The FSCA has published draft amendments aimed at addressing the misalignment between the application forms for retirement fund benefit transfers and the forthcoming two-pot regime regulations.
The notice containing the proposed amendments, along with the supporting documentation, was published on 8 May. Stakeholders have until Wednesday, 19 June, to submit written comments.
Reasons for the proposed amendments
Section 14 of the Pension Funds Act (PFA) deals with amalgamations and transfers of retirement fund benefits from one fund to another. The section sets out two processes for such transfers:
- Section 14(1), which requires the fund to submit transfer documents to the FSCA for approval; and
- Section 14(8) transfers, which are exempt from having to submit transfer documents to the FSCA for approval.
Conduct Standard 1 of 2019 (PFA) sets out the conditions and requirements for amalgamations and transfers under section 14 of the PFA. The standard provides guidelines and procedures that retirement funds must follow when applying for amalgamations or transfers, including the completion of application forms and compliance with regulatory standards.
The Minister of Finance is finalising the amendments to the regulations under the PFA to give effect to the two-pot retirement system, which is scheduled to be implemented on 1 September.
In terms of the two-pot system, retirement funds will have to distinguish between three components: a vested component (contributions plus fund interest as at 31 August 2024), a savings component (one-third of contributions from 1 September), and a retirement component (two-thirds of contributions from 1 September 2024).
Members will be allowed to transfer between the different components within the same fund (subject to limitations) and between different retirement funds.
Conduct Standard 1 of 2019 does not align with the two-pot regime because the application forms allow for a single transfer value only. Once the two-pot system is implemented, section 14 forms will have to differentiate between the different components to be transferred. As such, the section 14 application forms must be revised.
Process for changing the application forms
The prescribed section 14 application forms are contained in Conduct Standard 1 of 2019. Therefore, changing the forms will be subject to the process in Chapter 7 of the Financial Sector Regulation Act (FSRA). The FSCA said this process is “onerous and time-consuming”.
If the section 14 application forms are not amended by the time the two-pot system comes into effect, any transfer taking place from 1 September 2024 will have to be based on the current prescribed forms, which do not distinguish between the different components.
The FSCA is also of the view that the current approach is overly burdensome and counterproductive, particularly because the format of section 14 application forms is largely administrative in nature.
Section 108(2)(a) of the FSRA provides for the FSCA to make determinations, in accordance with procedures defined in a standard, for the purposes of the standard. Typically, the FSCA would provide for such determinations in a Conduct Standard where it relates to determining the content and format of applications, notifications and the like – that is, matters of an administrative nature. As such, the FSCA said, the section 14 application forms are well suited to being subject to determination as opposed to formal legislative amendments, as will be enabled through the proposed amendments.
Summary of the proposed amendments
The draft amendments focus on the following:
- Removing the application forms from Conduct Standard 1 of 2019. The draft amendments propose to remove the section 14 application forms from the Conduct Standard. In future, the application forms will be determined separately by way of empowering provisions.
- Enabling the determination of application forms. The draft amendments propose to insert provisions that enable the FSCA to determine the manner of submission, content, and format of the section 14 application forms (in line with section 108(2) of the FSRA). As such, all references to the previous forms that were contained in the Conduct Standard have also been removed.
The FSCA said the draft amendments will provide it with more flexibility when making changes to section 14 application forms because they will negate the need for legislative amendments when changing such forms. This flexibility is also in the interest of retirement funds because changes to section 14 application forms necessitated by external developments, such as changes to the regulations under the PFA, can be given effect to more expeditiously, which means that retirement funds will obtain legal certainty faster.
It is important to note that the amendments to the revised section 14 application forms will be consulted on separately to the necessary legislative amendment and as a parallel process, to avoid any delays in consultation on the proposed legislative change.
Comments template and other documents
Interested parties are invited to submit written comments using the comments template, which must be emailed to FSCA.RFDstandards@fsca.co.za.
The following documents can also be downloaded from the Moonstone library:
- The notice setting out the proposed amendments to FSRA Conduct Standard 1 of 2019 (PFA).
- Statement of need, expected impact, and intended operation of the draft amendments.
- A marked-up version of the Conduct Standard showing the proposed amendments.
For further information about the draft amendments, contact Roslynne van Wyk in the FSCA’s Regulatory Frameworks Department at Roslynne.VanWyk@fsca.co.za.
