The development of our administration system is progressing according to plan. We’ve effectively completed the last of our developments and are in the process of testing the final system functionality. No major issues have been detected and we’ll be able to process the new changes from 1 March 2016.
For provident fund members, the administration system will maintain two accounts for each 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 from 1 March 2016 onwards and the returns thereon.
From 1 March 2016 onwards, all contributions for provident fund members who are 55 or older on 1 March 2016 will be kept in the vested portion (Member share 1), provided that they remain members of the provident fund that they were members of on 1 March 2016.
Although pension fund members are not affected by the annuitisation legislative changes, they’ll be affected by the changes to our administration system. Pension funds will therefore be administered on the same basis as provident funds. This means that fund credits will be placed in Member share 2 within the pension fund as pension funds are subject to annuitisation. This is done to keep track of the nature of fund credits in the case of transfers between pension and provident funds.
Until there is clear industry agreement on the naming conventions, we’ll refer to the vested portion and the annuitisation portion as Member share 1 and Member share 2. On all benefit statements, web statements and transfer certificates an explanation will be published to explain the difference to members.
Please note that changes to the format of benefit statements to reflect pre and post 1 March 2016 contributions will still be discussed with clients in the normal cycle of issuing benefit statements.
External reporting will follow the same format. Clients are welcome to provide us with feedback on the amended formats.
Because of the fundamental impact on our administration system, we will implement the new functionality in a phased approach. The reclassification of member credits into Member Share 1 and Member Share 2 will occur during the weekend of 12-14 February 2016. Members can expect to see the reclassified fund credits on the Retirement Fund Web during the course of February 2016. Please refer to the Retirement Fund Web for further updates in this regard.
In order to process this big change we will have to lock down our administration system and the Retirement Fund Web for any processing on 12 February 2016. Please keep this in mind when you submit your requests for processing during the course of February.
On the evening of 29 February 2016 we will switch on the functionality whereby contributions for members of provident funds will be allocated to Member Share 2 if they are younger than 55 on 1 March 2016.
We have finalised our proposed wording for rule changes according to the new legislation. Amendments to the rules providing for these changes are necessary, but please note that when the new legislation comes into effect on 1 March 2016, it will override any contrary provisions contained in the rules.
If employers foresee making changes to their payroll, such as changes to contributions, please remember to change the rules first before changing the payroll. From an administration perspective, these changes follow the current standard process.
For funds offering investment choices, members currently have the option to switch their fund credit and/or future contributions. Our administration system will maintain this functionality. Therefore, members will not be able to switch Member Share 1 and Member share 2 separately in different portfolios. The investment instruction will be applied to the fund credit as a whole, as is currently the case. As far as lifestage switches are concerned, the development will not interrupt the running of these programs.
We have made specific arrangements with external providers with regards to the exchange of operational data in tracking direct member investments.
Because of the lenient commutation threshold of R247 500, most provident fund members are expected to only be subject to the annuitisation requirements in a couple of years from now. However, clients should take note that a lump sum benefit credited to a provident fund member’s record may push the member over the threshold. An example would be a lump sum disability benefit payable under a provident fund. Clients may wish to discuss this issue with their consultants.
Please note that this is general information, which means it doesn’t constitute financial advice.
Sanlam is not in a position to monitor the tax deductibility of contributions for individual members. There are a number of reasons for this:
In respect of additional voluntary contributions (AVCs), the standard process applies. Remember that AVCs can only be made via the payroll of the employer and can’t be paid directly into the bank account of the Fund by a Member.
We expect that members may want greater flexibility in their contribution calculations in order to maximise tax savings. We fully support such flexibility – however, clients should consider the impact on administration where flexibility becomes complex, for example exceeding 10 contribution categories. We also recommend that members get the option to structure their contributions once per year.
We encourage clients offering their members pension-backed loans to revisit the amount that is available for a cession. Because a portion of the provident fund contribution must be annuitised after 1 March 2016, it may not make sense to still, for example, make the full 50% of a provident fund credit available for a cession.
From March 2016 we will change the credit provider display on the Retirement Fund Web to display the total fund credit and any cessions/deductions registered against such fund credit. It will be up to the credit provider to calculate the available amount in accordance with the policy of the fund.