GOVERNMENT GAZETTE: ……….2018No.…..
DRAFTDIRECTIVE
DIRECTIVE PFNo. 8
FINANCIAL SERVICES BOARD
PENSION FUNDS ACT, NO. 24 OF 1956
SECTION 14 – AMALGAMATIONS AND TRANSFERS
In Board Notice 208 of 2011, published in the Government Gazette 34900 of 28December2011, the registrar of pension funds (‘the registrar’) issued Directive PF no. 6 in terms of section 33A of the Pension Funds Act, 1956, (‘the PFA’) which sets out the conditions imposed by him in respect of the different types of transfers in terms of section 14 of the PFA and clarifies other issues in respect of these transfers, as set out in the Schedule and Appendices.
This Directive replaces Board Notice 208 of 2011 with effect from the date of publication in the Government Gazette.
DP TSHIDI
Registrar of PENSION Funds
SCHEDULE
1Definition –
In this Schedule –
‘the PFA’ means the Pension Funds Act, 1956 (Act No. 24 of 1956), and any word or expression to which a meaning is assigned in the PFA has a similar meaning for purposes of this Directive.
2Purpose and transitional arrangements
2.1The purpose of this Directiveis to set out the requirements of the Registrar of Pension Funds (‘the registrar’) in respect of the different types of transfers in terms of section 14 of the PFA, to prescribe conditions in terms of section 14 and to clarify certain matters in respect of section 14 transfers.
2.2This Directive takes effect on the date that it is published and replaces Directive PF No. 6.
2.3The registrar will nevertheless consider applications in terms of section 14(1) of the PFA based on the conditions and using the forms as contained in Directive PF No.6 if they are submitted by 31 March 2018.
3Format and submission
3.1An application for the approvalof a transaction involving the amalgamation of any business carried on by a registered fund with any business carried on by any other person (irrespective of whether that other person is or is not a registered fund), or the transfer of any business from a registered fund to any other person, or the transfer of any business from any other person to a registered fund must be made in the prescribed format which consists of the following:
3.1.1the applicable fee for the amalgamation or transfer contemplated in terms of section 14(1) of the PFA as set out in Schedule L, in terms of Regulation 24(c) issued in terms of section 36 of the PFA;
3.1.2the applicable forms, duly completed, for the amalgamation or transfer, as set out in the Appendices to this Directive; and
3.1.3any other documentation to substantiate the application for theamalgamation or transfer contemplated in terms of section 14(1) of the PFA.
3.2The submission to the registrar must be made electronically on the official web site in portable document format (PDF) as a single application.
3.3The transferee fund is responsible for submitting the section 14 application for approval. However, in cases where the transfereeis not a registered fund, the transferor fund will be responsible for the submission of the section 14 application.
3.4Furthermore, the scheme for the proposed transaction, including a copy of every actuarial or other statement taken into account for the purposes of the scheme, must be submitted to the registrar within the time period as prescribed by Notice[1].
3.5The boards of both the transferor and the transferee funds must ensure that they have taken all reasonable steps to ensure that theinterests of members are protected at all times (both with regards to the rules of the fund and the provisions of the PFA) and should not merely rely on a statement to this effect by the valuators.
4Actuarial surplus / RESERVE ACCOUNTS
4.1The registrar requires information about, inter alia, actuarial surplus and reserve accounts in the transferor fund in order to consider whether a proposed transfer is reasonable and equitable and whether it meets the rights and reasonable benefit expectations of the transferring members as they relate to service before the date of transfer.
4.2For any fund that commenced prior to 7March 2002, no actuarial surplus may be included as part of the proposed transaction until the transferor fund has complied with the surplus provisions in terms of section 15B of the PFA (i.e. a surplus apportionment scheme has been approved or nil return has been noted by the registrar).
4.3The prescribed forms as set out in the Appendices require the applicant to indicate the impact of any unapportioned actuarial surplus included or excluded from the transaction.
4.4In terms of section 15G of the PFA, members who cease to be members of a fund must receive, as part of their transfer values a share of any credit balances in the member surplus account, the investment reserve account and such contingency reserve accounts as the board deems appropriate.
5Member communication
5.1As part of any transaction contemplated in terms of section 14(1) of the PFA, the registrar requires that the transferring members be provided with adequate communication in order to enable them to make an informed choice about whether or not to object to the scheme of transfer.
5.2Adequate communication must provide enough information about the particulars of the transfer, explain the risks as a result of the transfer and explain how the members’ past service benefits will be impacted by the transfer, as well as whether or not there could be any prejudice upon transfer.
5.3A comparison showing, at the very least, the benefits and costs of both funds involved in the transfer must be issued or presented as part of the communication material to members.
5.4Furthermore, transferring members, with the exception of unclaimed benefit members, must be provided with their transfer value or a reasonable estimate thereof, as at the effective date of transfer.
5.5In all cases other than for voluntary individual transfers, members must be given at least 30 days in which to lodge an objection to thescheme of transfer.
5.6Objections must be included in the submission, where these have not been resolved to the written satisfaction of the complainant, together with the fund’s response and comments.
6transfer of assets and liabilities to Comply with the pfa
6.1In terms of section 14(2)(b) of the PFA, any transfer approved by the registrar must be effected within 60 days of the date of the certificate issued by the registrar in terms section 14(1)(e).
6.2In terms of section 14(2)(c) of the PFA, any assets transferred must be increased or decreased with fund return from the effective date of transfer until the date of final settlement. The fund return should be based on the assets held in respect of the transfer.
6.3To minimise possible prejudice to the members transferring, the registrar requires that member transfer schedules be forwarded to the transferee fund within 60 days of the date of the certificate issued and the transferee fund must reconcile the schedules with the amount actually received.
7certifications regarding amounts to be transferred
7.1The boards of both funds involved in a transfer, as well as the valuators where applicable, must express their respective opinions in respect of their own fundon whether the transfer-
7.1.1.is reasonable and equitable;
7.1.2accords full recognition to the rights and reasonable benefit expectations of all the transferring members as they relate to service prior to the date of transfer;
7.1.3accords full recognition to any additional benefits in respect of service prior to the date of transfer, the payment of which has become established practice;
7.1.4accords full recognition to the payment of minimum benefits in terms of section 14A;
7.1.5would not render the fund which is a party to the transaction unable to meet the requirements of the PFA or to remain in a sound financial condition or in cases where the fund is not in a sound financial condition, to attain such a condition within a time period the registrar considers satisfactory,
7.2The board of the fund and the valuator, where required, must also express an opinion on whether the proposed transfer is reasonable and equitable and that it will not detrimentally impact the rights of the remaining members in the transferor fund or the rightsof the existing members in the transferee fund.
7.3These certifications must be made in the forms which are to be completed.The registrar will not accept modifications to the opinion prescribed in the forms since it negates the fiduciary responsibility of the board of the fund and the valuator to the stakeholders in a fund, unless such modification is highlighted and adequately motivated.
7.4Should any person or persons have concerns about whether the rights and reasonable benefit expectations of members are satisfied (e.g. the board of the transferee fund are concerned about the transfer values to be transferred); such concerns must be addressed to the registrar in a separate letter.
7.5It is specifically noted that,while it is expected of the parties to express their opinions as required above, the final decision as regards the requirements in section 14(1)(c) is for the registrar to make.
8Types of transfers
Retrospective transfers
8.1Retrospective transfersare transfers where the number of members and the amounts are known at the effective date of the section 14(1) application.
8.2For a retrospective transfer, the A Forms in Appendix 1 must be completed.
PROSPECTIVE TRANSFERS
8.3Prospective transfers are transfers where the number of members who intend to transfer and/or the amounts to be transferred, are not known at the time of the section 14(1) application.
8.4Approval may be applied for in respect of a prospective transfer at a particular date or for blanket transfers between two specific funds for a maximum period of 12 months from the effective date of the scheme of transfer.
8.5For a prospective transfer, the B Forms in Appendix 2must be completed.
8.6In the case of a prospectivetransfer, it is imperative that the transferor fund complete FormB3 and submit it to the registrar within two months of the particular date or the expiry of the prospective periodas approved.
PURCHASE OF ANNUITIES IN THE NAME OF PENSIONERS
8.7For applications in respect of groups of pensioners for whom annuities are to be purchased or whose annuity policies are to be transferred to their names, the C Forms in Appendix 3 must be completed.
8.8In the case of a prospective transfer, it is imperative that the transferor fund complete Form C2 and submit it to the registrar within two months of the particular date or the expiry of the prospective period as approved.
8.9The board must certify that the reasonable benefit expectations of the pensioners are no worse in the purchased policy, to what they would have been in the transferor fund, including consideration of expected future increases and contingent benefits.
8.10Where an individual annuity is purchased from a registered long-term insurer, the board of the fund must ensure that any conditions or restrictions contained in the rules of the fund and in Section 37A of the PFA be contained in the compulsory annuity policy document (subject to Directive 135 issued by the registrar of Long-term Insurance,which provides that there may be no restriction on the transferability of an annuity policy). The contingent benefits in terms of the rules of the fund must also be included in the annuity policy document, unless different terms are specifically agreed to between the transferor fund and the member. No insurance policy maybe transferred from the fund to a pensioner if these conditions have not been complied with at the original purchase date of the annuity.
UNCLAIMED BENEFIT TRANSFERS
8.11In terms of section 2(5) of the PFA, the registrar may, where practicalities impede the strict application of a specific provision of the PFA, exempt any fund from such provision on conditions determined by the registrar.
8.12After considering the practical difficulties experienced by funds in informing members with unclaimed benefitsof a proposed transfer and in allowing these unclaimed benefit members with the opportunity to object, the registrar hereby grants an exemption in respect of the transfer of unclaimed benefits from the requirement tocommunicate and allow for objectionsin respect of members with unclaimed benefits.
8.13Additional conditions determined by the registrar with regard to the transfer of unclaimed benefits are:
8.13.1Where transfers are in respect of unclaimed 15B surplus benefits, both the transferor and transferee funds must ensure that the requirements of Regulation 35(4) have been complied with. The transferee fund must ensure that compliance will continue after transfer.
8.14Where unclaimed surplus benefits are being transferred, these must be shown separately in the forms, as well as in the transfer schedules.
‘AGTERSKOT’ TRANSFERS
8.15An ‘agterskot’ refers to any additional benefit that a member becomes entitled to as a result of that member’s current or past membership of a fund.
8.16The registrar will permit a further transfer of assets in respect of a previously approved transfer where the valuator or the board determines that, with the benefit of hindsight, a revised quantum of assets should have been transferred.
8.17The transfer of an ‘agterskot” must be only in respect of some or all of the members in the original transferthat was previously approved.
8.18For an application for the transfer of an ‘agterskot’, Form E in Appendix 4must be completed.
8.19The adjustment to the quantum of assets transferred must be accumulated with fund return from the effective date until the date of actual payment.
9Transfers to or from an entity not registered by the FSB
9.1When considering transfers to or from an entity not registered by the FSB, Forms A or C in the Appendices to this Directive, with the necessary changes, must also be used.
9.2Transfers between a registered fund and aforeign fund or entity must first be acknowledged by the South African Revenue Services before an application is submitted to the registrar for approval. Proof of such acknowledgement must accompany the application.
9.3In addition, proof of registration of the foreign entity in the foreign country must be submitted as well as a letter confirming that the foreign fund or entity is in a sound financial condition. Where the transfer has already been approved by theforeign regulator, that approval must also be submitted in support of the application.
10Lapsing of section 14(1) applications
10.1In terms of section 14(5) of the PFA, an application shall lapse if the registrar requests further informationand no satisfactory response is received from either the transferor or transferee fund within a period of 180 days from the date of such a request.
10.2The applicant will be informed of the lapse of the application.A new application, with fees as prescribed, will have to be submitted. The fee previously paid will be forfeited.
11Transfers in contravention of the PFA
11.1If the registrar establishes that transfers have been effected without approval in terms of section 14(1) of the PFA, the registrar will require such illegal transfers to be reversed. Furthermore, penalties in terms of section 37(2) of the PFA, as well as other administrative sanctions allowed under the PFA, may be imposed.
11.2The registrar will also consider possible action under sections 25 and 26 of the PFA in such circumstances.
11.3Any such transfers cannot take place without the complicity of the administrators of both transferor and transferee funds.
11.4The registrar may, therefore, also consider amongst other actions, revoking the approval in terms of section 13B of the PFA of any administrator who effects a transfer without due approval having been obtained.
12Errors and adjustments to section 14(1) applications
12.1In terms of section 14(6) of the PFA, the registrar may withdraw or amend a certificate issued in terms of section 14(1)(e), in circumstances where the registrar is satisfied that–:
(a)the scheme or information provided in terms of section 14(1) was so inaccurate that the registrar would not have granted such certificate had the registrar been aware of the actual facts; or
(b)the certificate contains a bona fide error; or
(c)as a result of amendments to legislation, the implementation of the scheme … would prejudice members.
12.2Where the board requires the registrar to amend or withdraw a certificate, a letter signed by the principal officer or (an) authorised member(s) of the board of trustees must be submitted to the registrar detailing that request.
12.3Where the provisions described in 12.1 above have not been met, the circumstance would not be considered an error requiring amendment to the certificate.The following are examples of cases that will not be regarded as corrections of errors, and in respect of which new section 14(1) applications would be required:
12.3.1Members and their corresponding transfer values were omitted from the initial application.
12.3.2Members, assets or liabilities were transferred incorrectly (i.e. when they should not have been included in the original transfer application). In this case, a reversal section 14 application will be required.
13Replacement pages
13.1Replacement pages will only be considered if they are submitted and the registrar is notified of these, prior to the issuing of a certificate in terms of section14(1)(e) of the PFA.
13.2Any replacement pages must be duly completed and signed by the responsible parties as prescribed in the forms.
14Benefits payable in the period between the effective date and the FINAL date of SETTLEMENT
14.1In cases where benefits have to be paid before the assets and liabilities are transferred, as a result of death, disability or any other form of withdrawal, the registrar will consider as best practice, unless there is a different agreement, that the transferor fund pays the relevant benefit in their fund and that the transferee fund also pays the relevant benefit as per the rules of the transferee fund on the basis that the accrual event occurs on the member’s current membership of that fund. Where there is a difference between the transfer benefit and the benefit paid to the member by the transferor fund, the balance of the transfer amount must also be paid to the member by the transferee fund following the transfer, together with fund return.
14.2Any payments made from the assets to be transferred, must be reconciled by the transferor fund as set out in Form G, certified by duly authorised officials of both the transferor and transferee funds and such reconciliation must be retained by both funds and be available to the registrar on request.
15transfers resulting in NO MEMBERS remaining
15.1Where the approval of a transfer will result in the transferor fund having no remaining members, the transfer may unintentionally result in the transferor fund not having a properly constituted board, which must be avoided. Where the rules require that the board of the fund be comprised of members of the fund, the rules of the fund should be amended to state that the board of the fund does not have to be comprised of members of the fund and, if necessary, to extend the term of office.
16TRANSFERS FROM A TRUST TO A BENEFICIARY FUND
16.1A transfer from a trust to a beneficiary fund is a transfer as contemplated in section14(1) of the PFA and the beneficiary fund is required to submit a scheme for the proposed transfer to the registrar for approval.
16.2Where the trustees of a trustwish to transfer the benefits of a beneficiary to a beneficiary fund, the trustees of the trust and the board of the beneficiary fund must ensure that communication with beneficiaries takes place in line with the communication requirements for a section 14(1) transfer. The trustees of the trust must complete the same certifications as required from a pension fund.