The Conduct Of Financial Institutions Bill and consequential amendments to the Pension Funds Act
The Conduct Of Financial Institutions Bill (COFI) was published by the Minister of Finance in December 2018. The Minister aims to achieve a new legislative framework for the financial services sector. As the preamble states, the objective of the bill is to establish a consistency in the regulatory framework with regard to the conduct of financial institutions.
The first draft of the COFI was issued in December 2018 whereafter the industry was requested to provide comment. More than 800 pages of comments were received by National Treasury on the initial draft.
The second draft was issued on 1 September 2020 which included consequential amendments to a number of acts which include the Financial Sector Regulations Act, the Collective Investment Scheme Control Act and the Pension Funds Act. The deadline for comments on this second draft was 30 October 2020.
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Noteworthy proposed amendments to the Pension Funds Act include:
1. The inclusion of a definition of a beneficiary fund.
Currently beneficiary funds are defined in sub paragraph (c) of the definition of pension fund organisation as any association of persons or business carried on under a scheme or arrangement established with the object of receiving, administering, investing and paying benefits that became payable in terms of the employment of a member on behalf of beneficiaries, payable on the death of more than one member of one or more pension funds.
The new definition proposed in the draft legislation is ‘any arrangement established with the object of receiving, administering, investing and paying benefits that became payable to a dependant or nominee in terms of section 37C, or in respect of the employment of a member on behalf of beneficiaries, or that became otherwise payable to natural persons on the death of an insured person in terms of one or more policies of insurance and payable on the death of more than one member of one or more retirement funds, on the death of any of their members;’
The current definition states that group life benefits linked to a member’s employment may be paid into a beneficiary fund. The proposed new definition does not provide any clarity on whether all types of policies, for example retail insurance policies, would be capable of being paid into a beneficiary fund. Fairheads have submitted comments to the Finance Sector Conduct Authority (FSCA) requesting that the definition be more explicit and that if it is the FSCA’s intention to allow retail insurance policies to be paid into beneficiary funds, that the proposed definition be made clearer in this regard.
2. Section 37C of the Pensions fund Act
National Treasury has given section 37C a complete overhaul in the proposed new legislation. An important change in this section is subsection (1) (c) (ii) which states that where a retirement fund has successfully traced a dependant or dependants, the benefit must be paid subject to terms deemed equitable by the fund within two months of the fund tracing the dependant. Previously this was a 12-month period.
The proposed legislation does not clarify whether that would be two months after the fund or its tracing agent has found the dependants, or rather two months after a full death benefit investigation has been done to determine whether a person is in fact a dependant. This is something on which the industry will require clarity.
In general the reduction of time to pay out benefits is a very welcome development as death benefit investigations can take months especially where a deceased member has many children, spouses and/ or may have a family or dependants in a different country. n our view, those in desperate need of funds have to wait a highly unreasonable period for trustees to finalise and make allocations.
National Treasury hopes to finalise the COFI Bill once the second round of comments have been considered. Thereafter COFI and its consequential amendments are to be submitted to cabinet for approval early next year. Fairheads welcomes the amendments but hopes to see more clarity in the next draft of COFI and the sections discussed above. Fairheads has submitted comments to National Treasury on the amendments to the Pension Funds Act and hopes to see them considered in the next draft.