Living Annuities

February 2012

General

What is a Living Annuity?

A product wrapper which provides a member with a regular income based on a percentage of the investment selected by the member.

Post-retirement product where the income is not guaranteed, based on the performance of the underlying assets.

Types of annuities

Linked Living Annuty (ELLA) = may build capital + receive income. At death, market value is transferred to estate or beneficiary/ies.

Joint-life annuity = will pay an income until both assureds passed away

Annuity with growth = income which increases over time (yearly)

Pension with capital repayment = earn the income but capital is preserved for beneficiary/ies

Single-life annuity without guaranteed term = Receive an income till the day you die, but no option of transferring capital to your beneficiary/ies

Single life-annuity with guaranteed term = Receive an income until you die. If the guaranteed time is not over, income will pay to your beneficiary/ies until the guarantee is over.

Various Unit Trusts as per Portfolio Selection List

Platform Offering

Investment Post-retirementPre-retirement

Voluntary Investment

EndowmentRetirement Annuity

Preservation Funds

Living Annuity

Retirement builder

Capital Protector

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

LA’s are not subject to income tax on distributions and capital gains and hence the client will not receive an IT3(b) or IT3(C)

Pricing

Since we are a LISP, we will make use of this pricing for most of our investments when we launch

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 are retiring from their Pension or Preservation or Retirement Annuity, or transferring from an existing Living Annuity

Recurring Premium LA – not allowed

Portfolio Selection does NOT have to be Reg 28 compliant

Once all requirements received and submitted, t+4 (for processing, settlement and statement, depending on the fund)

Single Premium LAMinimum R50 000

“Top ups” allowed if from a registered retirement fund/LA

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

Income will be adjusted accordingly

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

Investment Options

Unit Trusts

Within the LA 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

Maximum determined by Actuarial, as remaining balance required for income payments

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

In for a year, if we don’t receive instruction, the client will be switched to PSG Money Market Fund

Maximum determined by Actuarial, as remaining balance required for income payments

Section 37(2) Transfers in

Transfer from another LA fund to PSG ELLA

Follow the Section 37(2) 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)

Separate training for Sectional and Unit Transfers

Transfers Summary

LA to LA – Section 37(2)

Pension to LA – Retirement

Provident to LA – Retirement

PresPen to LA – Retirement

PresProv to LA – Retirement

RA to LA – Retirement

Voluntary to LA – Not allowed (may use RA and retire)

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)

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

Offshore limits on fund level, not enforced on individual level

Repurchase

If the value of the investment is less than R75 000, the client may repurchase the full amount IF the client didn’t commute a portion at retirement (subject to tax)

If the client commuted a portion at retirement, the full value may be repurchased if it is less than R50 000

Signed and completed Notification of Withdrawal Form

Form C

FICA (if details changed)

Certified proof of bank details (less than 3 months old), if different from system

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

Incomes (annuity)

2.5% - 17.5% of the investment value as at anniversary for new clients after 21 February 2007

Other clients may choose to stay on the 5% - 20% limits, provided that you are already on the old limits

Once a client chooses to be bound to the 2.5% - 17.5% limits, they cannot return to the old limits (See Addendum B to RF 1/96)

Disposal of units, time to price and settle, depending on nominated instrument(s) and liquidity

Paid by the 25th of the month

Incomes (annuity)

Income Review Letter is sent to the client three months before anniversary

No changes are allowed outside of anniversary (Notice 290 of Government Gazette dated 11 March 2009)

Income tax will be deducted and paid to SARS in accordance with tax tables

Standing Instructions Change

Static Details Change Form OR

Letter from client instructing change (signed by client or mandated

broker)

Income amount/frequency/escalation

Client can switch and confirm how the allocation of the income should be drawn, if required

Annuity reports

Should an income fail for some reason (bank account closed/incorrect), the system will attempt payment again in future.

Annuity shortfall report = sent to the team to deal with depleted instruments

Failed annuity report = 1 day after generation for annuities that did not generate – investigate

Returned annuity report = 3 days after payment

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

Static Details Change

Bank Details Change

Signed and completed Change of Static Details form AND

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

NOTE: Internet bank statements will not be accepted

Static Details Change

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

Static Details Change

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

A LA may not be ceded to another client or offered as security for a loan

Creditors may not attach a LA upon insolvency (Section 37B of the Pension Funds Act)

Combining Living Annuities

A client may not increase the income due to combination/consolidation

This level must continue and may only be revised ONE YEAR after combination

Examples

Combining existing LA’s

Contract A = Anniversary 1 March, 10% on assets of R100 000

Contract B = Anniversary 1 October, 5% on assets of R200 000

Contracts are consolidated on 1 July 2011.

New income = R20 000 (6.67% of R300 000)

Review letter will be sent 1 April 2012 for income to be revised before 1 July 2012.

Examples

Combining a new LA with an existing LA

Existing Contract A = Anniversary 1 March, 10% on assets of R100 000

New Contract B = Taken out 1 July 2011 for R200 000

New income under combined contracts = R30 000 (10% of R300 000)

Earliest date for review: 1 July 2012

Death ClaimDocuments needed

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)

Signed and completed Death claim application & discharge form

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

Copy of Will (if applicable)

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

Cancelled cheque

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

Equity Linked Living Annuities – Form C for application of tax directive (Only for lump sum payments)

Section 37(2) Transfer out

Signed and completed Application to Transfer Form

Copy of application form for Transferee Fund

Certified copy of members ID

Same Section 37(2) process as Transfers IN to be followed in terms of Annexures

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

Income cut off: 15th of the month for payment on the 25th of that month

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

Income tax on annuity as per yearly Income Tax Tables

Death claims – as per retirement tables

No Dividend Withholding Tax

Legislation

Collective Investment Schemes Act

Income Tax Act

Pension Funds Act, Section 37

Long Term Insurance Act

Directive 135

Regulation 28 – Prudential Investment Guidelines – NOT APPLICABLE

Financial Intelligence Centre Act (FICA)

Financial Intermediary and Advisory Services Act (FAIS)

Fees

IFA initial fee 0% - 1.5% excl VAT

IFA ongoing fee – up to 1% excl VAT

No initial platform fee

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

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

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.