The FSCA has set out how retirement funds and administrators must address benefit transfers that are still being processed when the two-pot retirement system is implemented on 1 September.
The clarification is included in a communication about proposed amendments to the application forms for amalgamations and transfers of retirement fund benefits. These proposed amendments follow the FSCA’s draft amendments to Conduct Standard 1 of 2019, which were announced in May this year.
Read: FSCA proposes amending the conditions for section 14 transfers
Conduct Standard 1 of 2019 sets out the conditions and requirements for amalgamations and transfers under section 14 of the Pension Funds Act.
Section 14 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.
When the two-pot system is implemented on 1 September, most members’ retirement savings will be allocated among three components: vested, savings, and retirement.
Funds and administrators require clarity over how they must treat section 14 transfers during the transition to the two-pot system where a transfer is in process on 1 September, as well as new transfers as of 1 September, the FSCA said in a communication issued on Tuesday.
Clarification is particularly required about the calculation of the seed capital, the payment of benefits withdrawn from the savings component, and the allocation of transfer values across the components.
Any fund that has member assets on 1 September 2024 must calculate the seed capital for all members, irrespective of the status of the transfer, the Authority said in Communication 21 of 2024 (RF).
The transferor fund will not in all circumstances have to pay a withdrawal benefit from the savings component. However, the membership schedules provided to the transferee fund must show the value in the transferor fund on 1 September and the calculation of the seed capital, the FSCA said.
The communication includes three tables setting out how funds and administrators must give effect to section 14 transfers that straddle the implementation of the two-pot system.
Proposed changes to application forms
Conduct Standard 1 of 2019 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 two-pot system will allow members to transfer benefits between the different components within the same fund (subject to limitations) and between different retirement funds.
As the FSCA explained in May, the conduct standard does not align with the two-pot regime because the application forms allow for a single transfer value only.
Therefore, the draft amendments propose:
- removing the section 14 application forms from Conduct Standard 1 of 2019; and
- inserting provisions that enable the FSCA to determine the manner of submission, content, and format of the section 14 application forms.
The FSCA published a raft of documents on Tuesday as part of the public consultation on the proposed changes to the section 14 application forms. These are:
- A summary of the proposed changes to the forms (marked as Annexure A).
- Marked-up versions of the previous forms showing the proposed changes as tracked changes (Annexure B).
- The following documents were published as Annexure C:
- Draft determination of the forms to be completed for amalgamations and transfers in terms of section 14;
- Appendix 1: Forms for a retrospective transfer;
- Appendix 2: Forms for a prospective transfer;
- Appendix 3: Forms for the purchase of annuities in the name of pensioners;
- Appendix 4: Forms for an “agterskot” transfer;
- Appendix 5: Forms for a section 14(8) transfer; and
- Appendix 6: Transfer schedule.
Interested parties are invited to submit comments using the comments template (Annexure D). Comments must be emailed to FSCA.RFDstandards@fsca.co.za by Wednesday, 31 July 2024.
To download the abovementioned bundle of documents, go to www.fsca.co.za > Regulatory frameworks > Retirement funds > 2024
