The countdown begins for retirement funds to comply with the final Default Regulations
To comply with the regulations, many funds will need to amend their rules and investment policy statement. The board of trustees of funds will also need to carefully consider their fund’s position to ensure compliance with the new regulations.
On 22 July 2015, the first draft of the Default Regulations was published by National Treasury. The first draft broadly followed the principles set out by National Treasury in its 2011 paper titled “Charges in South African Retirement Funds”. Following extensive consultation with various stakeholders, National Treasury published a revised second draft of the Default Regulations on 10 December 2016. Following further amendments to the second draft, the final Default Regulations were issued on 25 August 2017, and took effect on 1 September 2017.
The Default Regulations require that existing default arrangements in respect of a fund be fully compliant by 1 March 2019 and that all new default arrangements adopted after 1 September 2017 be immediately compliant.
The main purpose of the Default Regulations is to generally lower charges and improve outcomes for members of retirement funds. This is proposed by:
Below is an overview of the key terms of the final Default Regulations and the amendments that funds will need to make to their rules in order to comply with them.
Default preservation and portability (regulation 38)
This regulation will require that the rules of retirements funds, to which members belong as a condition of employment, be amended to allow for transfers of paid-up benefits into and out of such retirement funds; prohibit payment of any further contributions in respect of paid-up members and prohibit deductions from the retirement savings of paid-up members in respect of risk benefits; allow for retirement and early retirement for paid-up members and ensure that paid-up members are offered retirement benefits counselling before making any decisions.
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