IRF Bi-monthly Seminar: Beneficiary Funds vs Trusts: Legal aspects, Benefits to Dependents & Guardians UPDATE Trust and Beneficiary Administrator of the Year 2010, 2011 & 2012, Imbasa Yegolide Awards

Agenda  Welcome  Fairheads overview  Current Legal Structure  Chronological order of Legal amendments  Structural differences between Trusts and Beneficiary Funds  Benefits and Disadvantages for Beneficiaries and Guardians  Practical Implications  Questions

Fairheads Benefit Services - Overview  Group established 1925  Umbrella trusts established 1989  Beneficiary funds established 2009  Executive & staff controlled  B-BBEE level 3 contributor  Over R7 billion under management  Over beneficiaries / members  Offices in Cape Town, Johannesburg and Durban  Staff compliment of 270  Industry award winner

Legal Comparison Beneficiary FundTrust Inflows Only s37C death benefitsUnapproved funds Registration Registered with the Financial Services Board (FSB) Registered with the Master of the High Court Law Applicable Pension Funds ActTrust Property Control Act Taxation  Lump sum payments from approved funds are after tax benefits  The fund is tax exempt  Any payment to a member is tax exempt.  Lump sum payments into trust are after tax benefits  The trust is a vesting trust and therefore has no tax liability  All interest income and capital gains vest in the beneficiaries and are subject to individual tax rates (subject to thresholds).

Chronological order of legal changes Payments by registered fund to a trustee contemplated in the Trust Property Control Act no. 57 of 1988 shall be deemed to be a payment to the dependent or nominee “(2) (a) For the purposes of this section, a payment by a registered fund for the benefit of a dependant or nominee contemplated in this section shall be deemed to be a payment to such dependant or nominee, if payment is made to- (i)a trustee contemplated in the Trust Property Control Act, 1988, nominated by- (aa) the member; (bb) a major dependant or nominee, subject to subparagraph (cc); or

Chronological order (cont.) (cc) a person recognized in law or appointed by a Court as the person responsible for managing the affairs or meeting the daily care needs of a minor dependant or nominee, or a major dependant or nominee not able to manage his or her affairs or meet his or her daily care needs; (ii)a person recognized in law or appointed by a Court as the person responsible for managing the affairs or meeting the daily care needs of a dependant or nominee; or (iii) beneficiary fund”. (b) No payments may be made in terms of this section on or after 1 January 2009 to a beneficiary fund which is not registered under this Act” (q) by the substitution for paragraph (c) of the definition of “pension fund organisation” of the following paragraph: (c) any association of persons or business carried on under a scheme or arrangement established with the object of receiving, administering, investing, and paying benefits that became payable [referred to in section 37C] in terms of the

Chronological order (cont.) employment a member on behalf of beneficiaries, payable on the death of more than one member of one or more pension funds,”;  Effective date – not yet announced  Implications: unapproved benefits can be paid into BF  i.e. unapproved group life, accident cover from employer, any other benefit related to employment

Structural differences between Trusts and Beneficiary Funds TRUSTSBENEFICIARY FUNDS Trust DeedFund Rules No audit requiredAnnual audit compulsory No annual reports need be submitted Compulsory annual reports submitted No RecoursePension Fund Adjudicator No PO requiredPO to be approved by FSB

Structural differences between Trusts and Beneficiary Funds (cont.) TRUSTSBENEFICIARY FUNDS FAIS licenceFAIS licence, 13B (PFA) No focus on member interest, Code of Conduct, Performance Appraisals PFA 130 No Investment Plan requiredReg. 28 Investments Ownership concernsClear vesting rights

Benefits and disadvantages for Beneficiaries & Guardians  :  Trusts only, vesting and non-vesting, bewind trusts  Not well regulated, little/no protection  Fidentia  Vulnerable sector – source Retirement Funds  2009 – 2014:  Trusts and beneficiary funds  Approved vs Unapproved benefits  Complicated for guardians to manage 2 accounts per beneficiary  Merge accounts only in Trust Service quality is imperative!

Benefits and disadvantages for Beneficiaries & Guardians (cont.)  ?2014:  Employment benefits  Effective date?  Remaining Trusts  Smaller and decreasing, viability  Merging Trusts into Beneficiary Funds

Practical Implications 2014  Single account per beneficiary  Regulatory and legal protection for more minors  Nomination forms – beneficiary fund  Administration of Estates Act  Unresolved death benefit – 24 months → Unclaimed Benefits Fund

Regulatory Information This presentation has been compiled to provide factual information on the product offered and does not constitute advice. A copy of this presentation is available from Fairheads upon request. Fairheads is a Financial Services Provider authorised under the Financial Advisory and Intermediary Services Act 37 of 2002 (FSP 18428) and a section 13 B Admin under the Pension Funds Act No 24 of Business Address: 15 th Floor, 2 Long Street, Cape Town, 8001 | PO Box 4392, Cape Town, 8000 Tel: | | Website: Thank you