Default Regulations

Amendments to the Regulations issued under section 36 of the Pension Funds Act 24 of 1956 were published in the Government Gazette number 41064 in August 2017.
These amendments are also known as Default Regulations.
All Funds registered before 1 March 2018 will have to comply with the Default Regulation.
 

The Default Regulations require the board of trustees of the listed retirement funds to offer the following to its members
Defined Contribution: – A default Investment portfolio which is not excessively complex or unreasonably expensive.
Pension & Provident Funds: – A default in-fund preservation of benefits for members who move between employers before retirement.
Pension Preservation & Retirement Annuity Funds: A default annuity to ensure that members are able to convert their retirement savings into an income at retirement that is efficient, transparent and cost effective.
We are with you every step of your retirement journey – Fund defaults 

National Treasury has already warned in 2012 that it may need to regulate the cost of retirement products, if the financial sector and Government cannot come to an agreement on the excessive high cost of pension funds and retirement products (such as living annuities and preservation funds).  Pension products are expensive and, in many cases, confusing.  This is what led to the new regulations, which place an obligation on the trustees of pension and retirement funds to offer default options to members.  These products should be inexpensive and easy to understand.  The above has led to legislation taking effect on 1 March 2019.

What 1 March 2019 means for your Retirement savings in the NJMPF

Cost breakdown of the NJMPF Internal Living Annuity

Asset Manager Fees               0.63% (Inc VAT)
Administration Fees               0.03% *
Total                                    0.66%

*Fixed monthly administration fee of R39 per month

See the below graph which compares a traditional living annuity with our internal one.  The asset management fees are based on the average management fees in the balanced category as provided by Morningstar.

There are funds such as the NJMPF and others who were proactive in respect of the new legislation and who have already, for quite some time now, been providing their members with an internal living annuity option. 

The Following facts and assumptions apply:
The member retires at age with a fund value of R1.5 million.
A net return rate of 9.5% after asset manager fees is obtained.
An inflation rate of 6% applies.
An initial income-withdrawal of 5% per year is made, which annually increases with inflation.
There is an annual saving of 42% (1.08 percentage point per year) in costs. 

The enclosed graph shows the impact of this on the retention of capital.

PROJECTION OF RETIRMENT CAPITAL OVER 7 YEARS AFTER RETIREMENT

If the retiree with the NJMPF made use of the internal living annuity, he/she would still at the age of 92 have R2,353,000 of his/her retirement capital left, about 3 times more than he would have had in the traditional, more expensive living annuity.

The NJMPF has appointed in-fund solutions to provide retirement fund counselling for NJMPF members. The in-fund solutions will work in conjunction with the NJMPF client services team, to communicate and do counselling stakeholders about out enrolment default products offered by the NJMPF. The individual consultation will include detailed explanation about;      

The NJMPF annuity policy and summary policy info sheet
Definition of an Annuity   
The fees
The risks
Investment structure
The drawdown rates 
Declaration of existence  
Calculation of Retirement benefit
Details of the Fund appointed benefit counsellor
Document – tick box format – which must be signed by the qualifying retiring member       
And any other document as determined by the NJMPF policy and Pension Fund Act. 

*   An important notice is that retirement counselling is not providing financial advice as per FAIS Act.
 

The appointed counsellor will also liaise using his Fund approved system to counsel the active members approaching retirement. A report will be given to the Fund with signed proof of the counselling – all this done before one month of the retiring person exit the Fund. The signed document indicating proof of counselling will then be given to the client services supervisor who will then cascade it to the pensions department to allow the process of payment to commence. An Administrator to sit in during counselling session, with the member.

The NJMPF will not put members in a preservation fund – but has created an autoenrollment account for deferred retirees who are withdrawing or exiting the Fund through ‘resignations, dismissals or retrenchments. The appointed in-fund solution consultants will conduct counselling for members exiting the Fund. Additional information which will be supplied to exiting members include but not limited to the following;

The definition of a preservation fund  
The investment manager fees
The risks
The cost by the Fund to the member who is paid-up
How the Fund will preserve your benefit should you choose to use the Fund’s presentation – deferral option 
The option to transfer paid-up benefit to an external insure;
Annuity
Preservation 
Investment
The other options to transfer which the member

Option to transfer your benefit to the new employer’s retirement (pension, provident, preservation and annuity) Fund
Leave your benefit with the Fund to become a deferred paid-up member
To complete claim form should member decide to be paid out.
Benefit statement with individual values 
Details of the Fund appointed benefit counsellor
Document – tick box format – which must be signed by the qualifying retiring member        
And any other documents as determined by the NJMPF and Pension Fund Act

 
*   An important notice is that retirement counselling is not providing financial advice as per FAIS Act.

The Fund has an investment policy which adheres to the requirements of Regulation 28 of the Pension Funds Act of 1956 and was established in accordance with PF Circular 130 issued by the Financial Sector Conduct Authority (“FSCA”) as far as this was practical and appropriate. The investment policy will form part of the default investment portfolio. On our website a factsheet has been uploaded to provide detailed information on the asset allocation.