Lize de la Harpe – Senior Legal Advisor at Sanlam
Introduction
On 8 May 2024 the FSCA published FSCA Communication 18 of 2024 which proposes amendments to FSRA Conduct Standard 1 of 2019 (PFA) – Conditions for amalgamations and transfers in terms of section 14 of the Pension Funds Act, 1956 (the Act_.
In this article we will do a quick recap and then look at the proposed changes.
Section 14 transfers
Section 14 of the Act deals with amalgamations and transfers of retirement fund benefits from one fund to another.
In essence, the Act sets out two processes for such transfers:
- Section 14(1) which requires the fund to submit transfer documents to the FSCA for approval; and
- Section 14(8) transfers, which are exempt from having to submit transfer documents to the FSCA for approval.
The FSRA Conduct Standard 1 of 2019 (PFA) published on 5 August 2019 prescribes certain conditions for amalgamations and transfers, as well as the various application forms that retirement funds must complete when submitting an application in terms of section 14.
Reason for change
The Minister of Finance is in the process of finalising amendments to Regulations under the Act to give effect to the two-pot system which is set to come into effect on 1 September 2024.
In terms of the two-pot system all funds will be required to distinguish between 3 components, being a vested component (which will consist of all contributions plus fund interest as at 31 August 2024), a savings component (which will consist of 1/3rd of contributions from 1 September 2024 onwards) and a retirement component (which will consist of 2/3rds of all contributions from 1 September 2024 onwards).
Members are allowed to transfer between the different components within the same fund, (subject to limitations) as well as between different retirement funds. As stated above, for transfers between different retirement funds in terms of the section 14(1) process, application forms will have to be submitted to the FSCA.
The current section 14 Conduct Standard does not align with the two-pot regime in so far as the current application forms only allow for a single transfer value. Once the two-pot system is implemented, section 14 forms will need to differentiate between the different components to be transferred. As such, the section 14 application forms have to be revised.
Process for changing the current application forms
In light of the fact that prescribed section 14 application forms are contained in the Section 14 Conduct Standard itself, changing the forms will have to be subject to the process reflected in Chapter 7 of the Financial Sector Regulation Act, 2017 (FSR Act) which is onerous and time-consuming process.
If the section 14 application forms are not amended by the time that the two-pot regime comes into effect, it will mean that any transfer taking place as from 1 September 2024 will still have to be based on the current prescribed forms which does not distinguish between the different components.
The FSCA is of the view that the current approach is overly burdensome and counterproductive, especially given the fact that the format of section 14 application forms is largely administrative in nature.
Section 108 of the FSR Act allows for a standard to provide for the FSCA to make determinations for the purposes of the standard. Typically, the FSCA would provide for such determinations in a Conduct Standard where it relates to determining the content and format of applications, notifications and the like i.e.: matters of an administrative nature.
As such, the section 14 application forms will be enabled through the amendments set out in the proposed FSCA Communication 18 of 2024.
The proposed changes
Removal of application forms from the section 14 Conduct Standard
The draft amendments propose to remove the section 14 application forms from the Conduct Standard itself. Going forward the application forms will be determined separately by way of empowering provisions.
Enabling the determination of application forms
The draft amendments propose to insert provisions that enable the FSCA to determine the manner of submission, content and format of the section 14 application forms (in line with section 108(2) of the FSR Act). As such, all references to the previous forms that were contained in the section 14 Conduct Standard have also been removed.
The draft amendments will provide more flexibility to the FSCA when making changes to section 14 application forms as it will negate the need for legislative amendments when changing such forms. This flexibility is also in the interest of retirement funds as changes to section 14 application forms required by external developments, such as changes to the Regulations under the PFA, can be given effect to faster.
Conclusion
Interested parties have until 19 June 2024 to submit comments on the draft amendments. The revised application forms itself have not yet been published – these forms will be consulted on separately to the necessary legislative amendment and as a parallel process, to avoid any delays in consultation on the proposed amendments.
ENDS
