Daily Archives: December 11, 2016

Second draft retirement fund regulations published

National Treasury has published the second draft of the retirement funds default regulations for further and final public comment.

The second draft regulations are in line with the 2016 Medium Term Budget Policy Statement (MTBPS).

The second draft still aims to take the first major step towards implementing regulations that aim to lower charges and improve market conduct in the retirement industry. This follows the 2011 National Treasury paper titled ‘Charges in South African Retirement Funds’.

The second draft regulations ensure that retirement savings of South Africans are invested in a prudent and cost-effective manner, and that members get better value for their money, with the ultimate goal of them being able to retire more comfortably.

National Treasury reemphasises, through these default regulations, that fund boards have the responsibility to protect the interests and investments of pension fund members during and post accumulation stages, Treasury said in a statement.

The latest draft also establishes a better balance between principles and rules than was proposed in the first draft of the default regulations.

The default regulations also form part of the reform programme to deliver better customer outcomes across the financial sector. The implementation of Twin Peaks will see market conduct requirements centralised in a Conduct of Financial Institutions (CoFI) Act, said Treasury.

Under the framework, people participating in the retirement fund sector should take more responsibility for the impact of their decisions on members.

Government is also considering how savings can be mobilised to better support the National Development Plan, with particular attention on transforming the sector into one that is more inclusive and sustainable to better serve South Africans, said Treasury.

The defaults options are automatic choices made on behalf of members, who do not exercise their choices in a given situation. There is currently no regulatory requirement for funds to offer default options and where they exist, some of the current defaults could be favouring the interests of service providers and work against the interests of members.

International research shows that replacing bad defaults with good defaults can significantly improve outcomes, since the members are defaulted into certain decisions, choices or strategies, and they tend to remain in those options.

The aim of default strategies is to reduce complexity by requiring retirement funds to develop cost-effective, relatively simple and standardised products during the accumulation phase, when members withdraw from funds before they retire, and when members convert their retirement savings into an income upon retirement.

Treasury said these proposals complement the social security reform objectives of government.

The draft regulations will formally be gazetted later this month on 23 December.

The gazette will be available on the National Treasury website www.treasury.gov.za after it is published.

National Treasury released the first draft of the retirement funds default regulations on 22 July 2015. Forty-five submissions were received which, together with engagements between National Treasury, the Financial Services Board and industry stakeholders, have informed the revised second draft of the default regulations.

National Treasury appreciates the submissions and engagements and notes that the process of engagement with key stakeholders took longer than anticipated, lasting more than a year from the closing date for submissions for the first draft.

Source: South African Government News Agency