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Retirement Reform Presentation 2015_11_13 SW

S
Stacey Whitwam

The document provides an overview of proposed South African retirement reform legislation and its potential effects. It discusses key points of the Taxation Laws Amendment Bill, including eliminating differences between pension and provident funds. It also outlines draft amendments to retirement fund regulations, such as implementing default investment portfolios, preservation funds, and annuities to protect members lacking advice. The document notes debates around these changes and their impact on intermediaries, both potential downsides like reduced fees but also opportunities like advising members directly.

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GCI EMPLOYEE BENEFITS RETIREMENT REFORM 2015 DRAFT LEGISLATION INDUSTRY COMMENTS & POTENTIAL EFFECTS ON INTERMEDIARIES Stacey Leigh Whitwam (e) Stacey@gci.co.za (c) 082 556 7240 www.gci.co.za
Mission Increasing the Global Savings Rate through building and preserving our clients wealth ensuring a Safe and Secure Retirement Treat our clients like family Constant drive to innovate and develop Practice what we preach Independence and Entrepreneurial Take ownership of our responsibilities Sense of urgency in all we do Do or do not, there is no try
SECTIONS COVERED 1. Key point to note in the Taxation Laws Amendment Bill 2. Draft amendments to the regulations issued in terms of S36 of the Pension Funds Act. 1. ISSUES BROUGHT TO LIGHT 2. DEFAULT INVESTMENTS PORTFOLIOS 3. DEFAULT PRESERVATION FUNDS AND PORTABILITY 4. DEFAULT ANNUITIES 3. Current debates creating uncertainty 4. The effects these changes will have on intermediaries and the new opportunities identified. 5. Questions? 03/09/15 3PREPARED BY SL WHITWAM
Section 01 KEY POINTS TO TAKE NOTE OF IN THE TAXATION LAWS AMENDMENT BILL
KEY POINTS TO TAKE NOTE OF IN THE TAXATION LAWS AMENDMENT BILL The amendments which were initially published in 2013, will finally come into force as of 1st March 2016. (Speculation that this date will be pushed to March 2017 but not likely). Pension fund, Provident Fund & Retirement Annuity Contributions will now all enjoy the same tax benefits. Provident funds will no longer be any different to Pension funds when it comes to annuitisation. (1/3, 2/3 Rule) 03/09/15 5PREPARED BY SL WHITWAM
KEY POINTS TO TAKE NOTE OF IN THE TAXATION LAWS AMENDMENT BILL Provident fund contributions already vested on 1st March 2016 will remain governed by the current legislation, allowing 100% to be taken in cash by the member on retirement. Any contributions made to a provident fund after this date will be subject to the 1/3 cash withdrawal limitation on retirement. 03/09/15 6PREPARED BY SL WHITWAM
Section 02____________________________________ DRAFT AMENDMENTS TO THE REGULATIONS ISSUED IN TERMS OF S36 OF THE PENSION FUNDS ACT 2.1 IMPORTANT CONCERNS WHICH NEEDED TO BE ADDRESSED 2.2 DEFAULT INVESTMENT PORTFOLIOS 2.3 DEFAULT PRESERVATION FUNDS AND PORTABILITY 2.4 DEFAULT ANNUITIES
DRAFT AMENDMENTS TO THE REGULATIONS ISSUED IN TERMS OF S36 OF THE PENSION FUNDS ACT Members exiting Employer schemes are not provided with advice or guidance leaving them to make complex investment decisions on their own. Investment fund selection, Whether to preserve funds or withdraw them without knowing the tax implications thereof. No post retirement planning provided unless they can afford private financial advice Poor performance of default portfolios Trustees of the funds and Intermediaries have conflicting interests, Default investment portfolio fees are too high and complex. 03/09/15 8PREPARED BY SL WHITWAM PART 1: IMPORTANT CONCERNS WHICH NEED TO BE ADDRESSED
DRAFT AMENDMENTS TO THE REGULATIONS ISSUED IN TERMS OF S36 OF THE PENSION FUNDS ACT Poor Mobility of Funds. Products aimed at middle to high income earners. High administration charges counter and tax benefits causing Retirement Funding vehicles not to benefit low income earners. It has been proposed that a government managed fund should be implemented with mandatory contributions to be made by employers employing any person who earns below a legislated threshold. 03/09/15 9PREPARED BY SL WHITWAM
DRAFT AMENDMENTS TO THE REGULATIONS ISSUED IN TERMS OF S36 OF THE PENSION FUNDS ACT Current retirement system is characterised by COMPLEX and OPAQUE products with HIGH FEES and COMISSIONS. Funds are being withdrawn before retirement, negating the intention of retirement funding vehicles. 03/09/15 10PREPARED BY SL WHITWAM
DRAFT AMENDMENTS TO THE REGULATIONS ISSUED IN TERMS OF S36 OF THE PENSION FUNDS ACT All members who are AUTOMATICALLY ENROLLED into an Employee Benefits Scheme must be enrolled into the selected default fund unless the employer gives the member advise in writing otherwise. The Trustees must choose a Portfolio which is most suited to all members. Factors they are obliged to consider are, high level objective, underlying asset allocation, charging structure, risks and returns, average term, sophistication of members and the ability of members to access independent financial advice. 03/09/15 11PREPARED BY SL WHITWAM PART 2: DEFAULT INVESTMENT PORTFOLIOS
DRAFT AMENDMENTS TO THE REGULATIONS ISSUED IN TERMS OF S36 OF THE PENSION FUNDS ACT Trustees must do ongoing reviews- look at past performance, charges related to market, number of members utilizing default. Members must not be locked into the default Portfolio they must be able to change their fund selection, at no charge, within 3 months. Default Portfolios Fees MUST BE reasonable & competitive, disclosed accurately & regularly and may not include any performance fees or bonuses Passive funds have been suggested. 03/09/15 12PREPARED BY SL WHITWAM
DRAFT AMENDMENTS TO THE REGULATIONS ISSUED IN TERMS OF S36 OF THE PENSION FUNDS ACT No current provisions for when members leave the employer. Most employers automatically pay out the amount in cash to the employee. Negative tax consequences, negates purpose of retirement New procedure is that the member will be made paid-up by the scheme and the funds accumulated will be invested in the default scheme investment portfolio until withdrawn/ transferred. No new contributions allowed. Same charges as current members. 03/09/15 13PREPARED BY SL WHITWAM PART 3- DEFAULT PRESERVATION FUNDS & PORTABILITY
DRAFT AMENDMENTS TO THE REGULATIONS ISSUED IN TERMS OF S36 OF THE PENSION FUNDS ACT All funds must accept amounts from previous employer schemes and no charges allowed on initial amounts. Due to tax amendments provident funds can be moved to pension funds. Members will be issued with paid-up certificate. Load these onto central registry Fees- Reasonable & competitive, disclosed accurately & regularly, no performance fee, no bonuses, suggesting the use of passive funds. No Risk benefits may be continued or transferred. 03/09/15 14PREPARED BY SL WHITWAM
DRAFT AMENDMENTS TO THE REGULATIONS ISSUED IN TERMS OF S36 OF THE PENSION FUNDS ACT Can be an in fund policy, either kept within so long as there is sufficient solvency and no risk to active members/ separate pot started so that the retirees carry the market risk entirely-must be informed of this. Maximum Drawdown table applied <55=7%, <60=8% <65=9%........ Investment portfolio must be Regulation 28 compliant Living/Life annuities can be chosen. 03/09/15 15PREPARED BY SL WHITWAM PART 4: DEFAULT ANNUITIES
DRAFT AMENDMENTS TO THE REGULATIONS ISSUED IN TERMS OF S36 OF THE PENSION FUNDS ACT Members must have access to a retirement planning specialist- this may not be at any direct/ indirect cost to the member. No commission may be paid for these services. Monitor the default and members in it. Life Annuity- must do a due diligence on the long term insurance provider to ensure, solvency and liquidity to ensure the safety of retirees. All costs must be disclosed simply 03/09/15 16PREPARED BY SL WHITWAM
Section 03 CURRENT DEBATES CREATING UNCERTAINTY
CURRENT DEBATES CREATING UNCERTAINTY Although much cheaper are passive funds really in the best interest of the members? Huge burden being placed on Trustees regarding default fund selection, default can never be the best choice for all members? No performance fees may make managers push up the overall fees to compensate, prejudicing all members. 03/09/15 18PREPARED BY SL WHITWAM
Section 04 The potential effects these changes will have on intermediaries and the new opportunities identified
The potential effects these changes will have on intermediaries and the new opportunities identified POSSIBLE NEGATIVE EFFECTS Intermediary advice at member level becomes less necessary Retirement planners negate the need for intermediaries. Defaults will be used and members will not think to seek independent financial advice. Fees/ commissions which we are allowed to charge could be reduced. Overly restricted by legislation. Limitation of advice due to prohibition of performance/bonus fees (limited funds) 03/09/15 20PREPARED BY SL WHITWAM
The potential effects these changes will have on intermediaries and the new opportunities identified POSSIBLE OPPORTUNITIES Play a more active role at scheme level assisting with best investment choices. Build relationship with boards/Trustees, gain trust of members. Defaults are never going to be best for all membersidentify clients nearing retirement/member exits and provide individualized retirement planning. There has been a lot of publicity and awareness brought about by this for retirement planning, members are now more aware of the importance of correct advice. Increased prescribed cost and benefit reporting to members creates more opportunities for contact with scheme members. Monitoring of preservations Opportunity to gain member trust by adding value superseding basic requirements 03/09/15 21PREPARED BY SL WHITWAM
Section 05 Questions?
Thank you

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Retirement Reform Presentation 2015_11_13 SW

  • 1. GCI EMPLOYEE BENEFITS RETIREMENT REFORM 2015 DRAFT LEGISLATION INDUSTRY COMMENTS & POTENTIAL EFFECTS ON INTERMEDIARIES Stacey Leigh Whitwam (e) Stacey@gci.co.za (c) 082 556 7240 www.gci.co.za
  • 2. Mission Increasing the Global Savings Rate through building and preserving our clients wealth ensuring a Safe and Secure Retirement Treat our clients like family Constant drive to innovate and develop Practice what we preach Independence and Entrepreneurial Take ownership of our responsibilities Sense of urgency in all we do Do or do not, there is no try
  • 3. SECTIONS COVERED 1. Key point to note in the Taxation Laws Amendment Bill 2. Draft amendments to the regulations issued in terms of S36 of the Pension Funds Act. 1. ISSUES BROUGHT TO LIGHT 2. DEFAULT INVESTMENTS PORTFOLIOS 3. DEFAULT PRESERVATION FUNDS AND PORTABILITY 4. DEFAULT ANNUITIES 3. Current debates creating uncertainty 4. The effects these changes will have on intermediaries and the new opportunities identified. 5. Questions? 03/09/15 3PREPARED BY SL WHITWAM
  • 4. Section 01 KEY POINTS TO TAKE NOTE OF IN THE TAXATION LAWS AMENDMENT BILL
  • 5. KEY POINTS TO TAKE NOTE OF IN THE TAXATION LAWS AMENDMENT BILL The amendments which were initially published in 2013, will finally come into force as of 1st March 2016. (Speculation that this date will be pushed to March 2017 but not likely). Pension fund, Provident Fund & Retirement Annuity Contributions will now all enjoy the same tax benefits. Provident funds will no longer be any different to Pension funds when it comes to annuitisation. (1/3, 2/3 Rule) 03/09/15 5PREPARED BY SL WHITWAM
  • 6. KEY POINTS TO TAKE NOTE OF IN THE TAXATION LAWS AMENDMENT BILL Provident fund contributions already vested on 1st March 2016 will remain governed by the current legislation, allowing 100% to be taken in cash by the member on retirement. Any contributions made to a provident fund after this date will be subject to the 1/3 cash withdrawal limitation on retirement. 03/09/15 6PREPARED BY SL WHITWAM
  • 7. Section 02____________________________________ DRAFT AMENDMENTS TO THE REGULATIONS ISSUED IN TERMS OF S36 OF THE PENSION FUNDS ACT 2.1 IMPORTANT CONCERNS WHICH NEEDED TO BE ADDRESSED 2.2 DEFAULT INVESTMENT PORTFOLIOS 2.3 DEFAULT PRESERVATION FUNDS AND PORTABILITY 2.4 DEFAULT ANNUITIES
  • 8. DRAFT AMENDMENTS TO THE REGULATIONS ISSUED IN TERMS OF S36 OF THE PENSION FUNDS ACT Members exiting Employer schemes are not provided with advice or guidance leaving them to make complex investment decisions on their own. Investment fund selection, Whether to preserve funds or withdraw them without knowing the tax implications thereof. No post retirement planning provided unless they can afford private financial advice Poor performance of default portfolios Trustees of the funds and Intermediaries have conflicting interests, Default investment portfolio fees are too high and complex. 03/09/15 8PREPARED BY SL WHITWAM PART 1: IMPORTANT CONCERNS WHICH NEED TO BE ADDRESSED
  • 9. DRAFT AMENDMENTS TO THE REGULATIONS ISSUED IN TERMS OF S36 OF THE PENSION FUNDS ACT Poor Mobility of Funds. Products aimed at middle to high income earners. High administration charges counter and tax benefits causing Retirement Funding vehicles not to benefit low income earners. It has been proposed that a government managed fund should be implemented with mandatory contributions to be made by employers employing any person who earns below a legislated threshold. 03/09/15 9PREPARED BY SL WHITWAM
  • 10. DRAFT AMENDMENTS TO THE REGULATIONS ISSUED IN TERMS OF S36 OF THE PENSION FUNDS ACT Current retirement system is characterised by COMPLEX and OPAQUE products with HIGH FEES and COMISSIONS. Funds are being withdrawn before retirement, negating the intention of retirement funding vehicles. 03/09/15 10PREPARED BY SL WHITWAM
  • 11. DRAFT AMENDMENTS TO THE REGULATIONS ISSUED IN TERMS OF S36 OF THE PENSION FUNDS ACT All members who are AUTOMATICALLY ENROLLED into an Employee Benefits Scheme must be enrolled into the selected default fund unless the employer gives the member advise in writing otherwise. The Trustees must choose a Portfolio which is most suited to all members. Factors they are obliged to consider are, high level objective, underlying asset allocation, charging structure, risks and returns, average term, sophistication of members and the ability of members to access independent financial advice. 03/09/15 11PREPARED BY SL WHITWAM PART 2: DEFAULT INVESTMENT PORTFOLIOS
  • 12. DRAFT AMENDMENTS TO THE REGULATIONS ISSUED IN TERMS OF S36 OF THE PENSION FUNDS ACT Trustees must do ongoing reviews- look at past performance, charges related to market, number of members utilizing default. Members must not be locked into the default Portfolio they must be able to change their fund selection, at no charge, within 3 months. Default Portfolios Fees MUST BE reasonable & competitive, disclosed accurately & regularly and may not include any performance fees or bonuses Passive funds have been suggested. 03/09/15 12PREPARED BY SL WHITWAM
  • 13. DRAFT AMENDMENTS TO THE REGULATIONS ISSUED IN TERMS OF S36 OF THE PENSION FUNDS ACT No current provisions for when members leave the employer. Most employers automatically pay out the amount in cash to the employee. Negative tax consequences, negates purpose of retirement New procedure is that the member will be made paid-up by the scheme and the funds accumulated will be invested in the default scheme investment portfolio until withdrawn/ transferred. No new contributions allowed. Same charges as current members. 03/09/15 13PREPARED BY SL WHITWAM PART 3- DEFAULT PRESERVATION FUNDS & PORTABILITY
  • 14. DRAFT AMENDMENTS TO THE REGULATIONS ISSUED IN TERMS OF S36 OF THE PENSION FUNDS ACT All funds must accept amounts from previous employer schemes and no charges allowed on initial amounts. Due to tax amendments provident funds can be moved to pension funds. Members will be issued with paid-up certificate. Load these onto central registry Fees- Reasonable & competitive, disclosed accurately & regularly, no performance fee, no bonuses, suggesting the use of passive funds. No Risk benefits may be continued or transferred. 03/09/15 14PREPARED BY SL WHITWAM
  • 15. DRAFT AMENDMENTS TO THE REGULATIONS ISSUED IN TERMS OF S36 OF THE PENSION FUNDS ACT Can be an in fund policy, either kept within so long as there is sufficient solvency and no risk to active members/ separate pot started so that the retirees carry the market risk entirely-must be informed of this. Maximum Drawdown table applied <55=7%, <60=8% <65=9%........ Investment portfolio must be Regulation 28 compliant Living/Life annuities can be chosen. 03/09/15 15PREPARED BY SL WHITWAM PART 4: DEFAULT ANNUITIES
  • 16. DRAFT AMENDMENTS TO THE REGULATIONS ISSUED IN TERMS OF S36 OF THE PENSION FUNDS ACT Members must have access to a retirement planning specialist- this may not be at any direct/ indirect cost to the member. No commission may be paid for these services. Monitor the default and members in it. Life Annuity- must do a due diligence on the long term insurance provider to ensure, solvency and liquidity to ensure the safety of retirees. All costs must be disclosed simply 03/09/15 16PREPARED BY SL WHITWAM
  • 17. Section 03 CURRENT DEBATES CREATING UNCERTAINTY
  • 18. CURRENT DEBATES CREATING UNCERTAINTY Although much cheaper are passive funds really in the best interest of the members? Huge burden being placed on Trustees regarding default fund selection, default can never be the best choice for all members? No performance fees may make managers push up the overall fees to compensate, prejudicing all members. 03/09/15 18PREPARED BY SL WHITWAM
  • 19. Section 04 The potential effects these changes will have on intermediaries and the new opportunities identified
  • 20. The potential effects these changes will have on intermediaries and the new opportunities identified POSSIBLE NEGATIVE EFFECTS Intermediary advice at member level becomes less necessary Retirement planners negate the need for intermediaries. Defaults will be used and members will not think to seek independent financial advice. Fees/ commissions which we are allowed to charge could be reduced. Overly restricted by legislation. Limitation of advice due to prohibition of performance/bonus fees (limited funds) 03/09/15 20PREPARED BY SL WHITWAM
  • 21. The potential effects these changes will have on intermediaries and the new opportunities identified POSSIBLE OPPORTUNITIES Play a more active role at scheme level assisting with best investment choices. Build relationship with boards/Trustees, gain trust of members. Defaults are never going to be best for all membersidentify clients nearing retirement/member exits and provide individualized retirement planning. There has been a lot of publicity and awareness brought about by this for retirement planning, members are now more aware of the importance of correct advice. Increased prescribed cost and benefit reporting to members creates more opportunities for contact with scheme members. Monitoring of preservations Opportunity to gain member trust by adding value superseding basic requirements 03/09/15 21PREPARED BY SL WHITWAM