Amendments to the pension funds act affect beneficiary funds
The Financial Services Law General Amendment Act (FSLGAA) has brought about some amendments to the Pension Funds Act 24 of 1956 (PFA), and this article looks briefly at the amendments that specifically affect beneficiary funds.
Unclaimed or unresolved benefits can now be transferred to an unclaimed benefits fund. If a member or beneficiary has not been paid within 24 months after a benefit has become payable in terms of the rules of a fund, or after the fund has become aware of the death of the member or beneficiary, the benefit may be paid into an unclaimed benefits fund. The definition of this fund has also been added to the PFA and falls under the definition of a pension preservation fund or provident preservation fund in terms of S1 of the Income Tax 58 of 1962.
Rules change for group life benefits
Another major amendment allows unapproved group life benefits to be paid into beneficiary funds, which was not allowed previously.
Unapproved group life benefits are insurance policies, an example of this is an accident policy or group life policy that are not linked to, nor form part of a retirement fund and which are not subject to Section 37C of the PFA.
Approved group life cover is policies that are held in the name of the retirement fund which are subject to the retirement fund’s rules and Section 37C.
Previously, death benefits that arose from unapproved group life cover could be paid into a trust for a minor, who was entitled to these benefits upon the death of a member. In contrast, approved death benefits could be transferred to a beneficiary fund upon the death of the member.
This is a welcome amendment, as beneficiaries that previously received both approved and unapproved benefits would have had to manage two accounts, one in a trust and one in a beneficiary fund. The practical consequence of this amendment sees approved and unapproved benefits being placed into a single account in a beneficiary fund, which allows the beneficiary’s benefits to be invested together. The result is fewer administration costs being charged, and easier manageability of investments for the beneficiary.
Beneficiary funds furthermore provide better protection to the minor’s benefits than trusts.
Transfer from trust to beneficiary fund
The industry now waits to see whether the Financial Services Board will allow trusts that hold unapproved benefits, to be transferred into beneficiary funds that may now receive unapproved benefits.
Definition of a pension fund organisation
In terms of the PFA amendments, the definition of a pension fund organisation has been changed to state that only benefits in terms of the employment of a member may be administered and invested by beneficiary funds on behalf of beneficiaries who receive approved or unapproved death benefits on the death of a member. So for example, if an individual has accident death cover that is paid for in terms of a group life policy for employees at his place of employment, the benefit may be paid into a beneficiary fund upon his death.
The other practical consequence of the amended definition is that benefits that arise from retirement annuities and preservation funds may not be administered by beneficiary funds as they are not linked to an individual’s employment. If, however, a retirement fund feels strongly about not paying a death benefit due to a minor to his/ her guardian or caregiver, the benefit may still be paid into a trust to be administered on behalf of the minor.
The amendments to the PFA have practical consequences and seek to align the act with recent legislation. With the exception of certain provisions, the FSLGAA came into effect on 28 February 2014.
