The Retirement Fund Reform Discussion Paper issued by the National Treasury in December 2004 elicited suggestions from a wide range of institutions and people. There were a number of excellent suggestions put forward and it is to be hoped that many of them will be incorporated into the draft Bill, which is now eagerly awaited.
What can we expect from the Bill?
The single most important and the most radical suggestion put forward in the discussion paper was the formation of the National Savings Fund.
The idea behind the Fund is to shift as far as possible the burden of providing the social old age pension from the State to individuals themselves. The Fund is aimed at those people who are not members of occupational retirement schemes, either because they are not in formal employment or because their employers do not offer occupational retirement schemes. The discussion paper does not give many details of the Fund but what is clear is that the Fund will not be liable for retirement fund tax. Because it is aimed at the poor and the costs will be kept to a minimum, there will probably not be any life or disability cover provided to savers. Concerns have accordingly been expressed that care will have to be taken not to entice members of occupational schemes away from their current schemes where they do enjoy this form of cover.
The discussion paper does not deal with the tax regime applicable to retirement funds and this is obviously an issue that will be discussed in detail at some other time. It is, however, significant that the paper specifically mentions the National Savings Fund as having a tax advantage over other retirement funds.
The principle of preservation of pension benefits is also mooted in the discussion paper. The suggestion is made that when an employee changes jobs the benefit payable from the old retirement fund should not be available in cash and should be transferred to the new retirement fund or the national savings fund. This principle has wide support from the industry and it is to be expected that it will be retained in the Bill albeit with some modifications to allow for some payments for what the discussion paper refers to as 'life crisis needs'.
Significantly, the discussion paper supports the idea of allowing the funding of post retirement medical aid benefits (PRMA). This is a contentious matter and there are many complicated issues involved that are not mentioned in the discussion paper but have been highlighted by many commentators, not least of which are the tax treatment of the contributions for PRMA; the ring-fencing of the PRMA assets; and the confusion of the trustees' responsibilities between retirement funding and medical aid funding.
It is expected that the dispute resolution measures currently applicable (the Pension Funds Adjudicator and the Appeal Board of the FSB) will be retained but that the cloudy jurisdictional issues will be clarified and the Adjudicator given wider powers with perhaps certain other Ombuds being absorbed into the Adjudicator's office. This is to be welcomed as there are too many jurisdictional issues arising in pension disputes.
Ultimately it is hoped that the new Pension Funds Act will bring under its ambit all retirement funds and retirement funding vehicles and will provide for a regulatory environment that is fair and allows for sufficient security for funds in which to operate.
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