Deadline for beneficiary funds extended

11 March 2009 Fairheads Benefit Services

Beneficiary funds, created in the wake of the Fidentia scandal to replace umbrella trusts for the management of minors’ assets, have been official since the operational deadline of 1 January, but not all administrators and retirement funds were able to meet the tight deadline.

The Financial Services Board has therefore extended to 31 March the deadline for completion of the requirements for registering beneficiary fund rules and granting administrator licences.

Richard Krepelka , CEO of Fairheads Benefit Services (previously Fairheads Umbrella Trust Company), says that the extension is not surprising as the legislation for beneficiary funds was only recently promulgated in November 2008. It gave effect to amendments to section 37C of the Pension Funds Act, which contains the options available to retirement fund trustees when deciding on how best to distribute death benefits to dependants of deceased members of retirement funds.

“At present, there are an estimated 10 beneficiary funds registered with the FSB, including Fairheads’ fund, The Fairfund Beneficiary Fund. By the end of February, we had had inflows of R10 million into this proprietary fund and we estimate the fund will be valued at R100 million by the end of the year, “ he says.

Krepelka points out that umbrella trusts will continue to run their course, governed by the Trust Property Control Act under the auspices of the Master of the High Court. They are allowed to receive unapproved benefits which may not be accepted into beneficiary funds. Approved benefits may still be paid into umbrella trusts under certain conditions. Retirement fund members can nominate for their benefits to be paid into trust upon their death. Dependants or their legal representatives may also request for the benefit to be paid into trust.

Beneficiary funds offer significant advantages over umbrella trusts: structured similarly to retirement funds, they offer greater protection for minors as they are regulated by the Pension Funds Act and all stakeholders have recourse to the Pension Funds Adjudicator; there is a raft of corporate governance requirements; and investments are prudentially managed in line with regulation 28.

Krepelka says that on the whole the industry is getting to grips with the new vehicle, although there remain complexities to be resolved. One of these relates to the transition period over the 1 January cut-off date. For example, what happens if a retirement fund member died in November 2008, the trustees elected to pay death benefits into an umbrella trust, but the actual payment date occurred after 1 January 2009? The FSB has indicated that the payment date is the key event and all payments after the cut-off date must be dealt with in terms of the new legislation
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