Retirement Annuity March 2012. General What is a Retirement Annuity? A product wrapper which provides a member with an accumulative lump sum at retirement

Retirement Annuity

March 2012

GeneralWhat is a Retirement Annuity?

A product wrapper which provides a member with an accumulative lump sum at retirement.

Especially for self-employed individuals as well as a supplement for salaried employees

Income Tax benefitsGreater of (a) R1 750 or

(b) R3 500 less deductible pension fund contributions (7.5% of retirement funding income) or

(c) 15% of non-retirement funding income

Designed to provide the member with a lump sum on retirement to buy a Living Annuity, which will pay an income at regular intervals

General

A transfer from a preservation fund to an RA is not tax free (RF 1/2011)

Transfers from the Government Employees Pension Fund (GEPF) are allowed (retaining pre-98 tax-free portions)

Various Unit Trusts as per Portfolio Selection List

Platform Offering

Investment Post-retirementPre-retirement

Voluntary Investment

EndowmentRetirement Annuity

Preservation Funds

Living Annuity

Retirement builder (max 25%)

Capital Protector (max 100%)

Where does it fit in?

Structured Products

Retirement builder

One year Five years Three years

Fixed returned of capital: Market Portfolio: Cash

Capital protector

100% Capital protection over 12 months

Unit Trust, Segregated Mandates, White Labels, Share Portfolios

Retirement Annuity: Preservation: Living Annuity

Pricing

All life investment products are taxed according to the “four fund approach”

That means a life company classifies its clients into four different tax categories

01 – Individuals 30%

02 – Companies 28%

03 – Trusts (taxed according to beneficiary status 01 or 02)

04 – Non taxable entities

The tax and fund fees are then taken out of the price and paid on behalf of the member

Admin and risk management fees are generated by selling units from the client’s investment

Retirement Funds are not subject to income tax and hence the client will not receive an IT3(b) or IT3(C)

Pricing

Since we are a LISP, we will make use of NAV pricing for most of our investments

Where a fund does not have unit trust pricing, life pricing (four fund approach) will be used according to the tax classification

Investments

Any natural person who wants to save for retirement

Single Premium RAMinimum R50 000 (R20 000 for PSG Konsult and Online)

“Top ups” allowed into same policy – no minimum

Can be phased in – daily/weekly/monthly phase ins

• Recurring Premium RAMinimum R500 monthly

Frequency: Monthly, quarterly, half-yearly, yearly

Inflation rate CPI / 5% / 10% / 15% / 20% per annum

Collection date: only on the 1st of the month

• Portfolio selection must be Regulation 28 compliant• Once all requirements received and submitted, t+1 for

investment to settle

Documents Needed

PSG Application form (fully completed)

Certified copy of client’s ID

Certified copy of client’s proof of address (less than three months)

Certified copy of client’s proof of bank details (less than three months)

Proof of deposit (match to unallocated spreadsheet)

Recognition of Transfer (if from another fund)

Investment Options

Unit Trusts

Within the RA wrapper – subject to market movements

Retirement builder

Fixed outcome – quoted rate for 1 year, 3 years or 5 years

Rates sent out weekly, trading monthly – inform Admin to open

One month prior to maturity we send out a letter to inform the client that we will switch to PSG Money Market if we don’t receive instruction

Max 25% due to Prudential Investment Guidelines (Reg 28)

Capital Protector

CPP – option to guarantee CAPITAL, with growth on the upside of the market

Quarterly tranche, if enough investors, info (rates) sent out per tranche (min R 3 million per tranche)

In for a year, if we don’t receive instruction, we will place the investor in PSG Money Market

May invest 100%

Section 14 Transfers in

Transfer from another RA fund to PSG RA

Preservation to RA = Single Premium Contribution (not a Section 14)

Follow the Section 14 process

Cannot go directly into a Retirement Builder or CPP, as we do not know when the funds will be received and rates have to be accepted by the client by signing the quote (funds invested in PSG Money Market whilst waiting for signed quote)

Blanket exemption was given by the Registrar, meaning non-Valuation exempt funds don’t have to work through the FSB anymore

Section 14

Transfers Summary

RA to RA – Section 14

RA to Preservation – Not allowed

PresPen to PresPen – Section 14

PresProv to PresProv – Section 14

PresPen to PresProv – Not allowed

PresProv to PresPen – Not allowed (why would you want to anyway?

PresPen or PresProv to RA – Allowed, but not tax-free

RA/Pres to ELLA - Retirement

Switches

Switch form, fully completed and signed

Where a standing instruction exists on the client’s investment, confirm with the client that it will follow the switch (complete on batch form)

Post-switch portfolio allocation has to be Regulation 28 compliant

t+4 (this can differ based on the type of source and destination fund as well as possible liquidity constraints in the source fund)

Repurchase

If the value is less than R7 000, client can commute 100% in cash, subject to tax, no active debit order

May also be commuted in full due to emigration (client to obtain and submit SARS approval up front, and provide original tax directive reflecting reason “Emigration”)

Signed and completed Notification of Withdrawal Form

Form C (for application of tax directive)

FICA

Certified proof of bank details (less than 3 months old)

Admin will apply for a tax directive before loading the instruction on GLS

Benefit paid out will be net of tax

t+7 for tax application, repurchase to settle and paid

Retirement

Clients may retire from age 55

Previously max age was 70, but this cap has been removed (for investors turning 70 after 1 March 2008)

If the value is <R75 000, the client may commute 100% in cash, subject to tax (aggregate per lifetime per member)

If the value is >R75 000, the client may commute 1/3 max in cash (subject to tax), balance to be transferred to a Living Annuity

Client may select on the Retirement Form whether to stay in the market or for the entire portfolio to switch to money market while we wait for the tax directive

Admin will apply for a tax directive before loading the instruction on GLS

Benefit paid out will be net of tax and transfer portion paid to receiving fund

t+7 for tax application, repurchase to settle and payment

Retirement

Signed and completed Notification of Retirement Form


FICA


Completed Living Annuity application (PSG or new provider)

Retirement due to Ill health

The member may retire before age 55 if the member is permanently incapable

Documents needed:

Notification of Retirement Form– Medical or other evidence as requested by the trustees

(member’s cost) confirming that the member is permanently incapable, due to infirmity of the mind or body, to carry on his/her current occupation

– FICA

– Proof of bank details not older than three months

Disabled member is entitled to the benefits and rights as for normal retirement

Standing Instructions Change

Static Details Change Form OR

Letter from client instructing change (signed by client or mandated broker)

Debit order amount/frequency/escalation

Client can switch and confirm how the allocation of the debit order should change, if required

Should a regular contribution default for 3 months consecutively, the investment will be treated as “paid up”. The member may choose to resume payments by informing us in writing.

Previously only on the 1st, now any day of the month

Static Details Change

Address / Contact details change

Residential Address Signed and completed Change of Static Details form AND

Certified proof residential address not older than three months (FICA)

Postal AddressSigned and completed Change of Static Details form OR

Letter from client instructing change

Contact Details (email / tel / cell / fax)Signed and completed Change of Static Details form OR

Original Letter from client instructing change


Bank Details Change

Signed and completed Change of Static Details form AND


NOTE: Internet bank statements will not be accepted


Beneficiary Changes

Signed and completed Change of Static Details form OR

Letter from client instructing change

– Beneficiary Title

– Beneficiary name and surname

– Date of birth or ID number

– Relationship

– Share of benefits


ID Number or Name Changes

Signed and completed Change of Static Details form AND

Certified copy of marriage certificate (if surname change)

Certified copy of ID

Cession

An RA may not be ceded to another client or offered as security for a loan

Creditors may not attach an RA upon insolvency (Section 37B of PFA)

Death Claim

Section 37C of the Pension Funds Act: Death claims may not always be paid according to the deceased’s nominated beneficiaries

Trustees have up to one year to search for dependents of the deceased

The benefits may not be split between commutation of a cash portion and transfer to a Living Annuity.

Death Claim

Documents Required:

Certified copy of death certificate

Post mortem report (if unnatural death)

Certified copy of deceased’s ID

Certified copy of letter of Executorship (If the beneficiary is Estate)

Original signed and completed Death claim application & discharge form

Affidavit of dependants by Executor to be certified by a Commissioner of Oaths (If the beneficiary is Estate)

Affidavit of dependants by independent 3rd party (minister / teachers e.g.) to be certified by a Commissioner of Oaths

Certified copy of marriage certificate (if married within community of property before 1984 or anti-nuptial contract with accrual)

Certified copy of ID of beneficiaries and/or dependants

Dependants details

Letter from Executor confirming the solvency of the estate (If the beneficiary is Estate)

Copy of a will (if applicable)


If benefit will transfer to beneficiary / dependant– New application form (PSG or other Provider)


Note that the Trustees may have further requirements in order to draw conclusion to the payment.

Section 14 Transfer out

Signed and completed Application to Transfer Form

Copy of application form for Transferee Fund

Certified copy of member’s ID (if not on file)

An RA may not be transferred to an employer’s Pension or Provident fund

Same Section 14 process as Transfers IN to be followed in terms of Form H

and Form J

Cut offs for processing

Any instruction for processing has to be batched and submitted to Admin before 9:00

Ensure that your broker actually SENDS it well within cut off so that there is sufficient time for batching and submission to Admin

Recurring contribution RA: 3 working days before collection

Turn around time

Should all requirements have been received:

Before 9:00 – processed for prices on t

After 9:00 – processed for prices on t+1

Tax

No IT3(b) for distributions

No IT3(c) for capital gains/losses

On repurchases – first R22 500 tax free per lifetime

On retirements – first R315 000 tax free

Ill-health – as per retirement tables

Death claims – as per retirement tables

No Dividend Withholding Tax

Legislation

Collective Investment Schemes Act

Pension Funds Act, especially Section 37

Regulation 28 – Prudential Investment Guidelines

Financial Intelligence Centre Act (FICA)

Financial Intermediary and Advisory Services Act (FAIS)

Fees

IFA initial fee 0% - 2.5% excl VAT (Recurring Prem = 3%)

IFA ongoing fee – up to 1%

No initial platform fee

Ongoing platform fee– PSG – before 1 Aug 2011 = sliding scale

– PSG – after 1 Aug 2011 = 0.4% for Konsult and Online

0.5% for Retail

Neg for Best of Breed

LESS REBATES

Fax and E-mail Indemnity

Faxed instructions will be accepted, FICA docs have to be certified

Where an advisor did not certify FICA docs, we will check if Fax and E-mail Indemnity is on file

If a client signed the F/E Indemnity in the application form/ other transaction form, we will accept instructions via e-mail

Disclaimer

The information contained in this document is correct at time of the presentation. All figures and points must be verified

prior to any business dealings due to the dynamic nature of legal and financial environments. Though every effort is made

to ensure the accuracy of the information contained herein, the author cannot guarantee the validity and or current information in future circumstance when legislation is

adapted.

The author accepts no responsibility for the use of validated information and the misuse of current information. Individuals misusing current information or using outdated information will be personally liable for any damages/consequences incurred.

PSG Asset Management Administration Services Limited reserves the right to adapt provisions as set out in this presentation where applicable legislation and practices

change. PSG Asset Management Administration Services Limited is an approved financial services provider.