To ensure that the Sanlam Umbrella Fund complies with the new taxation legislation, the fund’s trustees have put certain plans and procedures in place.
Various changes are in progress to provide for the changes brought about by T-Day.
Not only are the trustees of the fund making amendments to the general rules of the fund, but they are enduring that every aspect pertaining to the fund is being attended to. This includes certain changes in terms of contributions, administration and the administration system, switching between portfolios and the possible consolidation of certain funds.
The trustees are changing the provident fund’s general rules to incorporate the annuitisation requirements in respect of retirement benefits and to allow for member contributions. These amendments will override any special rule to the contrary and there is no immediate need to adjust the special rules. Where necessary, changes are also being made to the general rules of the pension fund.
Members wanting to make additional contributions are encouraged to use the additional voluntary contribution (AVC) facility provided for in the general rules. Members can increase their contributions to improve their retirement outcome. All they have to do is sending a written request to their HR office to make the additional contribution to the fund over and above their current contributions. HR will process the request in terms of the agreed procedures. Members will be able to review their decisions regarding additional contributions twice a year. Please note that members cannot pay AVCs directly into the Fund’s bank account – it must be made through their payroll.
Please note: The old concept of a maximum AVC deduction of R1 800 per year has been scrapped. When we talk about AVCs after T-Day, we refer to the member’s ability to request HR to deduct a greater contribution over and above the normal compulsory contributions.
The administrators have completed the last developments of the administration system and are in the process of testing the final system functionality. No major issues have been detected and they will be able to process the changes as of 1 March 2016.
The administration system will maintain two accounts for each provident fund member from 1 March 2016. The vested portion (Member share 1) will contain all the benefits as at the end of February 2016 plus the investment return thereon going forward. The annuitisation portion (Member share 2) will only contain the contributions made after 1 March 2016 and the returns thereon.
Until there is clear industry agreement on the naming conventions, the administration system will refer to these portions as Member share 1 and Member share 2 for the time being. An explanation will appear on all benefit statements, web statements and transfer certificates to explain the difference to members.
Please note: All future contributions for provident fund members that are 55 or older on T-Day will be kept in the vested portion (Member share 1) for as long as they remain a member of the provident fund.
We’ll add a proviso to the general rules whereby any member can request the fund to limit the contributions. This will ensure that the member won’t contribute an amount in excess of the maximum deductible amount laid down from time to time.
Neither the Fund nor the administrator is in a position to monitor the tax deductibility of contributions for individual members. The reasons are as follows:
Certain fund options allow members to switch their fund credit and/or future contributions between investment portfolios. The administration system will keep this functionality in a similar fashion, i.e. members will not be able to switch their Member share 1 and Member share 2 separately in different portfolios. Any member investment instruction will be applied to the member’s fund credit as a whole, as is currently the case. As far as Sanlam Lifestage switches are concerned, the development will not interrupt the running of this program.
The trustees are planning to consolidate the hybrid funds. This will be done by transferring the pension fund into the provident fund in order to protect the vested rights of members that are 55 years and older on 1 March 2016. More detailed communication will follow directly to the relevant participating employers and their CBCs in this regard.
Please note: Transfers from a provident to a pension fund is not recommended for at this stage. As a result of an apparent oversight, the vested rights protection has been omitted in the definition of “pension fund” in the Income Tax Act and can be problematic.
The trustees are aware that there will be cost savings and other benefits when the pension and provident funds are consolidated, in favour of the operation of one retirement fund. We would prefer for matters to settle before we make firm plans in this regard.
As an interim step we will encourage all new participating employers to join the provident fund. Stakeholders are reminded that the benefit structure of the pension fund and the provident fund will be identical going forward, but special features will be provided for in the special rules.