is 20 February 2023. The existing Regulations of the Pension Funds Act (the Act) are repealed on the same date.

Publication of the prescribed reporting

The three prescribed formats are for the:

  1. notification to and request by a fund to an employer;
  2. reporting by a fund of contraventions to the FSCA; and
  3. reporting by a fund of contraventions to the South African Police Services (SAPS).

1. Notification to, and request by a fund to an employer

A fund must notify every participating employer before the employer starts participating in the fund, and every year, of the employer’s duties, obligations, and liability under section 13A of the Act and the Conduct Standard. This notification to the employer is the first of the prescribed formats. This notification (and request) is directed by the fund to the Managing Director (or equivalent) at the employer.

The prescribed notice also requires that (both before the employer participates in the fund and on an ongoing annual basis) a request is made by the fund to the employer to notify the fund of the “identity” and “particulars” of the person(s) at the employer who are personally liable for compliance with section 13A of the Act which provides for both the payment of contributions and the provision of contribution schedules.

For different types of employer entities, the persons to be notified by the employer of the fund may be different. For a company, it is “every director who is regularly involved in the management of the company’s financial affairs”.

The employer must give the requested information to the fund within 14 days.

The other two prescribed formats are the report by the fund to the FSCA and the report by the fund to SAPS.

2. The report to the FSCA

When a fund reports contraventions relating to contributions or contributions statements to the FSCA as required by the Conduct Standard, it must do so in a prescribed format.

This report requires:

    • The date the contravention was reported to the board;
    • The nature of the contravention;
    • A description of the action the board will take to remedy the contravention;
    • That this course of action is set out in the monthly arrear contribution report uploaded to the FSCA’s online system; and
    • That further updates are provided to the FSCA on the contraventions and actions taken on a monthly basis.

In addition, monthly updated reports by the fund to the FSCA are required until the contravention has been resolved.

3. The report to the SAPS

The prescribed format of the report by a fund to the SAPS is a sworn affidavit and includes the requirement for attaching annexures containing evidence of what is alleged in the affidavit.

The sworn affidavit is completed by the person specified in section 13A(6) of the Act, which is either the Principal Officer or the person authorised by the fund to monitor contributions (often called “the monitoring person” or the “authorised person”).

The report requires the provision of the following information to SAPS, amongst others:

    • The reports, as required by the Act, that the fund has made so far in relation to the contraventions e.g. to the Principal Officer/monitoring person, the board of the fund, the FSCA, and members;
    • The details of the contributions e.g. the rules requiring contributions by the employer;
    • the requirement of the employer to deduct contributions and pay them to the fund;
    • The employer’s information;
    • The persons at the employer personally liable for contributions contraventions (as notified to the fund) or director’s names (if liable persons were not notified to the fund); and
    • Information and documents about action previously taken by the fund.

Annexures required: resolution appointing monitoring person or Principal Officer, fund’s registration certificate, the rules, and special rules (if applicable), the proof of the employer’s participation in the fund; prescribed requests from the fund, and notifications from the employer about persons liable at the employer.

Formats that are not prescribed

The format of the reports to the monitoring person/Principal Officer, the board, and to members is not prescribed. The format of contribution statements is not prescribed, even though the content of the statements is prescribed.

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Updates: Two-pot System and POPIA

Updates: Two-pot System and POPIA

Benefits

Updates: Two-pot System and POPIA

Updates: Two-pot System and POPIA

A: An update on the two-pot system

Changes to the two-pot system as a result of engagement with stakeholders

Over the last few months, National Treasury has engaged with stakeholders on the proposed two-pot retirement system.  On 20 September 2022, it provided the Standing Committee on Finance with a Draft Response Document which includes responses to some comments received on the two-pot system.

While there are matters still to be decided by Treasury and we will see the development of the two-pot system before it is finalised, Treasury has given further insight into its thinking on several issues.

Treasury’s responses and proposals

    • The implementation date of 1 March 2023 has been changed to 1 March 2024.
    • It is mandatory for all funds to apply the two-pot system.
    • Treasury stated that Government is, subject to conditions to be decided, open to allowing some of what has already been built up by a member in a fund before 1 March 2024 to be transferred into the member’s savings pot so as allow the member access to it. This proposal will receive attention going forward.
    • From 1 March 2024, one-third of net (i.e. after costs) contributions will on a mandatory basis go into the savings pot and the remaining two-thirds of net contributions into the retirement pot.
    • As retrenchments are involuntary, Treasury has proposed that, subject to conditions related to Unemployment Insurance Fund benefits and income the member is in receipt of, limited withdrawals, paid as an annuity, be permitted from the retirement pot if the member is retrenched.
    • More work will be done to understand how the two-pot system should be applied to defined benefit funds (including public sector funds).
    • The minimum annual withdrawal from the savings pot remains R2 000 (before fees). These withdrawals may be done annually on a rolling annual basis.
    • A statutory minimum amount is applied to smaller retirement benefits on retirement (the de minimis amount) and retirement benefits below this amount are not required to be annuitised. This will continue in the two-pot system. The current proposal is that the statutory minimum amount will be applied to any amounts that would have been required to be annuitised on retirement (had the minimum amount not been applied).
    • Section 37D deductions, such as housing loans/guarantees and divorce orders, require further consideration.
    • Treasury’s intention appears to be to preserve the accrued right of older members of funds whose ongoing contributions to a provident fund are still not subject to compulsory annuitisation (because they were 55 years or older on 1 March 2021 and a member of the same provident fund when compulsory annuitisation became law). Such members may be given a choice of whether to opt into the two-pot system, to have ongoing access to a savings pot, or stay out of it, with their current accrued rights, and not have access to an ongoing savings pot. This will need to be clarified by Treasury going forward.

B. POPIA: a prescribed form for breach notifications to the Information Regulator

What is a breach?

All responsible parties (including retirement funds) are required to notify affected data subjects (e.g., members) and the Information Regulator as soon as there are reasonable grounds to believe that an unauthorised party has unlawfully accessed or acquired personal information.[1]

This is often called a security compromise or ‘a data breach’.

The information officer registration portal on the Information Regulator’s website is now working

please go to https://inforegulator.org.za/ and register if you have not already.

The responsible party must notify breaches

It is the responsible party that is required by law to notify breaches to affected data subjects and the Information Regulator – not their operators. For example, where an administrator is acting as the fund’s operator (e.g. it is paying benefits) and a data breach occurs, the administrator must immediately report this to the fund and the fund must attend to the required notification to both affected data subjects and the Information Regulator.

Funds should also follow their own data breach processes which may be set out in one of its processes or policies.

There have been a number of cases to date where funds, or their service providers, have notified the Information Regulator of breaches. The Information Regulator can decide whether to take enforcement action, such as referring the matter to the Enforcement Committee. We are not aware, at the date of writing, of a fund that has been referred to the Enforcement Committee when it reported a breach.

Timing of the notification

By law, breaches must be notified “as soon as reasonably possible after the discovery of the compromise”[2].

Failure to report timeously is a breach of the Protection of Personal Information Act.

When notifying breaches to the Information Regulator, the new prescribed form MUST be used

On 12 August 2022, the Information Regulator issued:

  1. a Security Compromise Notification Form – this is the mandatory form the fund must use to notify any breach to the Information Regulator.
  2. a guideline to the Security Compromise Notification Form – the Guideline provides information about completing the form.
    • The form is available on the Information Regulator’s website https://inforegulator.org.za/ under the tab of POPIA forms. It is a fillable PDF form.
    • If you can’t fit all the information on the form, you may attach documents to your email.
    • The fund will need to update the Information Regulator on any new information relating to the breach.
    • Once completed, the form should be emailed to the Information Regulator using the following email address: POPIACompliance@inforegulator.org.za.
    • The Information Regulator will acknowledge the notification and issue a reference number.
    • There is no prescribed form for notification to data subjects of a breach.

The notification includes (among other things) the following information:

  •  
    • The date of the incident and an explanation for any delay in reporting the incident to the Information Regulator.
    • Whether the security compromise is confirmed or alleged.
    • The type of incident (for example, loss, damage, destruction or unlawful access or processing of personal information).
    • The categories of personal information that are potentially compromised.
    • The number of data subjects impacted by the incident.
    • the method of communication used to notify any affected data subjects.
    • a description of the measures that the responsible party intends to take or has taken to address the security compromise; and
    • a declaration by the responsible party that the information is accurate, true, and correct.
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