Six degrees of separation

23 March 2006 Angelo Coppola

The LOA issued a statement last week that provided some clarity on certain issues around the Statement of Intent (SOI) deal signed between the LOA and the National Treasury.

Two issues confused us and we received a prompt response.

Firstly it appears that just 50% of RA fund members would benefit from SOI. The other 50%, according to the LOA are RA fund members who received at least 65% or more of their fund value when they stopped or reduced their premiums, and will not receive enhancements in terms of the minimum standards agreement.

Having cleared that up we were struck by another comment that appeared, concerning enhanced values and commissions and the fact that the final implementation date is really fluid.

In the interests of clarity we publish the paragraph in question and then the LOA provides some insights:

It is, however, important to keep in mind that values can only be enhanced once the Boards of the individual companies are satisfied that regulatory certainty has been achieved and that the new minimum values are sustainable as a result of the new commission structures. The final implementation date is therefore linked to the introduction of a new commission regime and other regulatory changes

We wanted clarity on the regulatory issues still to be resolved, especially since National Treasury had yet to distribute the discussion document on commissions which is now only expected to see the light of day at the end of March or early April.

According to Gerhard Joubert, CEO of the Life Offices Association (LOA), the SOI signed by the LOA and the Minister of Finance in December (2005) states that the implementation date of the minimum standards is linked to the effective date of the revised commission regulations.

Life companies would require approximately six months to prepare for the implementation date, once clarity has been received on the direction of the revised commission regulations.

Since it was expected that the discussion paper on commission would be released at the end of February, the industry had estimated an implementation date of 1 October 2006. It is now likely that this date will shift by one or two months.

Regarding other regulatory changes, a jointTreasury/FSB/LOA task group is working on implementing the regulatory aspects of the SOIreferred to insections 5.4 to 5.7, to clarify the uncertainties in the existing regulatory framework.

Documents being drafted are proposed amendments to Regulation 30 to the Pension Funds Act, setting out issues required to be addressed in therules of relevant underwritten retirement funds.There is also a proposed amendment to Part 4 of the Regulations of the Long-term Insurance Act.

According to Joubert they are also discussingprinciplesto be taken into account when considering the most effective disclosure regime for these types of retirement funds, as well as possible tax changes that could facilitate the practical implementation of the minimum standards, and minimise various administrative complexities.

Joubert says that the FSB will be issuing a notice regarding the applicability of minimum benefit increase provisions to RA's and issuing a Code of Governance for Trustees.

Editors thoughts:
Nothing is ever as complicated as it seems. One wonders whether the intermediary associations are aware of the delay in the actual implementation dates, as this may directly affect their livelihood?

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