November 30, 2020

5 of 2020

Details of employers participating in retirement funds

The Office of the Pension Funds Adjudicator has issued letters to retirement funds requesting the contact details of participating employers in the funds, with the view of partnering with funds to expedite complaints by 15 October 2020. Funds were encouraged to comply with this request, although they were not compelled to do so.

Promotion of Access to Information Act

The Promotion of Access to Information Act, 2 of 2000 (“PAIA”) was enacted on 3 February 2000. The purpose of the legislation is to give effect to the constitutional right of access to information held by any private or public body that is required for the exercise or protection of the requester’s rights. Retirement funds qualify as private bodies under PAIA.

The date of commencement of PAIA was 15 February 2002, but several extensions were granted for compliance by retirement funds up to 31 December 2020 and no further extension was granted.

In terms of PAIA, every fund must compile, submit and make available a manual as prescribed by PAIA by 31 December 2020 and have a process in place for members and third parties to request information from the fund.


The manual must contain the contact details of the fund, a description of the fund records available and whether a formal PAIA request is necessary to obtain the information. The manual must be updated regularly and be made available on the website of the fund, at the registered office of the fund and sent to the Human Rights Commission via email.

Requests for information

A member is entitled to request information regarding him/herself (e.g. benefit statement), as well as the documents that are available in terms of the Pension Funds Act (the fund rules, valuation report, financial statements and risk benefit policies).

However, should a member request any information outside of this scope or should a third-party request information regarding a member or the fund, the PAIA request form must be completed for consideration by the head of the private body or a person authorised by the board of management. Fees may be charged for the provision of information at the discretion of the board of management in line with regulations.

Private Member’s Bill – Member loans

The outbreak of the Covid-19 pandemic in South Africa has had a severe impact on the South African economy and on the financial wellbeing of many South Africans. The Democratic Alliance has given notice to table a Private Member’s Bill before Parliament in respect of loans from retirement funds to its members. A Private Members Bill is a mechanism for individual Members of Parliament (also known as Private Members) to initiate legislation.

The explanatory memo to the Bill states that its aim is to amend the Pension Funds Act to allow for fund members to obtain a loan, secured by a guarantee from a registered pension fund, in order to alleviate financial pressure during the Covid-19 emergency or any other emergency similar to the pandemic, which would leave workers with reduced or no income at all.

Currently members of retirement funds can obtain loans for housing purposes in terms of section 19(5) of the Pension Funds Act. The proposal extends this section to allow for loans other than just housing loans.  It is suggested that 75% of a member’s share in the fund may be utilised for such a guarantee.

The Bill does not propose withdrawals from funds, but only suggests that retirement fund benefits can be used as guarantee for personal loans in the same way as it is currently used for housing loan guarantees, meaning the fund acts as surety for the loan.

Although the explanatory memo to the Bill suggests that the reason for the loan must be related to Covid-19, the draft Bill itself makes it an open loan.

Medium-Term Budget Policy Statement

The Minister of Finance, Mr Tito Mboweni MP, tabled the 2020 Medium Term Budget Policy Statement (MTBPS) on Wednesday 28th October 2020. Government is determined to maintain a prudent fiscal stance which is in the best interest of the country in the medium and long-term.

Reclassification of inward listed debt and derivatives referencing foreign assets

Government will introduce measures to re-classify as domestic all foreign classified debt, derivatives and exchange traded instruments that are inward listed on South African exchanges and traded and settled in Rand. Following the announcement, FSCA has issued communication 53 of 2020, explaining that the approval process in respect of inward listing still applies and that Financial Sector Conduct Laws that may be affected will be evaluated. The FSCA will provide further guidance and no presumptions should be formed on the reclassification.

Annuitisation Requirement for Provident Funds

All NEDLAC constituencies have reached agreement for the annuitisation of provident funds to take effect on 1 March 2021, to enable provident fund members to continue to benefit from tax deductions on their contributions, which they have enjoyed since 2016. The agreement also includes addressing other anomalies in the retirement industry, to ensure more appropriate and better value-for-money annuity products for low income workers.

Early Access to Retirement Savings

Retirement funds are designed primarily to encourage individuals to save while working to provide an income when they retire. National Treasury has received a number of proposals from taxpayers and some NEDLAC social partners, to enable limited pre-retirement withdrawals from retirement funds, especially during times of a disaster like the COVID-19 pandemic. National Treasury has consulted with NEDLAC partners to introduce the necessary legislative amendments next year to allow for limited withdrawals under certain circumstances, but this will be linked to new mandatory preservation requirements when members leave employment.

There is also agreement at NEDLAC to accelerate the introduction of auto-enrolment into a retirement fund for all employed workers, as well as the establishment of a fund to cater for workers currently excluded from coverage, because their employers have not established their own retirement funds. Engagements are also underway between Government and social partners to resolve concerns with respect to the governance of umbrella funds. Announcements will be made after completion of further consultations within and outside NEDLAC.

Proposed Review of Regulation 28

Government has initiated a process to review Regulation 28 to make it easier for retirement funds to increase their investment in infrastructure, should a board of management opt to do so. This proposal follows from a number of comments from government, industry and labour, to encourage investment in infrastructure, particularly in times of low economic growth. A draft gazette will be released shortly for public comment, outlining components of Regulation 28 that are being proposed for review. 

Financial inclusion

The Minister of Finance released a draft policy paper to enhance financial inclusion, for public comment. The draft policy paper establishes a policy framework for financial inclusion, sketches an approach to implementation, and provides a basis on which the financial services sector, regulators, policy makers and all other stakeholders will promote and support financial inclusion. The paper outlines what needs to be done to deepen financial inclusion for individuals, extend access to financial services for Small, Medium and Micro Enterprises (SMMEs) and leverage a more diversified provider and distribution base for financial services in South Africa.

Appointment of Olano Makhubela to perform the functions of Commissioner of the FSCA for a period of three months

The Minister of Finance has appointed Mr Olano Makhubela to perform the functions of the Commissioner of the FSCA for a period of three months, effective from 6 November 2020 to 5 February 2021. Mr Makhubela is currently the Divisional Executive for Retirement Funds Supervision at the FSCA and will continue with these responsibilities.  The appointment follows from the expiry of the term of Advocate Dube Tshidi who was appointed to perform this role from 6 August 2020 to 05 November 2020.

Determination in terms of the Financial Sector Regulation Act (FSRA)

The Minister of Finance has determined in the Government Gazette of 16 October 2020 that the functions, associated powers and duties of the Prudential Authority in terms of the FSRA in relation to collective investment schemes, pension funds and friendly societies, must still be exercised by the Financial Sector Conduct Authority (FSCA) until 31 March 2024.

Conduct Standard on smoothed bonus policies 

Regulation 37 to the Pension Funds Act, part of the “default regulations”, state that boards of management must set up a default investment portfolio for those members who do not make investment choices.  Conduct Standard 5 of 2020 was published by the FSCA on 9 October 2020 to prescribe the conditions with which a smoothed bonus policy must comply, in order to meet the definition of default investment portfolio.

Smoothed bonus portfolios are investment portfolios offered by life insurers who provide stable and predictable investment returns by way of a full or partial guarantee on the money invested. The returns are in the form of bonus declarations by the insurer.  During times of strong investment returns, some of the growth is set aside to fund times of low or negative returns, thereby “smoothing” returns. This type of investment is usually chosen by risk averse members or those nearing retirement.

The FSCA believes that smoothed bonus products require greater disclosure as they are not clearly understood by members.  The Conduct Standard states that to be eligible as a default investment portfolio, a smoothed bonus policy must comply with the following criteria:

  • A formulaic approach must be established to calculate and determine bonus declarations, both vested and non-vested and this formula must be disclosed;
  • Any management actions that may be taken by the insurer to reduce the risk in the policy must be properly disclosed and documented;
  • The charge relating to any guarantee provided in terms of the policy must commensurate with the risk and be separately disclosed;
  • The insurer will only be allowed to apply a market-value adjustment in predetermined circumstances;
  • No disinvestment penalties may be levied by the insurer.

The asset allocation in the smoothed bonus policy must remain within the strategic asset allocation that has been disclosed and importantly must comply with the asset spreading limits set out in Regulation 28 of the Pension Funds Act. Where a material change in the strategic asset allocation is being considered, full disclosure must be made to all stakeholders, and the FSCA must be notified beforehand of the intended change and the reasons.

The following must be noted:

  • The Conduct Standard states that members must be treated fairly and member communication must be accurate, relevant, simple and easy to understand.
  • Boards of management will need to follow a more onerous process, should they opt to include a smoothed bonus policy in their default investment strategy. This will result in more effort, as well as more checks and balances being required.
  • Insurers wishing to have their smoothed bonus policies included in funds’ default investment portfolios will have less flexibility during the smoothing process. This may have an impact on the cost of any guarantees provided.
  • Retirement funds must comply with the Conduct Standard within 9 months of its publication date of 9 October 2020.

Insurers will therefore need to implement disclosures and provide member communication.  Boards of management must verify whether any of the building blocks in their default strategy (generally in the portfolios of members closer to retirement) consist of smoothed bonus products and ensure that the requirements are followed by the insurers.

Draft Conduct Standard: Conditions for Investments in Hedge Funds

The FSCA issued a draft Conduct Standard on 9 October 2020, the objective of which is to prescribe the conditions that a fund needs to comply with in order to invest in hedge funds. This includes that a fund may only invest in a hedge fund if such hedge fund is administered by a registered manager authorised to administer a hedge fund; the manager must contractually undertake to disclose to the fund if the fund’s exposure to embedded derivatives in the hedge fund exceeds one hundred percent of such derivatives; and  where the board of a fund lacks the expertise to make investment choices, such board must, before it invests in a hedge fund, obtain expert advice as required in terms of the Pension Funds Act to enable it to make the most suitable investment decisions for its fund in relation to investing in a hedge fund.

The FSCA requested comments on the draft Conduct Standard and a final Conduct Standard has not been issued yet.

Draft Conduct Standard: Securities Lending Pension Funds

The FSCA issued a draft Conduct Standard on the Conditions for Securities Lending on 7 October 2020. The Conduct Standard will apply to a fund that enters into a securities lending transaction and is open for comments until 30 November 2020. It sets out the overarching principles for securities lending and prescribes, amongst others, conditions in respect of the delegation of administration of securities lending agreements to a service provider. The draft Conduct Standard also clarifies the requirements that will be applicable to all securities irrespective of whether the securities are offshore or local.

Funds will have 6 months from date of coming into operation of the Conduct Standard within which to comply.

Cheques will no longer be used

The South African Reserve Bank, Financial Sector Conduct Authority, Payments Association of South Africa and the Banking Association South Africa jointly communicated that the issuing and the acceptance/collection of cheques will cease, effective from 31 December 2020.  Any retirement funds that still issued cheques will therefore no longer do so from 1 January 2021.


Q: Should a member die during a section 14 transfer process, and the member has a benefit in the transferor fund and has made contributions to the transferee fund, which board of management must decide on the section 37C distribution?

A: In terms of Conduct Standard 1/2019, if death, disability, resignation, dismissal, retrenchment or retirement occurs after the effective date of transfer, but before the section 14(1) application has been approved by the FSCA, the member (or his or her beneficiaries) may receive benefits from both funds. This means that the board of management of both the transferor and transferee funds will need to take a section 37C decision regarding the benefit in the fund that they manage.