IN THIS ISSUE

From The CEO’s Desk

Understanding the

Payments of Death

Benefits From

Retirement Funds

“Live Long and

Prosper”

NFB FINANCIAL UPDATE

Volume52 Oct 2010

FROM THE CEO’s DESK

Politically, I have not felt as uncertain as I

do right now since Pa fell off the bus! Both

domestically and globally the political

arena seems extraordinarily troubled. We

have been enduring one of the rougher wage

negotiation periods in recent history and have not

cleared the final hurdle just yet, as we wait for the

three week standoff to pass and the game to

resume. I noted the much ridiculed Julius Malema,

thought to have cooked his own goose, sharing

the centre stage with Gill Marcus in the Sunday

Times last weekend. I recall saying a few months

back that although this fellow gets poor grades at

Woodwork it doesn't make him a fool. His recent

public profile, aggressively attacking the ANC top

structure, leads me to believe that he and the

ANCYL wield more power than we should be

comfortable with. They, together with Cosatu, are

the linchpin of Zuma's electorate and he can ill

afford to disregard them. The show of strength by

organized labour is a clear sign that they are tired

of the political elite playing games, promising and

not delivering, and, very importantly, self

enrichment at the direct cost of their political allies.

On the global stage, Barack Obama looks set

to suffer defeats in the US's midterm electoral

process. If anyone in history has ever been given a

worse political, social and military set of hospital

passes can someone let me know! In Europe, the

stereotypically not-so-brave body politic must be

carefully watching their own behinds. Not a great

place to be right now if you intend making a name

for yourself and lining up a career after politics on

the boards of banks or companies who your

political clout has supported whilst being active in

the supposedly selfless game of politics.

Back to S.A. for a moment and we have seen

interest rates drop to record lows (in my personal

opinion, not for the last time in this cycle). This is

indicative of a troubled economy where

consumers, like their global cousins, are struggling

with low employment, accelerating cutbacks in

the construction/infrastructure sectors and

continued high levels of personal debt which

needs attention before credit extension will return

to normal. This leaves the local economy in a

rather vulnerable position, with company earnings

not looking set to excite us on the upside.

To matters more personal - I have just been

privileged to spend four days cycling in Malawi. For

those of you who have not been there - put it on

your Bucket List. The lake is absolutely awesome;

measuring 365 miles by 52 miles, it is home to

exquisite tropical fish, other larger fish species,

beautiful birdlife and perhaps one of the friendliest

local populations in Africa. They also have brilliant

Wildlife Reserves, however, being on a bicycle tour

we never managed to get to see these. We cycled

500 kilometers in three days, raising funds for a

wonderful South African charity called “Change a

Life” which supports a few exceptional local

initiatives. They have raised R10 million over the last

three tours, and I am, after recovering from the

anatomical sensitiveness resultant of cycling so far

so quickly, a committed supporter of the tour and

it's incredible charitable efforts.

A gentle reminder that diversification is always

a good idea. We regard the current levels at which

the rand is trading as an opportunity to add to your

Foreign Allowance or Asset Swap investment

portfolios. This does not presuppose an imminent

meltdown in the local unit or market - it simply

takes advantage of a currency anomaly where

overseas portfolio managers, in search of some sort

of yield, have gone overweight emerging market

bonds, particularly S.A., and when this reverses, the

Rand might quite quickly fall to levels in the mid

eights, where fair value probably lies.

A brief note covering two themes: firstly, we

are placing fairly large amounts of liquid money

into a unit trust which captures a secure, liquid, tax

efficient return, by investing in fixed price

preference shares, guaranteed by the bigger five

banks. I mention this because dividend income

funds, which have proliferated in recent years,

carry, in some cases, tax risk and we think that to

run this risk is unwise. Please consult with your NFB

advisor to seek advice on optimizing the return on

cash you might have in your own name, that of a

family trust or in your business.

Secondly, a reminder regarding the tax and

forex amnesty which has formally been

announced. This is a second bite at the cherry and

it is advisable to take advantage of what is on

offer. It covers local tax as well as undisclosed

foreign assets and is similar to the previous amnesty

of a few years back. We would recommend you

consulting your tax advisors and would support this

in any way possible.

, CFP BA

CEO, NFB Financial Services Group

Mike Estment ®f i n a n c i a l s e r v i c e s g r o u p

2525

By Leona Trollip,

Divisional Manager

Employee Benefits,

East London

Beware – some clients

still believe that the

death benefits from a

Retirement Fund are

paid out according to

their Will, however, the

benefits from these

funds do not form part

of the assets in the

estate of the

deceased member.

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Beware – some clients

still believe that the

death benefits from a

Retirement Fund are

paid out according to

their Will, however, the

benefits from these

funds do not form part

of the assets in the

estate of the

deceased member.

By Leona Trollip,

Divisional Manager

Employee Benefits,

East London

UNDERSTANDING THE PAYMENTS OF

DEATH BENEFITS FROMRETIREMENT FUNDS

With recent amendments to the Income Tax Act, it is

no longer compulsory for a beneficiary to purchase

an annuity on death of a member of a retirement

annuity, and the total benefit payable can now be

paid as a lump sum, as in the case of pension funds and provident

funds. This article will, therefore, review how the disposals of death

benefits from these retirement funds are administered. It is quite

often that we come across members of funds who still believe that

the death benefits are paid out according to their Will. However,

the benefits from these funds do not form part of the assets in the

estate of the deceased member.

Section 37C of the Pension Fund's Act (PFA) dictates how the

Trustees of the pension fund must deal with the payment of benefits

as follows:

(a) Firstly, the Trustees have 12 months from date of death of the

member, to trace any dependants of the deceased member. The

benefit will be paid to such dependant/s, and in proportion, as may

be deemed equitable by the board.

(b) If, after the 12 month period, the fund has been unable to trace

any dependant/s of the member, and the member has designated

in writing to the fund a nominee who is a non-dependant, the

benefit will be paid to the nominated beneficiary. However, in this

case, the Trustees need to first establish whether the deceased's

estate is insolvent or not. If insolvent, the Trustees are obliged to

settle the outstanding debt, and only then will the balance (if any)

be paid to the beneficiary as, and in the proportion, nominated by

the member.

If a member has a dependant and the member has also

designated a nominee who is a non-dependant, the Trustees have

the discretion to decide who receives the benefit, and in what

proportions, as they may deem equitable. The beneficiary

nomination form acts as a guideline as to the intended wishes of the

deceased member and will be considered by the Trustees of the

fund, but is not binding on them in their responsibility to determine

who should receive the death benefits. Any, and all, dependants

will be considered first.

(c) If no dependant of the member has been traced within 12

months of the death of the member, and if the member has not

nominated a beneficiary, the benefit will be paid into the estate of

the deceased or, if no inventory has been received by the Master of

the Supreme Court, the benefit will be paid into the Guardian's

Fund.

The above then all revolves around the definition of a “dependant”

which, as per the PFA, is not just a financial dependant ie.

(a) a person in respect of whom the member is legally liable for

maintenance, but includes the following:

(b) a person in respect of whom the member is not legally liable

for maintenance, if such person -

(I)was, in the opinion of the board, upon the death of the

member, in fact dependent on the member for

maintenance;

(ii) is the spouse of the member;

(iii) is a child of the member, including a posthumous child,

an adopted child and a child born out of wedlock.

(c) a person in respect of whom the member would have

become legally liable for maintenance, had the member not

died.

The beneficiary nomination completed by the member makes the

Trustees task of identifying dependants and nominees a lot easier if

it is kept updated. It assists the Trustees in exercising their discretion

as it indicates to them the person/s the deceased would prefer to

receive his/her death benefits, and what portions thereof the

member would like to be paid out.

ent of a benefit to a

minor:

1. The minor's share may be paid directly to the minor's guardian

2. Payment from the fund in installments

3. Payment to a Beneficiary Trust

Before the Fund's Trustees consider alternatives 2 and 3, there must

be a good reason for not paying the benefit directly to the

guardian. However, the member may nominate the minor's portion

to be paid to a Beneficiary Trust. In order to provide an adequate

regulatory and supervisory framework, from 1 January 2009,

Beneficiary Funds were introduced, which are governed by the

Pension Funds Act and, therefore, investment decisions are

regulated by Section 28 of the PFA. Under the PFA, annual financial

statements must be audited and submitted to the Financial Services

Board (FSB).

As the death benefits from a retirement fund do not form part of the

estate of the deceased, these benefits will not be distributed

according to the terms of a Will, but will be allocated subject to the

discretion of the Board of Trustees. Even though the Trustees are not

obliged to follow the instructions on a beneficiary nomination form,

it is vital that you complete this form, as this will give them an

indication of whom, and in what proportions, you wish for the funds

to be distributed on your demise.

The Act creates three avenues for the paym

So what is the point of completing abeneficiary form if it's not binding onthe fund?

What about minors?

In summary

UNDERSTANDING THE PAYMENTS OF

DEATH BENEFITS FROMRETIREMENT FUNDS

“Live Long and Prosper”

A licensed Financial Services Provider

Johannesburg Office:

NFB House 108 Albertyn AvenueWierda Valley 2192,

P O Box 32462 Braamfontein 2017,Tel: (011) 895-8000 Fax: (011) 784-8831

E-mail:Web: www.nfbfinancialservicesgroup.co.za

NFB House 42 Beach RoadNahoon East London 5241,P O Box 8132 Nahoon 5210,

Tel: (043) 735-2000 Fax: (043) 735-2001E-mail:Web: www.nfbec.co.za

:

110 Park Drive Central Port Elizabeth 6001,P O Box 12018 Centrahil 6001,

Tel: (041) 582-3990 Fax: (041) 586-0053E-mail:Web: www.nfbec.co.za

East London Office Port Elizabeth Office:

nfb@nfb.co.za nfb@nfbel.co.zanfb@nfbpe.co.za

“Live long and prosper” is the famous greeting from Spock to

Captain James Kirk of the Starship Enterprise. Now I am no Trekkie -

that title belongs to our IT guys. But after watching the latest Star

Trek movie recently with my wife, who in her logical accounting way

commented, “That it was so far-fetched”, I thought…“Well is it?”

I am sure our great grandparents thought that space travel was far-

fetched. Who would have imagined a 3D TV or phones that can

take videos. Gadgets like these were something only found in a 60's

Bond movie. Yet these are with us today and evolving fast. Perhaps

the Starship Enterprise is not so far-fetched after all.

As Warren Buffet commented “Each generation has lived better

than the one before”. Some may argue that in the “old days” life

was easier and there were less worries. This may be true, but the

current generation are used to 2 cars, 3 TV's in the house and each

family member having their own phone. This human desire to make

life better for oneself will ensure that the economies will still run and

we will continue to innovate. This desire has unfortunately also

created the credit generation and the flow of geared money

around the world that led to a credit crisis and a world that has

fallen into depression, but living in denial that it is not that bad.

In the investment world a lot has changed and yet it has also

stayed the same. We now live in a global economy. Technology has

improved, transparency and reporting is better and the investor has

a wealth of information at his fingertips. This has also led to a more

instantaneous gratification requirement. Short term performance

has become the “want”, but long term investment remains the

“need”. Investors are too quick to change course in the hunt for the

latest and greatest fashionable returns, but good old fashioned

investment principles still need to apply!

We may be moving on into the future, but let's not forget that

history tends to repeat itself. History has shown that equities offer the

best protection against inflation and when bad news abounds it

offers value to the long term investor (those with vision) who is

prepared to look past the near term uncertainties.

An investment strategy that includes active asset allocation and

risk profiling around income and growth needs is required. In a world

of uncertainty a balanced portfolio managed by a professional and

reputable fund manager will ensure that you remain on course.

60 is the new 50 and people are living longer and are more in

charge of their own destinies than ever before. Companies are no

longer taking on the responsibility of ensuring that you have a

retirement fund and a medical aid etc. Investors need to not only

manage their pre-retirement portfolio, but their post–retirement

portfolio too. Now more than ever they need to seek professional

advice.

Interest rates are likely to remain lower for longer and growth

over the next few years is likely to be subdued. Returns from the

various asset classes will be tighter and investors in general will be

more cautious as they try to rid themselves of debt. It may be a

case of we are going where no person has dared to go before, but

those that stick to their investment strategy and solid investment

principles, such as diversification, will ensure that they will be able to

navigate the investment universe.

“It's life Jim, but not as we know it!”

In the investment world a lot has changed

and yet it has also stayed the same. And

although we may be moving on into the

future, good old fashioned investment

principles still need to apply. Written by

Travis McClure, Private Wealth Manager,

East London

“Live Long and Prosper”

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