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Urgent legislation to protect beneficiaries to avoid Fidentia-type scandals in future, writes Isaac Moledi

By unknown | Sep 25, 2007 | COMMENTS [ 0 ]

An urgent legislation to protect minors' assets to avoid future Fidentia-type scandals may be introduced as early as the end of this year, said Giselle Gould of Fairheads Umbrella Trust Company.

An urgent legislation to protect minors' assets to avoid future Fidentia-type scandals may be introduced as early as the end of this year, said Giselle Gould of Fairheads Umbrella Trust Company.

The proposal, placed on the table for discussion by National Treasury and the Financial Services Board, aims to introduce a new vehicle called beneficiary funds to protect minors' assets by transferring their death benefits into it.

Unlike before where umbrella trusts used to fall under the jurisdiction of the Master of the High Court, this fund will be regulated by the Pension Funds Act.

Gould says to avoid future Fidentia-type scandals where millions of pensioners' moneys were syphoned from their funds, the move by National Treasury to ensure better protection of minors' assets should provide peace of mind for retirement fund trustees and beneficiaries alike.

The red flag was first raised by Finance Minister Trevor Manuel in his Budget speech earlier this year, where he vowed to investigate the state of play in the umbrella trust industry.

Wider consultation with relevant stakeholders is expected to intensify in the coming few weeks, Gould said, briefing delegates at the Institute of Retirement Funds (IRF) conference in Cape Town recently.

Welcoming the legislation on behalf of the Association of Trust Companies (ATC), Gould said the aim was to beef up the regulation and supervision of funds paid to minor dependants.

This was, he said, in order to avoid future losses of beneficiaries' assets and to ensure that trustees adhere to their fiduciary duties.

Gould says legislators regard the matter as so urgent that a special amendment will be made to the existing Pension Funds Act, ahead of the Act's ongoing revision.

According Gould, from the date of promulgation, there will be a phase-in period following which approved retirement funds will not be able to pay death benefit funds into trust funds, but only into registered beneficiary funds.

Administrators of beneficiary funds will also need to be licensed and meet prescribed requirements for systems and capabilities.

In effect, this, according to Gould, means that the R12 billion umbrella trust industry will be phased out and replaced by the similar yet regulated regime of beneficiary funds.

But existing umbrella trusts will continue to operate until all assets have been paid out, she said. The new system will bring additional advantages, she says.

For example, beneficiaries will be able to lodge complaints with the Pension Funds Adjudicator, whereas before they only had recourse to the Financial Advisory and Intermediary Services (FAIS) ombudsman or the Master of the High Court.

Assets invested on behalf of dependants will also be protected from insolvency and creditors' claims.

The tax implications are also favourable, Gould adds.

"Minors will pay no tax on benefits transferred directly from retirement funds into bene- ficiary funds.

"While the monies are in the fund, they will be tax-exempt except for income and capital payments and amounts paid upon termination."

Gould says the principles for the urgent amendments to the legislation are in place, but a few issues still need to be finalised.

One of these is that no existing assets, say in trust funds, can be paid into beneficiary funds.

Though still under discussion only benefits from approved retirement funds and approved group life can be paid into bene- ficiary funds.

Gould hopes the legislation will go a long way to ensuring that the beneficiary fund vehicle is used appropriately in the interest of beneficiaries.


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