The final retirement funds default regulations, made in terms of section 36 of the Pension Funds Act, came into effect on 1 September 2017. The changes introduced by the new default regulations included adjustments to investment portfolios, preservation, portability and annuity strategies for funds. The default regulations came into full effect on 1 March 2019 and all existing and new funds had to meet the requirements by this date. However, the Draft Conduct Standard on the criteria for living annuities, which was published by the Financial Sector Conduct Authority (Conduct Authority) in November 2018 to provide background and guidance on the changes, specifically in respect of the prescribed drawdown levels for living annuities in a preferred annuity strategy, has not been finalised.
The Conduct Authority received extensive comments from the public and is carefully considering them with a view to determine whether it is necessary to make changes to the draft standard before the standards-making process is completed. In light of this, the Conduct Authority has published a general exemption to exempt funds that intend including living annuities in their annuity strategy from compliance with regulation 39(3)(a), subject to certain conditions.
This exemption will remain in place until the final Conduct Standard on the criteria for living annuities, which will contain the prescribed drawdown levels, is published.
General Exemption from Regulation 39(3)(a)
The exemption is subject to the following conditions:
a) The investment choice for living annuities is limited to four investment portfolios which are compliant with regulations 28 and 37 of the Pension Funds Act; and
b) Until such time as the drawdown levels for living annuities are prescribed, the board of a fund is expected to exercise its fiduciary duty in determining the drawdown levels by taking into account the particular nature of the fund and circumstances of their membership. The drawdown levels cannot, at any time, exceed those prescribed for living annuities in terms of the Income Tax Act, 1962.
Click here to read more on PFA Notice No. 2 of 2019: General Exemption from Regulation 39(3)(a) made in terms of section 36 of the Pension Funds Act, 1956.
Click here to read a previous article on the Final Retirement Funds Default Regulations.