Concerns over retirementfund deadline
It is highly unlikely that the retirement fund industry will beat the January 1 deadline to introduce a new savings vehicle to protect the assets of widows and orphans to avoid Fidentia-type scandals in future.
In terms of the amendment to section 37C (2) of the Pension Funds Act, the so-called beneficiary funds will replace the loosely regulated umbrella trusts as the new savings vehicle.
Beneficiary funds are regarded as safe because they are regulated under the act. Because of this, beneficiaries or stakeholders who feel short-changed by trustees can seek protection and recourse from the pension funds adjudicator and Financial Services Board.
Beneficiary funds enable trustees to choose to pay beneficiaries a lump sum in the event of a member's death - something that was not always possible under the umbrella funds.
But it looks as if this new post-Fidentia savings vehicle is not going to beat the deadline, says Richard Krepelka, chief executive of Fairheads Benefit Services.
He says though the industry is working around the clock it is doubtful whether the industry is ready.
"Corporate governance requirements for beneficiary funds are extensive." he says. "This is good but it means that some players will struggle to have systems in place to qualify for licences and register beneficiary funds before the January1 deadline," he says.
He also doubts if retirement fund trustees, consultants and financial planners will have time to digest the new vehicle's complexities and implications.
Krepelka says some elements of the law are still open to interpretation, and adds that there is also the challenge of explaining the fund to minors and guardians, among whom financial literacy is low.
He welcomes the move to replace umbrella funds, saying the move is "an overdue, innovative development" that will give vulnerable South Africans far greater protection.