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Liberty’s refresher on important regulatory updates for financial advisers and related FSPs

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The annuitisation of provident funds 

Prior to T-Day, members of provident funds and provident preservation funds were entitled to take the full value of their benefits as taxable cash lump sums at retirement. Members of pension funds, pension preservation funds and retirement annuity funds on the other hand, have been required to annuitise a portion of their benefits at retirement. This means that they must take a portion of their retirement fund benefits as an annuity income at retirement. From T-Day, members of provident funds and provident preservation funds are also required to annuitise a portion of their benefits at retirement. 

Retirement savings within provident funds are now regarded as vested benefits or non-vested benefits, depending on whether members were younger than age 55 on T-Day or aged 55 and older, and whether contributions were made prior to T-Day or after. This will impact how retiring provident fund members may access their savings at retirement. At retirement, members will be able to access the full value of their vested benefits as a taxable cash lump. With their non-vested benefits, only up to one-third of this accumulated amount may be accessed as a taxable cash lump sum at retirement, and the balance (at least two-thirds) must be used to purchase an annuity to provide an income for retirement. If, however, the total value of the non-vested benefit is R247 500 or less (as prescribed by the Minister, and which may change from time to time), the full amount may be accessed as a taxable cash lump sum at retirement.

Alignment of tax-free transferability (or ‘portability’) between retirement funds

The transferring of retirement savings between different retirement funds have been enhanced, through making the transfer of retirement savings to a wider group of retirement funds tax-free. Members of pension funds are now able to transfer their accumulated retirement savings to provident and provident preservation funds tax-free. Members of provident funds can transfer their accumulated retirement savings to pension funds tax-free, and this will continue to hold. This means that retirement fund members will have the opportunity to consolidate their retirement savings across a wider range of retirement funds.

New emigration requirements on pre-retirement withdrawals 

Prior to 1 March 2021, retirement annuity or preservation fund members could take a pre-retirement withdrawal due to emigration if they emigrated from South Africa, and that emigration was formally recognised by the South African Reserve Bank (SARB) for the purposes of exchange control. This is being phased out from 1 March 2021, and the tax residency of individuals (as opposed to their “emigrant” status) will be the determining factor under the new verification process. From 1 March 2021, if a formal emigration wasn’t applied for on or before 28 February 2021 with the SARB, then members will need to prove that they are a non-South African tax resident for an uninterrupted period of at least three years.

People who wish to take a pre-retirement withdrawal will have to provide proof to fund administrators and the South African Revenue Service (SARS) of when they ceased being a South African tax resident, and that the period of non-South African tax residency has not been interrupted by any period of tax residency in South Africa.

Protection of Personal Information Act (POPIA)

As a financial institution, personal information is required from our advisers, participating employers, and their employees to best manage the products and services we provide. This information is regulated by the Protection of Personal Information Act (POPIA), which governs the way we collect and process personal information. According to the Act, we are required to keep this information secure, confidential, and only for as long as required, only process information as permitted by law, provide access to update or rectify any of the information, and notify our clients if any of this information has been compromised.

We may have to collect further information or documents needed in relation to client policies or the services we provide. We may also be required to provide this information to relevant bodies such as SARS. Liberty will comply with all relevant regulations when dealing with client information, always keeping it secure and confidential.

Effective Annual Cost (EAC) reports

Effective Annual Cost (EAC) is a measure of the impact of the retirement savings costs on a client’s investment returns that are likely to be incurred over different time periods. The EAC is expressed as an annualised percentage and determined at a member level, which allows retirement fund members to easily compare the retirement savings charges they incur.

These reports provide a view of the current costs associated with retirement savings. “What if” requests can also be made, which provides a disclosure that is based on alternative parameters, which may, for example, be an alternative investment portfolio. Our clients can access their EAC reports by contacting their fund advisers or the Liberty Corporate call centre.

Readers should consult their financial adviser before making any decisions, as the appropriateness of the options discussed in this article will depend on their specific individual needs.

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