3 of 2020 (a)
The Protection of Personal Information Act (“POPIA”)
POPIA is South Africa’s data protection law and was signed into law in 2013, although not all sections became effective and would come into operation in phases. Some sections of POPIA, which dealt with the establishment and powers of the Information Regulator, came into effect on 11 April 2014. The Information Regulator was appointed on 7 September 2016.
On 22 June 2020 the President announced that the majority of POPIA would be operational with effect from 1 July 2020.
The sections which came into effect on 1 July 2020 deal with inter alia:
- conditions relating to lawful processing of personal information;
- prior authorisation;
- codes of conduct issued by the Information Regulator;
- offences, penalties, administrative fees; and
- general enforcement of POPIA.
Retirement funds will have to comply with POPIA and the Information Regulator will start enforcing POPIA one year after its commencement date. This means that funds will have until 30 June 2021 to implement the necessary structures and policies to ensure compliance. The section that deals with amendment of laws and the transfer of functions of POPIA from the South African Human Rights Commission to the Information Regulator will commence on 30 June 2021.
POPIA requires that a responsible party, which includes a retirement fund, register an information officer with the Information Regulator. Draft guidelines on the registration of information officers were issued on 17 July 2020 and were available for comments until 16 August 2020. A request was made by the retirement fund industry that principal officers be the default information officer of a fund.
Section 60 of POPIA refers to a code of conduct applicable to a specific sector. A draft guideline to compile a code of conduct was issued by the Information Regulator and they are perusing the comments received before releasing a final version. The Information Regulator has not yet formed a view on whether a code is to be published for retirement funds.
The proposal to the Information Regulator is to publish a code for retirement funds, providing that:
- prior authorisation will not be required to process personal information, where such processing is in line with applicable legislation (such as the Pension Funds Act) and the fund rules; and
- explicit consent of the members and beneficiaries will not be required to process their personal information, where such processing is in line with applicable legislation (such as the Pension Funds Act) and the fund rules.
Covid-19 relief measures – living annuities
Government Notices on living annuities were gazetted on 1 June 2020 and involves the following:
Expanding access to living annuities for a limited period of four months, starting 1 June 2020 and ending on 30 September 2020:
- It allows individuals who receive income from a living annuity to adjust their draw down rates at any time during this period either by increasing (up to a maximum of 20 per cent) or decreasing (down to a minimum of 0.5 per cent) their annuity income, instead of waiting up to one year until the next anniversary date;
- Any elections made during this period will only be applicable for the above mentioned four-month-period. The lapsing of this period will result in the draw down rates automatically reverting to the rates applicable before election;
- If the anniversary date (date for annual election of draw down rates) occurs during this concession period and a concession period percentage rate has been selected, the living annuitant will also be able to select a drawdown rate that will apply on termination of the concession period. This rate must fall within the prescribed percentages (between 2.5% and 17.5% or between 5% and 20% for pre-21 February 2007 annuities). In other words, the living annuitant will have two elections to make, one for the concession period and one for the remaining year until the next anniversary date.
Commutation of small living annuities
- The full remaining value of the living annuity capital may be paid as a lump sum when the value at any time becomes less than R125 000. Previously, the full remaining value of the living annuity capital could be paid as a lump sum when the value thereof at any time became less than either R50 000 (if part of the retirement interest was commuted upon retirement) or R75 000 (if there was no previous commutation);
- The amendments to the de minimis amount to R125 000 will not be limited to the four month-period and will continue to apply thereafter.
Financial Sector Conduct Authority
FSCA Communication 24 of 2020 – Expiration of term of office of board members of retirement funds and Covid-19
The FSCA published Communication 45 of 2020 on 28 July, stating that the FSCA has been inundated with requests for extension of the terms of office of board members of retirement funds as a result of Covid-19.
The FSCA is however not empowered to extend the terms of office of board members, as it is prescribed in terms of a fund’s rules. The FSCA advised that where terms of office have expired and funds were unable to constitute a proper board, or where a casual vacancy arose and boards were unable to fill the vacancy within 90 days, an application must be done in terms of section 26(2) of the Pension Funds Act for the FSCA to appoint board members to have a full complement of the board. Such applications must be done via the FSCA’s online platform.
Note that where terms of office have not expired yet and boards foresee that they will not be able to hold elections to fill the vacancy, boards may amend their rules to extend the term. Another solution is to amend the rules to reduce the number of board members, but this will only be possible if the decision is taken before the expiry of the term of office of the existing board members (in other words while the board is still fully constituted). In the case of a casual vacancy, such decision must have been taken before the expiry of the 90 day-prescribed period and the quorum requirements must have been met.
FSCA Communication 33 of 2020 – Assumptions for the determination of minimum individual reserves in defined benefit categories
Communication 33 of 2020 was published by the FSCA on 10 June 2020 to inform funds that, in these times of high market volatility, they should consider adapting their minimum individual reserve assumptions to be in line with market yields at exit date.
In the communication it is stated that, rather than waiting for a statutory actuarial valuation report to be accepted, funds may consider adapting the assumptions to be in line with markets, provided the board follows the same methodology in setting the assumptions to capitalise the pension at normal retirement date as was applied in the last accepted statutory actuarial valuation report, but basing this methodology on the up to date bond yields at the exit date.
FSCA Communication 41 of 2020 – non-compliance with default regulations
Communication 41 of 2020 was published by the FSCA on 9 July 2020 and serves to remind boards of retirement funds to comply with the regulations issued in terms of the Pension Funds Act, the so-called ‘default regulations’, specifically presenting members with a paid-up certificate within 2 months of leaving service and requesting a list of all paid-up membership certificates within 4 months of members joining the fund. The FSCA has been inundated with reports by auditors of retirement funds to the effect that retirement funds are contravening these provisions.
Boards are reminded that failure to ensure compliance with the default regulations may lead to administrative penalties imposed against funds.
Conduct Standard 4 of 2020 – Minimum Skills and Training Requirements for Board Members of Retirement Funds
The FSCA published the Trustee Training Toolkit Conduct Standard on 10 July 2020, with an effective date of 10 July 2020. Board members taking office after 10 July 2020 must complete the Trustee Training Toolkit (“Toolkit”) within 6 months of appointment or election as board member. The Toolkit must be completed under the supervision of the principal officer or chairperson and such principal officer or chairperson must provide the fund with a declaration that the board member completed it without assistance.
The idea is that this declaration will be automated upon completion of the Toolkit, however as the FSCA is still busy building this tool into the Toolkit, a manually completed declaration must be done.
Board members that were in office before 10 July 2020 must complete the toolkit before 10 January 2021 under the supervision of the principal officer or chairperson and such principal officer or chairperson must provide the fund with a declaration that the board member completed it without assistance.
Where it is impractical to be supervised, a board member may complete the Toolkit without supervision, provided that such board member submits a declaration to the fund confirming that the Toolkit was completed without assistance.
Board members who were in office before 10 July 2020 and have completed the Toolkit before, are not required to complete the certification again. These board members are required to complete a declaration confirming that the Toolkit was completed without assistance.
Funds must retain the declarations and promptly provide a copy to the relevant board member and provide it to the FSCA on request. The FSCA has undertaken to provide a template declaration, but until such time as it becomes available, will accept declarations in any other format.
FSCA Information Request 3 of 2020 – Request for information related to participating employers under umbrella funds
On 20 July 2020 the FSCA published Information Request 3 of 2020 in order to obtain information relating to participating employers under Type A umbrella funds. The purpose of the information gathering is to establish which participating employers in type A umbrella funds are governed by sectoral determinations and whether they have exemption from participating in their bargaining council fund. FSCA indicated that ALL participating employers’ details must be provided by no later than 30 September 2020. Other umbrella funds such as Type B umbrella funds, bargaining council funds and municipal funds need not provide the information.
Advocate Dube Tshidi appointed as FSCA Commissioner
The FSCA confirmed that Adv. Dube Tshidi has been appointed by Mr Tito Mboweni, the Minister of Finance, to perform the functions of the Commissioner. The designation is effective from 6 August 2020 for a three-month period, until 5 November 2020 or until a Commissioner is appointed and assumes office, whichever occurs sooner.
Levies on Financial Institutions
A draft on the increase of levies on financial institutions was issued by the FSCA on 19 June 2020 and comments were submitted on the proposed draft. In particular the IRFA requested that the levies not be increased due to the impact that Covid-19 had on the industry.
The FSCA took the proposals into consideration and decreased the initial proposed levies. The levies have therefore increased from last year’s levies however they are lower than what was initially proposed.The FSCA levies for the period 1 April 2020 to 31 March 2021 are as follows:
Levy on pension funds
- R1 317.02 (was R1 278.66), plus an additional amount of R15.58 (was R15.13) per member and in respect of any other person who receives regular periodic payments from a fund (excluding any member/person whose benefit in the fund remained unclaimed and beneficiaries); OR
- R3 017 755 (was R2 929 859), whichever total amount is lesser.
Levy on administrators
- R8 407.20 (was R8 162.33); plus
- R655.40 (was R636.31) per fund under the administration of the administrator; plus
- R0.79 (was R0.77) per member and in respect of any other person who receives regular periodic payments from the fund, but excluding any member/person whose benefit in the fund remained unclaimed or a beneficiary in a beneficiary fund.
Levy on retirement annuity funds
- R1 317.02 (R1 278.66), plus
- An additional amount equal to 0.0097% (no increase) of value of assets of the fund.
Levy for Pension Funds Adjudicator
R6.79 (was R6.59) per member and in respect of any other person who receives regular periodic payments from the fund but excluding any member/person whose benefit remained unclaimed in the fund.
Failure to pay on time will result in interest being charged at 7%, i.e. prime interest rate. Funds can apply for exemption at least one month before exemption is to take place, i.e. a month before due date. The levy must be paid by no later than 30 September 2020.
Question and Answer
Is there a limit that must be applied where a member’s fund credit serves as surety for a housing loan?
In terms of section 19(5) of the Pension Funds Act, the loan shall not exceed 90% of the market value of the property concerned or the amount of the benefit which the member would receive if he were to terminate his membership of the fund voluntarily, whichever is the lesser amount.
When deciding on the maximum percentage that will be allowed, the board needs to consider that the member might default on repayments and if no other arrangement can be made, the bank may need to foreclose on the property. It is therefore recommended that the loan amount not be more than the member’s withdrawal benefit after tax. A maximum of 60% of share of fund may be considered by boards.
The board also needs to take the age of the member into account. The loan should be paid up by the time the member reaches normal retirement age. However, should a pension fund member choose to retire early, he/she will be entitled to take only one-third of his or her share of fund in cash and that amount minus tax must be sufficient to cover any outstanding housing loan balance.