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Amended Pension Funds Act gives better protection to minors

13 February 2014 Giselle Gould, Fairheads
Giselle Gould, Business Development Director, Fairheads Benefit Services.

Giselle Gould, Business Development Director, Fairheads Benefit Services.

The effects of the 2007 Fidentia corruption scandal continue to work their way through the legislative system. A recent amendment to the Pension Funds Act will make it easier for additional death benefits to be administered in beneficiary funds, the protective vehicle that government created to gradually replace the more loosely regulated umbrella trust that was the subject of the Fidentia saga.

The Financial Services Laws General Amendment Act, published in the Government Gazette on 16 January 2014, contains amendments i.a. to the Pension Funds Act. In terms of the amended definition of a "pension fund organisation”, beneficiary funds can now receive so-called unapproved benefits in addition to approved benefits, meaning that death benefits paid out of group life policies may now also be paid into beneficiary funds instead of into an umbrella trust.

Speaking at a mini-conference of the Principal Officers’ Association in Johannesburg today, Giselle Gould, Business Development Director of Fairheads Benefit Services, a leading independent administrator, explained the difference in approved and unapproved benefits: "Many companies have a group life policy, accident cover or other risk benefit cover with a service provider that is separate from the company’s retirement fund. These are called unapproved benefits whereas the fund credit from the retirement fund is called an approved benefit.”

Ms Gould says the recent development is welcome as it removes a degree of "clumsiness”, which will provide better protection for vulnerable minors and ease the burden on guardians who sometimes have to oversee two accounts on behalf of the children in their care.

In terms of section 37C of the Pension Funds Act, the trustees of a retirement fund are required, on the death of a fund member, to identify and trace the dependants of the deceased and use their discretion whether to pay the money into a beneficiary fund, administer it within the retirement fund or pay it directly to the guardian or major.
 
The use of a beneficiary fund is a popular option for minor dependants as it provides effective protection by law for the management of minors’ inheritance, enabling many children to complete their education.
 
Beneficiary funds have grown to around R7 billion since January 2009, while there is an estimated R13 billion still in umbrella trusts that will run their course. The beneficiary fund industry will get a boost now that it can receive unapproved benefits.
 
"The next logical step”, Ms Gould says, "is for the authorities to allow assets to be transferred from the dying umbrella trust vehicle into the beneficiary fund which will provide better protection and allow smaller unviable trust funds to be closed down.”

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