Futura SA Legal Update - April 2020
Taxation Laws Amendment Act 2019 (the Act)
The Taxation Laws Amendment Bill (“TLAB”) has been signed into law.
The Act does not amend the effective date of the annuitisation provisions as has been done in several previous Taxation Laws Amendment Acts. This date remains 1 March 2021. Funds must anticipate that these changes will go ahead from 1 March 2021 and should prepare accordingly.
The following are notable amendments in the Act:
A provision, effective from 1 March 2021 that allows for tax neutral transfers between all retirement funds.
Extension of tax-exemption of payments from funds to former members in respect of bulking, to similar payments from administrators to former members.
A spouse in receipt of a spouse’s pension is liable to pay tax on that pension. If the spouse also receives a salary or other income, that income is added to the pension on assessment to determine the correct tax liability.
Previously the provision that allows for non-deductible contributions to be set off against any taxable lump sum taken at retirement was extended to allow for such non-deductible contributions to be set off against compulsory annuities. This had been further amended to extend the provision to voluntary annuities purchased by a member who retired from a provident fund or a provident preservation fund.
Further Extension of Period for Compliance by Certain Funds with Regulation 38 of the Regulations under the Act - FSCA RF Notice 4 Of 2020
The purpose of the Communication is to inform stakeholders that the Financial Sector Conduct Authority (“FSCA”) has, in terms section 279(1) of the Financial Sector Regulation Act, 2017 (Act no. 9 of 2017) (“FSR Act”), further extended the period for compliance by funds that have submitted applications for amendments to their rules in order to comply with Regulation 38 of the Pension Funds Act, 1956 (Act No. of 24 1956) (“Act”).
The Reason for the extension:
As previously mentioned on our last update, the FSCA published FSRA Compliance Extension 2 of 2019 (PFA) (“the extension”) On 12 November 2019, which extended the period for compliance by funds that have submitted applications for amendments to their rules in order to comply with Regulation 38 of the Act, until 29 February 2020.
The FSCA noticed, when considering the applications for registration of the various rule amendments submitted by funds, that industry stakeholders apply section 37C (allocation of death benefits) of the PFA inconsistently in respect of paid-up members. At the time of the communication, the FSCA explained that it was in the process of issuing an interpretation ruling in terms of section 142 of the FSRA. A draft interpretation ruling has since been issued and is discussed in paragraph.
The FSCA deemed it prudent to await the finalisation of the interpretation ruling before approving the rule amendments submitted to it to ensure compliance with regulation 38.
The FSCA therefore afforded an extension to funds that have already submitted applications for approval of rule amendments to ensure compliance with regulation 38 and are awaiting a decision from the FSCA to 29 February 2020.
The industry had substantial comments on the draft Interpretation Ruling and consequently a further extension until 30 April 2020 was granted in terms of the abovementioned Communication and Notice. This extension is only granted to funds that had already submitted applications for approval of amendments to ensure compliance with regulation 38 and are awaiting a decision from the FSCA in this regard.
FSCA RF Notice 5 of 2020 and FSCA Communication 6 of 2020 (RF)
The purpose of the Communication is to inform the industry that the FSCA has, in terms of section 281(1) of the FSR Act, exempted large funds from using the prescribed auditor’s report formats when preparing financial statements, provided that such funds use the illustrative auditor’s reports approved by the Independent Regulatory Board for Auditors (“IRBA”).
The effective date of the exemption is retrospective to March 2018 being the date on which the first new illustrative report was approved by the IRBA. This is to accommodate funds that have already submitted annual financial statements in terms of the IRBA’s new approved illustrative reports. However, if a fund has not submitted in terms of those reports, it would be in compliance. The effective date of 5 March 2020 will apply going forward. The exemption will remain in effect until Board Notice 77 (published on 18 July 2014); which prescribed the format of financial statements for retirement funds has been amended.
Exemption of certain funds in relation to specific participating employers from the requirements of section 28(2) of the Act - FSCA Communication 7 of 2020 (RF)
The FSCA has identified a number of pension funds with no members that have historical outstanding valuations and annual financial statements. The Communication is intended to set out a process to be followed by those funds to ensure compliance as soon as possible.
The communication sets out a process which may be followed by such funds in order to achieve compliance with regulatory requirements as soon as possible.
Interpretation Ruling 1 of 2020 and FSCA Communication 10 of 2020 (RF)
The FSCA, in line with section 142(1) of the FSR Act, published FSCA Interpretation Ruling 1 of 2020 (RF) (“Interpretation Ruling”) on the application of section 37C of the Act.
The publication of the Interpretation Ruling follows from an extensive consultation process between the FSCA and the public, which has enabled the FSCA to consider the various views on the correct interpretation of section 37C of the Act.
According to the Interpretation Ruling, section 37C will apply to paid-up members’ benefits, deferred retirees’ benefits (as defined in the Interpretation Ruling) and unclaimed benefits, where no election to withdraw has been made by the member prior to such member’s death.
The FSCA further takes cognisance of the industry’s proposal to amend section 37C in order to provide greater clarity and simplify the death benefit distribution process. In this regard, the FSCA has called upon key stakeholders to make submissions on possible amendments. The submissions are currently under consideration, and the FSCA will also duly engage the National Treasury on this matter.
Covid-19: Section 13A of the Act and Financially Distressed Employers and Employees – Submission of Urgent Rule Amendments - FSCA Communication 11 of 2020 (RF)
The Financial Sector Conduct Authority (“the FSCA”) has issued a communication on 26 March 2020 relating to the effect of Covid-19 on the ability for employers to meet the requirements of section 13A of the Pension Funds Act, 24 of 1956 (“the Act”).
The FSCA has indicated that it is mindful of employers and employees who are financially distressed in light of the unprecedented financial challenges that Covid-19 presents, which may impact employers’ and employees’ ability to comply with section 13A.
The FSCA has consulted with the South African Revenue Service (“SARS”) in respect of the tax implications for retirement funds in the event of the reduction or cessation of employer and member contributions by an employer or participating employer. SARS has advised that it will not jeopardise the income tax approval status of the retirement fund concerned.
In this regard, the FSCA wishes to draw boards of funds’ attention to apply the relevant rule/s to financially distressed employers and members in order to alleviate the challenges that they are currently facing.
The application of the relevant rule must be undertaken with the following in consideration:
The Board is required to consider all formal requests by employers for the suspension or reduction of contributions and apply the relevant rule/s given the particular circumstances of the employer;
Where the relevant rule/s is not provided for in the rules of the fund, the Board is instructed to attend to the submission of same to the FSCA as soon as possible.
The rule amendment should specify the effective date based on the agreement between the employer and fund, to assist with the efficient registration of the rule. Given the current circumstances, funds will only receive a letter and an unstamped version of the rule amendment from the FSCA. Funds will receive the stamped version of the rule amendment once business resumes as usual;
The Board must attempt to ensure that full risk benefit premiums continue to be paid in full in respect of the affected employees/members in order to ensure that the fund risk benefits will continue to be provided;
The fund is required to keep a proper record of the affected members of the fund, which they will be required to produce upon request by the FSCA;
The fund is required to inform affected members of employers’ requests to reduce or suspend contributions, and of any proposed rule amendments pursuant thereto within 30 days of receipt of such request from affected employer and/or decision by the Board.
Impact of Coronavirus (Covid-19): Expectations on Regulated Entities - FSCA Communication 12 of 2020 (General)
In an attempt to mitigate possible conduct risks and risks that financial institutions will not treat their customers fairly during the national lockdown and to emphasise what essential financial services means, the FSCA issued FSCA Communication 12 of 2020 on 30 March 2020. The Communication specifically deals with insurers, banks, retirement funds, investment providers and with financial institutions generally, and emphasises the necessity to ensure business continuity and operational ability of such entities.
List of other Interventions Implemented By Government Due To the Covid-19 Lockdown Period
Below is also a list of interventions implemented by government due to the COVID-19 lockdown period:
Impact of Covid-19 on Compliance with Various Regulatory Requirements FSCA Communication 9 of 2020 (General):
The FSCA acknowledges the impact of the COVID-19 on South Africa in general and the financial services industry specifically. The Authority is aware of the challenges the regulated entities might face in complying with various regulatory requirement.
In this regard, the FSCA hereby communicates various arrangements in respect of submission of statutory returns and fit and proper related deadlines
The FSCA in a recent press release on 30 March 2020 titled "FSCA statement on insurers performing medical underwriting during lockdown period" indicated that practice by insurers to declare travelling nurses as essential services in the lockdown period to collect blood samples for new business underwriting purposes detracts from the ability of laboratories to focus efforts on COVID-19. The FSCA directed insurers to cease this practice and confirmed that any continued engaging in non-essential services will be subjected to appropriate regulatory action;
On 9 April 2020, the FSCA and the Prudential Authority jointly issued a Directive which dictates the appropriate precautionary measures to be taken by financial institutions when performing essential financial services during the nationwide lockdown;
The Unemployment Insurance Fund (“UIF”) has allocated money to a National Disaster relief fund. Effected employees can claim up to R 3,500 per month;
National Treasury has set up an email address where members of the public can send suggestions on how best National Treasury can deal with the COVID-19 virus. This is in support of efforts by the rest of government to ensure interaction with members of the public on the virus. The email address is COVIDemail@example.com;
Government has set up the Solidarity Response Fund. The aim of this fund is to offer assistance to assist South Africans affected by the outbreak. Please click here for more info about the fund;
A SMME fund has been set up to assist small, micro and medium enterprises during this difficult time, the Department of Small Business Development launched a debt relief fund to help mitigate the impact of the economic shutdown cause by COVID-19 on SMMEs;
SARS has provided a message on its website to give effect to the President’s lockdown instructions and to minimise face-to-face contact, SARS will provide all taxpayer services via its online channels and contact centres;
Any employee who falls ill through exposure at their workplace, will be paid through the Compensation Fund;
Commercial banks have been exempted from provisions of the Competition Act to enable them to develop common approaches to debt relief and other necessary measures;
Using the tax system, government will provide a tax subsidy of up to R500 per month for the next four months for those private sector employees earning below R6 500 under the Employment Tax Incentive. This will help more than four million workers;
The SARS will also work towards accelerating the payment of employment tax incentive reimbursements from twice a year to monthly to get cash into the hands of compliant employers as soon as possible;
Tax-compliant businesses with a turnover of less than R50 million will be allowed to delay 20% of their pay-as-you-earn liabilities over the next four months and a portion of their provisional corporate income tax payments without penalties or interest over the next six months. This intervention is expected to assist more than 75 000 small and medium enterprise.