Financial Services Board

NOTICE

FINANCIAL SERVICES BOARD

No. ______2012

PENSION FUNDS ACT NO 24 OF 1956:

MINIMUM INFORMATION AND FORMAT OF SUBISSION FOR RULE AMENDMENTS AND CONSOLIDATED RULESREQUIREMENTS FOR THE REGISTRATION OF A FUND AS PER SECTION 4(3) OF THE ACT

NEW RULES

1.1.Funds are advised to ensure that the rules submitted for registration are comprehensive and due consideration is given to the requirements of the Board Notice, prescribed forms and procedures, and the requirements of the Act.

1.2.Where the Office of the Registrar is unable to grant final registration to a fund, the Registrar may provisionally register the fund on condition that the application complies with the minimum requirements as recommended in Annexure A.

1.3.Funds are required to apply for final registration once all the queries raised on the provisional registration letter have been addressed.

1.4.An application for final registration of umbrella funds with special rules (Type-A umbrella funds) will only be considered following the registration of a participating employer.

UNREGISTERED FUNDS AND SUB-FUNDS

2.1.Any fund which conducts pension fund business for a period exceeding twelve months will, for the purpose of section 12(1)(b) of the Act be regarded as having conducted unregistered pension fund business, including those funds and participating employers (“sub-funds”) participating in umbrella funds.

2.2.Applications for the registration of such unregistered funds must be submitted simultaneously to the Registrar and SARS.

2.3.The application for the registration of a fund or special rules in the case of a participating employer which conducted unregistered pension funds business, must be accompanied by-

2.3.1.a declaration by the board of management of a fund confirming the rules of the fund as submitted to the registrar for registration have been complied with in respect of the following-

2.3.1.1.that the fund has since its establishment been administered and managed in terms of those rules;

2.3.1.2.that contributions have been received in terms of those rules or special rules;

2.3.1.3.that benefits have been administered and paid in accordance with the rules or special rules; and

2.3.1.4.that the members’ individual accounts and fund records and data are complete and accurate.

2.3.2.Annual financial statements, where applicable,audited annual financial statements, from the date of the commencement of the fund until the financial year-end preceding the application for registration. Any such reporting period may not exceed 18 months.

2.3.3.Where the period from commencement of the fund until the financial year-end preceding the application for registration exceeds three years, an actuarial valuation report confirming that the fund is financially sound and that the members’ individual accounts are complete and accurate.

AMENDMENTS TO THE RULES, CONSOLIDATED RULES, REVISED RULES AND REVISED SPECIAL RULES

3.1.Amendments

3.1.1.The application for amendments to rules, consolidated rules, revised rules and revision of special rules must in terms of section 12(2) be accompanied by aduly certified copy of the resolution passed by the trustees. An example of such resolution is hereby attached as Annexure A.

3.1.2.Amendments to rules must be sequentially numbered and submitted for registration in that order.

3.1.3.Application for amendments of the main set of rules and revision of special rules must be submitted separately.

3.1.4.A maximum of ten amendments to rules will be allowed, whereafter a fund must submit consolidated or revised rules.

3.2.Consolidated Rules

3.2.1.Consolidated rules must not include any additional amendments to rules but must only consolidate registeredrules and amendments.

3.2.2.The Registrar does not have the authority to register consolidated rules which are not compliant with current legislation.

3.3.Revised Rules

Where a fund wishes to consolidate the registered rules and further amendments need to be made, such rules must be revised. Additional amendments not previously registered must be indicated on the resolution.

3.4.Special Rules (Type A Umbrella Funds)

In an Type-A Umbrella Fund, special rules must be registered for each participating employer, excluding associated and subsidiary entities. No amendments to special rules will be considered but any amendments must be incorporated into revised special rules. Any amendments to special rules must be indicated on the resolution

STANDARD RULES

4.1.An administrator who intends to register a standard set of rules must agree the format, content and the relevant schedules to the standard rules with the Registrar prior to the submission thereof.

Amendment to standard rules

4.2.Prior approval of the Registrar must be obtained before any amendments to standard rules are submitted for approval. Upon registration of the amended set, the Registrar will allocate a new alpha numeric number relevant to such amended rules.

Schedule (s) to standard rules

4.3.When submitting a set of new rules for registration, the fund will only be required to submit the schedules or non-standard section to the Registrar for consideration.

CONVERSIONS

5.1.Change of Fund to from underwritten to privately administered

A fund can be convertedfrom an underwritten fund to a privately administered fund or vice versa by amending the rules or the submission of revised rules.

5.2.Benefit Structure

5.2.1.A fund can be converted from a defined contribution to a defined benefit fund or vice versa amountsby amending the rules or the submission of revised rules.

5.2.2.Where a fund or part of a fund, converts from a defined benefit to a defined contribution arrangement. The application for the conversion must be accompanied by a conversion report, attached hereto as Forms I, II or III of Annexure XXXX.

CONTIGENCY RESERVE ACCOUNTS

RULES OF A FUND RELATING TO INVESTMENT RESERVE ACCOUNTS

Where a fund, with a defined contribution category of membership,allows for the smoothing of fund return in relation to members’ individual accounts, the rules of the fund must provide for the operation of such investment reserve account.

REQUIREMENTS IN TERMS OF CONTINGENCY RESERVE ACCOUNTS

6.1.The rules of a fund must provide for any contingency reserve account which will be operated by the fund.

6.2.Every contingency reserve account that will be established , at least the following must be provided for in the rules of the fund:-

6.2.1.the nature and specific utilisation of the contingency reserve account;

6.2.1.an explanation of how the opening balance is to be determined;

6.2.2. the items that will be credited to, and debited from, the contingency reserve account; and

6.2.3.the manner in which the account will be dissolved, should its purpose become obsolete.

6.3.Where it is not possible to specify the items to be credited to and debited from the contingency reserve account (e.g. in the case of a solvency reserve), it would be acceptable to include the following in the rules of the fund:

6.3.1.that the quantum of the account is determined by the board of the fund in consultation with the valuator at least as at the date of each statutory actuarial valuation; and

6.3.2.whether or not the balance in the account is accumulated with fund return.

6.4.It is recognised that the valuator may wish to recommend a contingency reserve account at the time of doing the valuation. This would then have to be brought in line with the rules of the fund as the valuator would in effect be recommending the establishment of a new contingency reserve account. If this recommendation is accepted by the fund, the rules of the fund would need to be amended in line with this decision within 12 months following the submission of the statutory actuarial valuation report to the Registrar, or earlier in the case of section 14 transfers, where shares of such reserve accounts are being transferred.

PROCEDURES

7.1.All amendments must be marked clearly in bold print or in such other way as may be agreed with the Registrar, where replacement pages or “revised rules” are being submitted. Deletions may be indicated with an asterix. Where it is not practical to show all the amendments, special arrangements must be made beforehand with this office.

7.2.In terms of regulation 24(a) (iii) of the Regulations, reasons must be furnished for every rule amendment. A practice has developed whereby this office only requests reasons in exceptional cases. This has led to an unnecessary administrative burden and for this reason you are required to comply strictly with the above regulation. The reasons may be concise but must explain the necessity of the amendment.

7.3.In terms of section 12(2), all applications for amendments or “revised rules” must also be certified by the person managing the business of the fund as follows:

“It is hereby certified that the resolution attached hereto has been adopted in accordance with the provisions of the rules of the Fund.”

7.4.For your convenience, this requirement has been combined with the resolution in the examples attached hereto.

7.5.In terms of section 12(2) read with section 20(2) of the Act, all documentation submitted to this office must be signed by the following persons:

7.5.1.the principal officer; and

7.5.2.where the fund is managed by an individual, by that person; or

7.5.3. where the fund is managed by a committee or trustees, by the chairman and one other member thereof.

7.6.In the case of underwritten funds, until the exemptions from the Act are withdrawn, documentation may in terms of section 20(2) (c) be signed by the employer and the underwriter.

7.7.Two copies of the resolution, signed and certified as indicated above, should be furnished to enable this office to return one endorsed copy to you.

7.8. Where any amendment affects the financial condition of the fund, a certificate of a valuator as to the financial soundness should be furnished in terms of section 12(3). If the method of funding is such that triennial investigations by a valuator are unnecessary then the Principal Officer (or Underwriter) must certify financial soundness.

Annexure A

Rule Amendment No. ......

Extract from the minutes of a meeting of the Trustees/Board of the ……………………….. (reference no. 12/8/……...) held at ………………….. on …………………………………. (*where applicable)

Round Robin resolution,duly authorised,by the Board of the ………………… ………………………………Fund, (*where applicable)

Resolved: That rules ...... of the rules of the above fund with effect from...... be amended as follows:

The reasons for the amendment are:

The Trustees/Board of Fund certifies that the above resolution has been adopted in accordance with the provisions of the rules of the Fund.

…………………..……………………………………….

INTERIM BOARD MEMBERSignatureDate

(Full Name & Surname)

…………………….………………………………………..

INTERM BOARD MEMBER SignatureDate

(Full Name & Surname)

…………………….……………………. ………………….

PRINCIPAL OFFICER SignatureDate

(Full Name & Surname)

Annexure B

Extract from the minutes of a meeting of the Trustees/Board of the ……………………….. Fund (reference no. 12/8/……..) held at ………………….. on …………………………………. (*where applicable)

Round Robin resolution,duly authorised, by the Board of the ………………… ………………………………Fund, (*where applicable)

It is hereby resolved that the Rules of the above fund is herebyreplaced, with effect from ...... ,with the Rules attached hereto. The said Rules have been initialled for identification purposes and any amendments, omissions and/or additions (delete whichever is not applicable) and the reasons therefore, are set out below:

…………………………………………………………………………………………………..

The Trustees/Board of Fund certify that the above resolution has been adopted in accordance with the provisions of the rules of the Fund.

…………………..………………………..…………………..

CHAIRPERSONSignatureDate

(Full Name & Surname)

…………………….………………………………………..

MEMBER OF THE BOARDSignatureDate

(Full Name & Surname)

…………………….…………………….……………………

PRINCIPAL OFFICERSignatureDate

(Full Name & Surname)

Annexure C

SPECIAL RULES – ………………. (Name of Participating Employer)

Extract from the minutes of a meeting of the Trustees/Board of the ……………………….. Fund(reference no. 12/8/……../…..) held at ………………….. on …………………………………. (*where applicable)

Round Robin resolution,duly authorised, by the Board of the ………………… ………………………………Fund, (*where applicable)

Resolved: That in terms of the RULES of the Fund,(…..Name of the Participating Employer……) be admitted as a participating Employer with effect from (date)…...

The Trustees/Board of Fund certifies that the above resolution has been adopted in accordance with the provisions of the rules of the Fund.

…………………..………………………..…………………..

CHAIRPERSONSignatureDate

(Full Name & Surname)

…………………….………………………………………..

MEMBER OF THE BOARDSignatureDate

(Full Name & Surname)

…………………….…………………….……………………

PRINCIPAL OFFICERSignatureDate

(Full Name & Surname)

ANNEXURE D

REVISED SPECIAL RULES – ………………. (Name of Participating Employer)

Extract from the minutes of a meeting of the Trustees/Board of the ……………………….. Fund(reference no. 12/8/……../…..) held at ………………….. on ………………………………………………. (*where applicable)

Round Robin resolution,duly authorised, by the Board of the ………………… ………………………………Fund, (*where applicable)

It is hereby resolved that the set of special rules of the above participating employer be replaced with effect from…………..and subject to the approval of the Registrar of Pension Funds that the attached Revised Special Rules be adopted as the special rules of employer.

The Trustees/Board of Fund certifies that the above resolution has been adopted in accordance with the provisions of the rules of the Fund.

…………………..………………………..…………………..

CHAIRPERSONSignatureDate

(Full Name & Surname)

…………………….………………………………………..

MEMBER OF THE BOARDSignatureDate

(Full Name & Surname)

…………………….…………………….……………………

PRINCIPAL OFFICERSignatureDate

(Full Name & Surname)

ANNEXURE E

CONVERSION REPORT – FORM I

Report by the Valuator of the ...... Fund (12/8/……..) in terms of the conversion from a defined benefit basis of funding to a defined contribution basis of funding

IN ORDER FOR THE FUND TO OBTAIN APPROVAL BEFORE THE EFFECTIVE DATE OF CONVERSION, AND OPERATE ON A DEFINED CONTRUBTION BASIS AS FROM THE EFFECTIVE DATE, this form MUST be submitted before the effective date of the conversion together with the revised rules

Effective date of the conversion:………………………………..

In the table below, kindly indicate the rule number in the revised rules defining the required items:

Item / Rule number
Initial credits into the members’ accounts
Investment reserve account (for smoothing of fund returns)
Contingency reserve accounts
Mechanism of investment return accrual to members’ accounts
Mechanism of taking into account expenses when determining the members’ account balances

Notes:

(a)The conversion cannot be implemented before the revised rules have been approved by the Registrar.

(b)Where pensioners are being outsourced in terms of GN18 (i.e. pensions purchased in their own names) as part of the conversion, a separate application for transfer in terms of section 14 should be submitted.

(c)The initial credit to a member’s account may not exceed the maximum of the accrued liability and the minimum individual reserve in respect of the member if the Registrar has not approved the surplus apportionment scheme in terms of section 15B.

(d)Contingency reserve accounts created should be justified in line with the provisions of Regulation 35, which determines, inter alia, that the establishment and magnitude of any contingency reserve account by a fund–

(i)must be motivated by the valuator in the relevant report on the statutory actuarial valuation; and

(ii)where the Registrar is not satisfied with any such motivation, be rejected by the Registrar.

The basis and method used to calculate the initial credits will be as follows:

......

Where a different basis than a best-estimate basis, or the basis used in the previous statutory actuarial valuation, will be used, the effect of this on the initial credits will be as follows. In addition, kindly explain the reasons for using a different basis.

......

The financial position as at the last valuation of the fund was as follows:

Last valuation / Estimate
Date
Value of assets (A)
Value of accrued liabilities
Reserve Account 1
Reserve Account 2
Etc
Total value of liabilities, including reserve accounts (L)
Surplus (A – L)
Funding level (A/L)

If it is expected that there were significant changes to the financial position since the date of the last valuation, it would be necessary to estimate the financial position at a more recent date, or at the very least explain in broad terms and by using general reasoning what the estimated effect would be. Kindly attach this explanation as an Annexure, or complete the 3rd column in the table above.

The actuarial surplus as at the effective date of conversion will be apportioned as follows:

......

The following contingency reserve accounts will cease to exist immediately after the conversion, with the respective credit balances being distributed as follows:

......

The following contingency reserve accounts will be created immediately after the conversion, with the respective opening balances being credited / funded as follows:

......

In my opinion,

9.1.In respect of the members and deferred pensioners who convert to a defined contribution basis of funding, their reasonable benefit expectations in respect of the rules immediately prior to the conversion are fairly represented in their initial credits.

The reasonable benefit expectations of the members and deferred pensioners who convert to a defined contribution basis of funding are not fairly represented in their initial credits for the following reason:

………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………......

(Delete whichever is not applicable).

9.2.The reasonable benefit expectations of any members, deferred pensioners and pensioners who remain on a defined benefit basis of funding have not been detrimentally affected by the credits given to those members who convert to a defined contribution basis of funding and the amounts credited to the various reserve accounts.

The reasonable benefit expectations of the members and deferred pensioners who remain on a defined benefit basis of funding have been detrimentally affected as follows:

......

(Delete whichever is not applicable).

9.3.In line with section 14A (1) (c) of the Act, the amount to be credited to the member’s individual account is not less than the minimum individual reserve.

9.4.Explain what will happen should the assets available at the date of conversion not be sufficient to provide for the conversion credits as outlined in this document.

......

Declaration

I, in my capacity as valuator appointed in terms of section 9A of the Pension Funds Act, 1956, to the Fund declare that the information given above is, to the best of my knowledge and belief, correct and complete.

……………………...……..………………………..…………………..

Full name and SurnameSignatureDate

CONVERSION REPORT – FORM II

Certificate by the Chairperson OF THE BOARD and the Principal Officer of the ...... Fund (12/8/……..) in terms of the conversion from a defined benefit basis of funding to a defined contribution basis of funding