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November 30, 2022

RETIREMENT MATTERS – 5 OF 2022

Format of documents related to the payment of pension fund contributions

On 19 August 2022, the Financial Sector Conduct Authority (FSCA) published Conduct Standard 1 of 2022 which sets out the requirements related to the payment of pension fund contributions. Although the Conduct Standard made provision for certain notifications and reports, it did not provide for the format of the notifications and reports. The FSCA published FSCA RF Notice 14 of 2022 on 30 September 2022, which sets out the format of the relevant notifications and reports. The following formats have been published:

  • The format in which the fund must inform a participating employer of its duties and obligations under section 13A of the Pension Funds Act, as well as a request to the employer to provide the fund with the identity and particulars of every director (or member in respect of a close corporation) who is regularly involved in the management of the employer’s affairs;
  • The format in which the FSCA must be notified of a contravention of the provisions of section 13A of the Pension Funds Act; and
  • The format in which a criminal complaint must be laid against the employer for the non-payment of contributions to the fund, or the failure to submit contribution schedules.

FSCA discussion paper on unclaimed assets in the financial sector

The FSCA launched a discussion paper on unclaimed assets to find a solution that will lead to increased payments of unclaimed assets to the beneficial owners. Unclaimed assets have accumulated to almost R90 billion across the financial sector, with the majority being in retirement funds.

The FSCA proposes 13 recommendations for the treatment of unclaimed assets, one of which is the establishment of a single Central Unclaimed Assets Fund into which all unclaimed assets should be transferred. An alternative is for unclaimed assets to be transferred into the National Revenue Fund.

Commentators were invited to comment on the paper and respond to the key questions raised with each proposal by 30 November 2022.

FSCA Communication 35 of 2022 – Requirements related to regulatory reporting and audited financial statements for pension funds

The FSCA has issued Communication 35 of 2022 on 9 November 2022 which deals with the requirements related to regulatory reporting and audited financial statements for pension funds. Currently, the auditing and reporting type requirements for pension funds are set out in different Board Notices. However, the regulatory reporting requirements, as well as the format for reporting are to some extent outdated. In addition, the recent revision of Regulation 28 has also required additional reporting requirements in relation to infrastructure assets and amendments to the asset spreading requirements. As a result, there is a need to update the regulatory reporting requirements and the prescribed format of financial statements to further align to the International Financial Reporting Standards (IFRS), International Account Standards (IAS) and local auditing requirements.

The following documents were published for public comment:

  1. Draft Prudential Standard – Requirements related to Regulatory Reporting and Audited Financial Statements for Pension Funds (draft Prudential Standard);
  2. Statement supporting the draft Prudential Standard; and
  3. Comments Template for the draft Prudential Standard.

Interested parties were invited to submit comments on the draft Prudential Standard by 18 January 2023.

Code for Responsible Investing in South Africa (CRISA): Media release and launch of CRISA 2

CRISA 2 was launched by the CRISA Committee at the GEPF’s Annual Thought Leadership Conference on 16 September 2022. It builds on the first CRISA Code (2011) and contains five voluntary principles for stewardship and responsible investment as a key component of the South African governance framework.

The principles of CRISA 2 are of universal relevance, capable of flexible application on a proportionate basis as the context may require, by asset owners, asset managers and service provider organisations who voluntarily align themselves with the principles.

The primary objective of CRISA 2 and its principles is to affirm CRISA as a key component of the governance framework for South Africa.

The five principles laid down by CRISA 2 are the following:

  • Investment arrangements and activities should reflect a systemic approach to integrating material environmental, social and governance (ESG) factors;
  • Investment arrangements and activities should demonstrate the acceptance of ownership rights and responsibilities diligently, enabling effective stewardship. Active ownership is, with reference to a retirement fund, defined as the prudent fulfilment of responsibilities relating to the ownership of, or an interest in, an asset;
  • Acceptance and implementation of the principles of CRISA 2 and other applicable codes and standards should be promoted through collaborative approaches and targeted capacity building throughout the investment industry;
  • Sound governance structures and processes should be in place to enable investment arrangements and activities that reflect and promote responsible investment and diligent stewardship, including proactively managing conflicts of interest; and
  • Investment organisations should ensure disclosures are meaningful, timeous and accessible to enable stakeholders to make informed assessments of progress towards the achievement of positive outcomes.

The effective date for reporting publicly on the application of CRISA 2 is 1 February 2023.

Request for information on paid-up members of retirement funds

On 22 June 2022, the FSCA published FSCA Information Request 5 of 2022, the purpose of which was to obtain up-to-date information from all retirement funds and administrators relating to the benefits of paid-up members, as well as a request to all retirement funds and administrators to provide the relevant information on an ongoing basis.

In terms of the Information Request all retirement funds and administrators were requested to submit the relevant information on or before 31 October 2022.

The FSCA has released Communication 34 of 2022 to extend the due date to submit the information from 31 October 2022 to 15 December 2022.

Submission of actuarial reports in terms of section 16(1) of the Pension Funds Act

The FSCA has issued Communication 32 of 2022 on 3 November 2022, in which it requests funds to (together with the valuation report) submit information through a spreadsheet. The information in the spreadsheet will summarise the financial position of the fund, and the purpose thereof is to streamline the process of consideration of the submitted valuation report.

The spreadsheet does not replace the fund’s actuarial valuation report and must be submitted in addition to the actuarial valuation report, the duly signed statement from the board and the certificate in terms of section 16(8) of the Act. The submission of the spreadsheet must be made on the FSCA Retirement Online system.

The spreadsheet must be submitted together with valuation reports that are submitted on the system after 1 January 2023 for funds that include a defined contribution category of members.

Two-pot retirement system

The 2022 Draft Revenue Laws Amendment Bill was published for public comment on 29 July 2022.  The Bill contains proposed amendments to the Income Tax Act and also deals with the two-pot retirement system.

On 20 September 2022, National Treasury presented its Draft Response Document to the Standing Committee on Finance in Parliament. The Draft Response Document contains a summary of draft responses from National Treasury and SARS officials to the public comments received and contains proposed steps to be taken in addressing the key issues that were raised during the consultation process.

The most noteworthy issues as it relates to the two-pot retirement system are as follows:

  • The implementation date of the two-pot system will be postponed from 1 March 2023 to 1 March 2024. This is to cater for system changes that are required to administer the two-pot system.
  • Criticism of the two-pot system focussed on the fact that members will not have immediate access to their retirement savings which could lead to members resigning to gain such access. National Treasury’s response to this is that Government is open to allowing once-off seeding capital from the vested pot into the savings pot to provide members with immediate access to a portion of their retirement savings. The details will still be considered.
  • It remains unclear how the two-pot system will apply to defined benefit funds. A consultative process will be undertaken with the defined benefit funds as well as stakeholders

Draft Prudential Standard – Regulation 28 quarterly reporting requirements

The FSCA has on 4 November 2022 published a draft prudential standard on the Regulation 28 quarterly reporting requirements. The quarterly reports are updated to take into account the recent amendments to Regulation 28 of the Pension Funds Act, which will come into effect on 3 January 2023.

A fund must report on compliance and non-compliance with Regulation 28 by submitting a quarterly report to the FSCA. The draft Prudential Standard prescribes a revised and updated quarterly reporting format. The proposed new reporting format now also includes quarterly reporting in respect of infrastructure, an overall limit for infrastructure across all classes and an overall limit for all instruments per entity or issuer. Non-compliance or breaches in terms of sub-Regulation 3 of Regulation 28 at fund and member level must also be reported, along with the asset allocations at fund level, as well as matters related to environmental, social and governance issues. Some of the other changes include the splitting of the hedge funds and private equity asset allocations and the revised housing loans and private equity limits.

A fund must complete all fields of the quarterly report and submit it to the FSCA, in accordance with the following time periods:

(a) for the first quarter ending 31 March 2023, on or before 30 September 2023; and

(b) for all subsequent quarters within 90 days after quarter-end.

Comments on the draft prudential standard can be provided to the FSCA until 7 December 2022.

Draft FSCA RF notice: Exemption from liquidation

On 2 November 2022, the FSCA published a draft notice proposing an exemption for certain funds from conditions to qualify for exemption from section 28 of the Pension Funds Act.

Directive 4 of 2009 prescribes the format and requirements that funds need to comply with to qualify for exemption from a full liquidation process. Two of the conditions are that the average benefit per member must be less than R50 000 and the membership must be less than 50 members.

The FSCA intends to exempt funds from those requirements on the condition that the fund does not have more than 100 members and that all remaining requirements of Directive 4 are complied with. The FSCA will still consider exemption applications on an individual case-by-case basis.

The draft notice sets out the benefits and challenges of a full liquidation process versus those of a liquidation exemption.

The draft notice is open for comments until 14 December 2022.

Q&A

Q: If a board member has completed the Trustee Training Toolkit in one term and is then re-elected or re-appointed for another term, does the board member have to redo the Toolkit?

A: No, it is not required that the board member redo the Toolkit. FSCA Conduct Standard 4 of 2022 (RF) prescribes the Toolkit as the minimum training requirement for board members. In terms of the Conduct Standard, a person who has attained the certification of the Toolkit and is subsequently appointed to a board is not required to complete the certification again. However, in terms paragraph 3(7) of the Conduct Standard, when the Toolkit is amended by the FSCA to include additional modules, all board members will have to complete the additional modules.

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