16 March 2007



Dear Sir


Representations: Pension Funds Amendment Bill 2007


We hereby submit representations and comments on behalf of the Institute of Retirement Funds (“IRF”) on the Pension Funds Amendment Bill 2007 for consideration by Parliament.


To the extent that the IRF submitted comprehensive comments in November 2006 on the previous draft Pension Funds Amendment Bill, and such comments were incorporated into the amendments, these have not been repeated. Notwithstanding these previous comments, certain aspects of the Amendment Bill remain as previously published. Therefore, some comments are repeated for inclusion into the next amendment or draft legislation. Reference is made to the IRF’s previous comments where necessary.


To the extent that it has been possible, we have commented on the Amendments per section in numerical order. However, we apologise for any oversight regarding reiterated comments or mistakes.


The comments and representations contained in this document have been collated by the IRF on behalf of its members and submitted to Parliament for ease of reference, all such comments do not necessarily reflect the views of the IRF.



1.         Definitions


Actuarial surplus

Some IRF wording suggestions have been incorporated but the main point that improper use was not intended to be added to asset values before determining surplus is overlooked as part of the insertion of retrospective conditions.


Contingency reserve account

The comments (in 2.9 of the previous IRF response remain relevant.)



The IRF suggestion (in 2.13) that reference to adopted/illegitimate child be deleted has been overlooked.



The word "obligations" should be "duties" for consistency.


2.         The Act


2.1 Application of Act Rules

The IRF suggestion (in 3.1) to limit information requirements for certain bargaining council funds has been overlooked.


2.2 Restrictions on Administration of funds

Some of the IRF suggestions for S13B(4) and S13B(8) have been accepted while those for S13B(5)(c) and S13B(7) have not. The point is reiterated that the powers of the Registrar should be justifiable.


2.3 Amalgamations and transfers

The IRF suggestion (in 6) that reference to particular time periods be transferred to regulation has not been incorporated.


2.7 Section 15B(6)

The IRF questions (in 9.5) about "cost", "employer" and "selected" remain relevant. We indicated that we would submit a definition of "selected". Did we do so?


2.8 15B(9) and (10)

 The IRF comments regarding these sections have been overlooked.


2.9 15B(12)

The IRF comment that this section does not make sense is still relevant. Perhaps all that is needed is the deletion of "which" in the second line.


2.10 Section 18 Fund not in sound financial condition

The IRF suggestion (in 12) that this should be deleted has been overlooked although some wording changes have been accepted.




2.13 Section 30P

The IRF and the LOA comments on the appeal/review process have been overlooked.


2.15 Section 33A: Directives

The strong objection by the IRF (in 18) to the provision has been overlooked, but the fall-back wording suggestions have been incorporated.


2.16 Section 37C

The IRF suggestion (in 20) has not been accepted.



The issue of retrospectivity is an issue of principle.  Our constitution is explicitly founded on the principle of the rule of law which requires that our law be both prospective and certain so that people can order their affairs in the knowledge of the consequences of their actions.  Our courts have said that the principle is not overriding, however, and there may be compelling cases in which it is justified. Funds have spent thousands of rands trying to give effect to what the legislature requires, in many respects - in its statute of 2001.  Many of these amendments substantially alter the rules of the game and it cannot reasonably be said that they are required for 'clarity'.   The 'fund return' issue is not even addressed in the original wording so it cannot be said that there is any lack of clarity on the matter which requires to be addressed in a statutory amendment.  The same is true for the amendments that give the registrar new powers in relation to the valuation of funds.


Section 14


As regards section 14, some of the IRF's comments have been included and some not. (these should be reiterated).  The main issues that should be addressed are the following:

Section 14(2) which allows for a transfer between two valuation exempt funds without formal section 14(1) approval, now requires agreement by 75% of affected members.  In practice, it will be difficult to even get a response, positive or negative, from 75% of members, so it is unlikely that section 14(2) will be of much use in practice.  We suggest that it should be sufficient if members were duly informed and allowed the opportunity to object - it would not be practical to require written agreement of 75% of members.

A proviso has now been inserted in section 14(2) in terms of which, inter alia, the assets transferred must be augmented with fund return.  Provision should be made for the smoothing of fund return, where applicable.


Section 37 C

The IRF's previous comments have not been accepted.  The comments should be reiterated.  The rules of many defined contribution funds provide that the death benefit is a pension (payable to dependants and/or nominees) which may, on application, be commuted in full or in part. The intention has always been that section 37C is applicable to such death benefit.  However if the proposed amendment to section 37C(1) becomes legislation, those benefits will not be subject to section 37C, which is highly undesirable.


Divorce allocations

Definition: non-member spouse: Surely this must be limited to cases where an order in terms of section 7(8) of the Divorce Act was made, i.e. cases where the fund was ordered to pay an amount
to the spouse.

Section 37D(1)(d) should also be rephrased to limit the order referred to in the first sentence to a section 7(8) divorce order.  If this is not done, then the new provisions will also apply even if the court
ordered the member (and not the fund) to make payment of the part of the pension interest allocated to the non-member spouse.

As regards the option of a transfer of the non-member spouse's assigned amount to another fund, the Income Tax Act will probably require amendment to allow the transfer to be tax free.




One minor item is the effect of paragraph (c) of the definition of "rules". If provisions incorporated by reference in the past are now part of the rules, do extracts from external documents containing them and amendments to them have to be submitted to the registrar?


"Provided that where the value of the benefit provided by a fund is equal to or derived from a long-term policy or other investment instrument, such policy or any documentation regarding such other instrument does not form part of the rules of that fund."


1.         One example is where a fund has safeguarded the surplus by converting it to cash. The fund has therefore earned interest on the surplus from the surplus apportionment date. The FSB insists that the fund pays fund return (which exceeds interest because of the good performance of the JSE) on the surplus,  which the fund is simply not in a position to do. (The fund could however possibly rely on par (b) of the definition of fund return that the assets relating to the surplus are separately identifiable and the return on these assets should be applicable.)


2.         An anomoly of the proposed sec 40B is that a fund that was advised long ago by its legal advisers that the improper use provisions do not apply before 7/12/01 and has submitted and had there scheme approved on this basis, is not affected by 40B. But a fund that received the same advice but because they are so cautious (as good trustees should probably be) and e.g. obtained a declaratory order to confirm this, will be affected.


3.         By the way, in the latest version of 15B(6)(b) improper use must be investigated from 1980 or the fund's commencement date or such earlier date agreed by the employer (the underlined part is new). This is confusing. Will all funds (whose schemes have not yet been approved) with commencement dates before 1980 now be compelled to investigate since commencement or does the fund have a discretion?


4.         The widening of the definition of “spouse” to incorporate customary marriages, civil unions and marriages in terms of any Asiatic religion is to be welcomed.


5.         The introductory wording to paragraph (d) is arguably wide enough  to include maintenance orders, which from the context of the paragraph as a whole was presumably not the intention.


6.         The provision in paragraph (d) regarding the date of deemed accrual for purposes of section 7(8)(a) clears up the doubts created by the draft Bill. However, it is not clear whether or not this deeming provision applies to divorces concluded before the resultant Amendment Act comes into effect. Although it must be presumed that this is not the case as this would amount to a retrospective provision (it is not included in the draft section 40B), certainty is needed. Firstly, if this is left open, retirement funds will almost certainly be flooded with demands for immediate payment in respect of section 7(8) orders going back to 1989, and litigation if they fail to comply. Secondly, if a court somehow finds that the amendment indeed applies to existing orders, this could have serious financial implications for funds, for example the immediate and unplanned liquidation of assets to enable them to make such payments. This could also have an unexpected impact on member spouses, as non-member spouses may then demand that fund growth in terms of sub-paragraph (v) must also accrue retrospectively.


7.         Sub-paragraph (i) establishes with absolute certainty that the relevant fund must be named in the order. This will hopefully resolve the disputes between funds and the legal profession where orders use catch-all phrases like “any pension interest”.


8.         Sub-paragraph (iii) will presumably lead to an amendment of the Income Tax Act to provide for taxation in the hands of the non-member spouse and, presumably, tax exemption in the case of transfers. Such an amendment should presumably distinguish the tax situation in respect of orders made before and after the date on which the PF Amendment Bill is enacted.


9.         Sub-paragraph (iv) is welcomed as it does away with any concerns regarding the rights of the non-member spouse in relation to the fund.


10.        Sub-paragraph (v):


·           Generally in the case of DC funds with member investment choice, this return should surely be at the rate earned in the member spouse’s portfolio for the relevant period – it seems however that paragraph (b) of the definition of “fund return” might cover this.

·           Where a fund’s rules provide for disinvestment in the case of members leaving service, it could be argued that provision should be made for disinvestment of the non-member spouse’s allocated portion upon receipt of a valid order. The provisions of sub-paragraph (b) effectively seem to preclude this.

·           In the case of DB funds, would it not be more appropriate to provide for the accrual of interest rather than fund return?