RFS Umbrella Pension & Provident Funds Communique 02 of 2019: Your Fund and the Default Regulations

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February 5, 2019
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May 7, 2019

This document outlines the approach that the Funds have taken with respect to Regulations 37 to 39 of the Pension Funds Act – the “defaults regulations”. The regulations deal with three key events in the life of a member. Firstly, Regulation 37 deals with members who join the Fund or are active members within the Fund. Secondly, Regulation 38 deals with how Funds should treat members who withdraw from the Fund. Finally, Regulation 39 requires funds to help members at retirement.

The Board of Trustees recognises that within an umbrella fund environment, member needs are unlikely to be the same. From the outset, the Trustees have wanted to structure the options available to members and advisors to the Fund in a manner where varying member needs can be addressed.

The Fund thus allows advisors to construct participating employer defaults different to the Trustee Default investment strategy. The Fund also allows advisors to be part of the Benefit Counselling process (at retirement or withdrawal), but also have a default for these processes.

 

1. Default Investment Regulations (Regulation 37)

 

Even prior to the issue of Regulation 37, the Funds always had an approved a default investment strategy for the Funds. It was the Sasfin Horizon portfolios. However, the Trustees have approved a new set of investment portfolios as the default portfolios that can be used by advisors to construct a bespoke default investment strategy for their clients. These are the RFS defaults portfolios which is planned to be effective on 1 July 2019 (A separate communication will be issued regarding this).

The trustees wish to cater for different client preferences. Therefore the Sasfin Horizon portfolios will still remain on the list of investment portfolios available to clients and advisors, but it will not be the fund default.

1.1. The Trustee Approved Default Investment Strategy

The Trustees have approved a lifestaging strategy as its default investment strategy. The strategy will involve the transition of members from an Aggressive Regulation 28 compliant balanced portfolio to a conservative (low equity) portfolio over a 5-year period. The table below provides details of the transition.

Years to Normal Retirement Age Portfolio Mix
6 years or more 100% Aggressive
5 years 66.7% Aggressive + 33.3% Moderate
4 years 33.3% Aggressive + 66.7% Moderate
3 years 66.7% Moderate + 33.3% Conservative
2 years 33.3% Moderate + 66.7% Conservative
1 year 100% Conservative

The table below provides the investment targets for each of the lifestaging portfolio constituents.

Risk Profile Portfolio Real Return Target Measurement Period Peer Group
Aggressive CPI + 6% 5 Years Regulation 28 Compliant Balanced Funds
Moderate CPI + 4.5% 5 Years Absolute Return Funds

(CPI + 4% to 5% objectives)

Conservative CPI + 3% 3 Years Absolute Return Funds

(CPI + 3% objectives)

The Fund’s default portfolios are constructed on a multi-asset and multi-manager basis in conjunction with the Fund’s asset consultants. The investment administration of the portfolios is performed by Momentum. The Fund will make factsheets available for each of the portfolio defaults.

1.2. Alternative Portfolios Available to Advisors

In order to cater for various client needs, participating employers under the guidance of their advisors may elect to set up their own bespoke default investment strategy. The Trustees have approved the following list of portfolios that can be used to construct such a bespoke default strategy.

 

Portfolio Benchmark / Target Risk Profile Description
Sasfin Horizon High Equity SA Multi Asset Class High Equity Average Aggressive Reg 28, multi-asset, multi-manager, actively managed
Sasfin Horizon Medium Equity SA Multi Asset Class Medium Equity Average Moderate Reg 28, multi-asset, multi-manager, actively managed
Sasfin Horizon Low Equity SA Multi Asset Class Low Equity Average Conservative Reg 28, multi-asset, multi-manager, actively managed
Sasfin Horizon Stable SA Multi Asset Class Low Equity Average Conservative Reg 28, multi-asset, multi-manager, actively managed
Sygnia Signature 70 Asset Allocation Benchmark Aggressive Reg 28, multi-asset, multi-manager, actively managed
Sygnia Signature 60 Asset Allocation Benchmark Moderate Reg 28, multi-asset, multi-manager, actively managed
Sygnia Signature 50 Asset Allocation Benchmark Conservative Reg 28, multi-asset, multi-manager, actively managed
Sanlam Monthly Bonus Fund CPI + 3% Preservation Fully Vesting Smooth Bonus
Alexander Forbes Investments Performer Median Large Manager Watch Aggressive Reg 28, Blend of balanced funds, actively managed
Alexander Forbes Investments Conserver Median Large Manager Watch Conservative Reg 28, Blend of balanced funds, actively managed

2. How will Paid-Up Members be Treated (Regulation 38)

 

In terms of Regulation 38, the Fund must make a member paid-up once such a member leaves the employ of the participating employer. The member will remain in the investment strategy that was applicable to the member prior to becoming paid-up. That is, there is no change to the member’s investment portfolios on becoming paid-up.

Members have the following options at withdrawal from a retirement fund:

  • Remain a paid-up member in the Fund;
  • Transfer to a preservation fund;
  • Transfer to their new employer’s retirement fund;
  • Transfer to a retirement annuity; OR
  • Take a cash lump sum in some cases.

In terms of the Regulations, members will need to make the request in writing to the Fund.

 

3. Fund Annuity Strategy (Regulation 39)

 

In constructing the Fund annuity strategy, the Board of Trustees considered various factors, namely:

  • The needs at retirement for its members could be varied and any strategy must allow for members with different requirements at retirement.
  • The members should be given access to cost effective options for members, but also not compromise on flexibility.
  • As members should be seeking proper financial advice at this juncture, this could present an opportunity to the advisor responsible for the participating employer and the Fund should assist where possible.
  • It may also be that some members would not have access to any advice or counselling services and hence the Fund would provide such a service to meet the requirements of Regulation 39.
3.1. Retirement Benefit Counselling

The Regulations require all members to receive retirement benefit counselling within 6 months of a member’s retirement age. Two options are allowed for:

  • The Participating Employer’s financial advisor provides this service to the retiring members; OR
  • The member approaches the Fund directly.

In respect of the counselling service driven by the Participating Employer’s advisor, in terms of the regulations, the advisor will need to provide evidence that this took place to the Fund.

Where a participating employer prefers the Fund to deal with a member’s retirement, the Fund has contracted the services of Momentum to provide retirement benefit counselling services to members of the Fund. The counselling service will be telephonic. Members will have the opportunity to convert this to financial advice should it be needed. Bear in mind that in terms of the definitions, retirement benefit counselling, is financial advice.

3.2. Annuity Strategy Options Available to Members

The Fund has negotiated with Momentum to provide the following annuity options to members of the RFS Umbrella Funds.

Guaranteed Life Annuity Pension payments are determined at retirement and are guaranteed into the future by Momentum Life
With-Profit Annuity (Momentum Golden Income With-Profit Annuity) An initial pension is determined based on a discount rate. The pension cannot decrease, but future increases will be driven by the investment returns achieved by Momentum Life
Investment Linked Annuity

(Momentum Golden Living Annuity)

Members draw an amount of income (there are limits to this drawdown in terms of Regulation 39). The ability to draw income into the future will be based on the net investment return. On death, the balance in the member’s account is made available to the member’s estate
3.3. Cost of Annuity Strategy Options

The Fund has negotiated the following fees for the Fund Annuity Strategy Options

Momentum Golden Income With-Profit Annuity
Once-off Fee R3,900.00 per policy, that is in respect of services provided at installation that includes data verification.
Monthly Administration Fee An amount of R55.97 per annuitant per month, applicable for 2019. The monthly fee is in respect of ongoing administration functions. The monthly rand figure will be adjusted annually in line with inflation.
Annual Fee Set at 1.00% per annum and increases by 0.05% for every 0.50% of Post-Retirement Interest Rate above 2.50%. For example, for a 3.50% Post-Retirement Interest Rate the fee is 1.10%.
Foreign Bank Account Fee Where the annuitant after his policy’s commencement date requests that payments be made to an account outside of the Republic of South Africa, a fixed rand amount fee is applicable. As at the commencement date, this fee amounts to R150.00 per affected annuitant per month. This monthly fee will be adjusted as and when such charges are adjusted by MMI’s bank which facilitates such payments. This fee will lead to a reduction in the monthly annuity payable.

 

Momentum Golden Living Annuity
Platform fees

The platform fee is an ongoing fee that applies to each annuitant’s investment account.

Platform fee for OBI portfolios (no VAT applicable):

  • 0.35% of the first R1m
  • 0.20% of the next R1.5m
  • 0.15% of the next R5m
  • 0.10% thereafter
Investment Account

 

The following portfolios will be available:

  • Momentum GLA Target Cautious Growth Portfolio – 0.55%
  • Momentum GLA Target Diversified Growth Portfolio – 0.55%
  • Momentum Money Market portfolio – 0.29%
  • Momentum Diversified Income portfolio – 0.69%

More detail regarding the composition of the portfolios, management fees, total expense ratios and total investment cost are available on the fund factsheets and would be provided to members when presented with a Momentum Golden Living Annuity proposal.

Issued by the RFS Umbrella Pension and Provident Funds on 30 April 2019.

This article is a general information sheet and should not be used or relied on as legal or other professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your adviser for specific and detailed advice. (E&OE)