Giselle Gould Fairheads

IRFA Conference: Evolution of beneficiary funds

September 2015

Giselle Gould leads panel discussion

Giselle Gould, Business Development Director at Fairheads, led a panel discussion at the IRFA Conference in Cape Town in July, as an independent convenor. David Hurford, Head of Sponsored Products, also took part. Following below is a summary of the discussion that was published on the EBNet website post-conference.

Discussion theme: Evolution of beneficiary funds: challenges around age of majority, and how beneficiary funds can align with retirement reform

Giselle Gould summarised the evolution of beneficiary funds from their introduction in 2009 and significant growth over the past few years. There have been ongoing improvements, such as an increase in the tax-free amount and the ability to use beneficiary funds for the payment of employment-related unapproved benefits.

She noted that the general move away from lump sum payments to individuals in favour of annuitising retirement savings is an important element of retirement reform in South Africa and questioned where lump sums to minor dependants stand in relation to this trend.

A trustee representative, Thomas Mketelwa, Chairman of the KZN Municipal Pension Fund, said that trustees faced a dilemma when paying death benefit lumpsums to major “children” who, at 18, are entitled by law to receive the benefit. He said that trustees often did not feel comfortable doing this, knowing that the beneficiary may not use the funds wisely and lose focus with their studies. He felt that there should be some tests that would be carried out before such payouts were made.

Mr Mketelwa mentioned costs as an inhibiting factor in deciding whether to make benefit payments into beneficiary funds. He also felt strongly that beneficiary fund trustees needed to report back – ideally quarterly – to retirement fund boards on beneficiary fund minor members and show how they were “stretching that rand” for the child’s benefit. Beneficiary funds needed generally to be better aligned with the retirement industry.

Representing the consultants’ point of view, Marilyn Kamp, Pension Consultant at Robson Savage, cited four points of reform (governance, TCF, total cost disclosure and the question of whether to pay lump sums or income, especially to 18-year-olds. She put forward a proposed due diligence checklist comprising reputation, administration, costs, tracing, investments, communication and passion. She concluded that the role of the consultant post-reform could be extended to include encouraging regular report backs to the board, comprehensive communication to all stakeholders (so that important information could be shared more easily) and re-evaluating the beneficiary fund service provider from time to time.

As an administrator representative, David Hurford, head of sponsored products at Fairheads Benefit Services, said that if government and the regulator are of the view that retirees should not receive lump sums at retirement, then the payment of children’s benefits as lump sums does not sit easily with current retirement reform. He mentioned that Fairheads, with the support of a number of retirement funds, had made a submission to the FSB regarding the payment of lump sums to 18-year olds – in effect to pay out at age 21 or when the person had at least attained a Matric or NQ4 equivalent. He called on the audience to support this lobbying effort.

Mr Hurford also called for improved trusteeship, saying that retirement fund trustees could not adopt a default position for the disposal of death benefits. It was important not only to assess the financial competency of the guardian but also to evaluate whether they would responsibly use funds in the best interests of the child. He said that beneficiary fund trustees had a fiduciary obligation to report back on the wellbeing of the minor members in their care.

Regarding costs, he pointed out that while a retirement fund is geared to the contribution phase (paying in) of an employer’s life, a beneficiary fund is geared to paying out. He said that Fairheads Benefit Services had developed a Comparison Rates Model to help trustees assess total costs and services in a meaningful manner. The model had been verified by an independent auditor.

Following questions, convenor Giselle Gould stated the mandates to be given to the IRFA, namely:

  • To undertake a survey of its members to assess support for the age 18 vs age 21 issue

To help facilitate communication between regulators to allow Swazis with assets in South Africa to be considered for repatriation to Swazi registered beneficiary funds.

Published in Fairheads Times, Issue 32, September 2015