IN THIS ISSUE
From The CEO’s Desk
Understanding the
Payments of Death
Benefits From
Retirement Funds
“Live Long and
Prosper”
NFB FINANCIAL UPDATE
Volume52 Oct 2010
FROM THE CEO’s DESK
Politically, I have not felt as uncertain as I
do right now since Pa fell off the bus! Both
domestically and globally the political
arena seems extraordinarily troubled. We
have been enduring one of the rougher wage
negotiation periods in recent history and have not
cleared the final hurdle just yet, as we wait for the
three week standoff to pass and the game to
resume. I noted the much ridiculed Julius Malema,
thought to have cooked his own goose, sharing
the centre stage with Gill Marcus in the Sunday
Times last weekend. I recall saying a few months
back that although this fellow gets poor grades at
Woodwork it doesn't make him a fool. His recent
public profile, aggressively attacking the ANC top
structure, leads me to believe that he and the
ANCYL wield more power than we should be
comfortable with. They, together with Cosatu, are
the linchpin of Zuma's electorate and he can ill
afford to disregard them. The show of strength by
organized labour is a clear sign that they are tired
of the political elite playing games, promising and
not delivering, and, very importantly, self
enrichment at the direct cost of their political allies.
On the global stage, Barack Obama looks set
to suffer defeats in the US's midterm electoral
process. If anyone in history has ever been given a
worse political, social and military set of hospital
passes can someone let me know! In Europe, the
stereotypically not-so-brave body politic must be
carefully watching their own behinds. Not a great
place to be right now if you intend making a name
for yourself and lining up a career after politics on
the boards of banks or companies who your
political clout has supported whilst being active in
the supposedly selfless game of politics.
Back to S.A. for a moment and we have seen
interest rates drop to record lows (in my personal
opinion, not for the last time in this cycle). This is
indicative of a troubled economy where
consumers, like their global cousins, are struggling
with low employment, accelerating cutbacks in
the construction/infrastructure sectors and
continued high levels of personal debt which
needs attention before credit extension will return
to normal. This leaves the local economy in a
rather vulnerable position, with company earnings
not looking set to excite us on the upside.
To matters more personal - I have just been
privileged to spend four days cycling in Malawi. For
those of you who have not been there - put it on
your Bucket List. The lake is absolutely awesome;
measuring 365 miles by 52 miles, it is home to
exquisite tropical fish, other larger fish species,
beautiful birdlife and perhaps one of the friendliest
local populations in Africa. They also have brilliant
Wildlife Reserves, however, being on a bicycle tour
we never managed to get to see these. We cycled
500 kilometers in three days, raising funds for a
wonderful South African charity called “Change a
Life” which supports a few exceptional local
initiatives. They have raised R10 million over the last
three tours, and I am, after recovering from the
anatomical sensitiveness resultant of cycling so far
so quickly, a committed supporter of the tour and
it's incredible charitable efforts.
A gentle reminder that diversification is always
a good idea. We regard the current levels at which
the rand is trading as an opportunity to add to your
Foreign Allowance or Asset Swap investment
portfolios. This does not presuppose an imminent
meltdown in the local unit or market - it simply
takes advantage of a currency anomaly where
overseas portfolio managers, in search of some sort
of yield, have gone overweight emerging market
bonds, particularly S.A., and when this reverses, the
Rand might quite quickly fall to levels in the mid
eights, where fair value probably lies.
A brief note covering two themes: firstly, we
are placing fairly large amounts of liquid money
into a unit trust which captures a secure, liquid, tax
efficient return, by investing in fixed price
preference shares, guaranteed by the bigger five
banks. I mention this because dividend income
funds, which have proliferated in recent years,
carry, in some cases, tax risk and we think that to
run this risk is unwise. Please consult with your NFB
advisor to seek advice on optimizing the return on
cash you might have in your own name, that of a
family trust or in your business.
Secondly, a reminder regarding the tax and
forex amnesty which has formally been
announced. This is a second bite at the cherry and
it is advisable to take advantage of what is on
offer. It covers local tax as well as undisclosed
foreign assets and is similar to the previous amnesty
of a few years back. We would recommend you
consulting your tax advisors and would support this
in any way possible.
, CFP BA
CEO, NFB Financial Services Group
Mike Estment ®f i n a n c i a l s e r v i c e s g r o u p
2525
By Leona Trollip,
Divisional Manager
Employee Benefits,
East London
Beware – some clients
still believe that the
death benefits from a
Retirement Fund are
paid out according to
their Will, however, the
benefits from these
funds do not form part
of the assets in the
estate of the
deceased member.
Big
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Beware – some clients
still believe that the
death benefits from a
Retirement Fund are
paid out according to
their Will, however, the
benefits from these
funds do not form part
of the assets in the
estate of the
deceased member.
By Leona Trollip,
Divisional Manager
Employee Benefits,
East London
UNDERSTANDING THE PAYMENTS OF
DEATH BENEFITS FROMRETIREMENT FUNDS
With recent amendments to the Income Tax Act, it is
no longer compulsory for a beneficiary to purchase
an annuity on death of a member of a retirement
annuity, and the total benefit payable can now be
paid as a lump sum, as in the case of pension funds and provident
funds. This article will, therefore, review how the disposals of death
benefits from these retirement funds are administered. It is quite
often that we come across members of funds who still believe that
the death benefits are paid out according to their Will. However,
the benefits from these funds do not form part of the assets in the
estate of the deceased member.
Section 37C of the Pension Fund's Act (PFA) dictates how the
Trustees of the pension fund must deal with the payment of benefits
as follows:
(a) Firstly, the Trustees have 12 months from date of death of the
member, to trace any dependants of the deceased member. The
benefit will be paid to such dependant/s, and in proportion, as may
be deemed equitable by the board.
(b) If, after the 12 month period, the fund has been unable to trace
any dependant/s of the member, and the member has designated
in writing to the fund a nominee who is a non-dependant, the
benefit will be paid to the nominated beneficiary. However, in this
case, the Trustees need to first establish whether the deceased's
estate is insolvent or not. If insolvent, the Trustees are obliged to
settle the outstanding debt, and only then will the balance (if any)
be paid to the beneficiary as, and in the proportion, nominated by
the member.
If a member has a dependant and the member has also
designated a nominee who is a non-dependant, the Trustees have
the discretion to decide who receives the benefit, and in what
proportions, as they may deem equitable. The beneficiary
nomination form acts as a guideline as to the intended wishes of the
deceased member and will be considered by the Trustees of the
fund, but is not binding on them in their responsibility to determine
who should receive the death benefits. Any, and all, dependants
will be considered first.
(c) If no dependant of the member has been traced within 12
months of the death of the member, and if the member has not
nominated a beneficiary, the benefit will be paid into the estate of
the deceased or, if no inventory has been received by the Master of
the Supreme Court, the benefit will be paid into the Guardian's
Fund.
The above then all revolves around the definition of a “dependant”
which, as per the PFA, is not just a financial dependant ie.
(a) a person in respect of whom the member is legally liable for
maintenance, but includes the following:
(b) a person in respect of whom the member is not legally liable
for maintenance, if such person -
(I)was, in the opinion of the board, upon the death of the
member, in fact dependent on the member for
maintenance;
(ii) is the spouse of the member;
(iii) is a child of the member, including a posthumous child,
an adopted child and a child born out of wedlock.
(c) a person in respect of whom the member would have
become legally liable for maintenance, had the member not
died.
The beneficiary nomination completed by the member makes the
Trustees task of identifying dependants and nominees a lot easier if
it is kept updated. It assists the Trustees in exercising their discretion
as it indicates to them the person/s the deceased would prefer to
receive his/her death benefits, and what portions thereof the
member would like to be paid out.
ent of a benefit to a
minor:
1. The minor's share may be paid directly to the minor's guardian
2. Payment from the fund in installments
3. Payment to a Beneficiary Trust
Before the Fund's Trustees consider alternatives 2 and 3, there must
be a good reason for not paying the benefit directly to the
guardian. However, the member may nominate the minor's portion
to be paid to a Beneficiary Trust. In order to provide an adequate
regulatory and supervisory framework, from 1 January 2009,
Beneficiary Funds were introduced, which are governed by the
Pension Funds Act and, therefore, investment decisions are
regulated by Section 28 of the PFA. Under the PFA, annual financial
statements must be audited and submitted to the Financial Services
Board (FSB).
As the death benefits from a retirement fund do not form part of the
estate of the deceased, these benefits will not be distributed
according to the terms of a Will, but will be allocated subject to the
discretion of the Board of Trustees. Even though the Trustees are not
obliged to follow the instructions on a beneficiary nomination form,
it is vital that you complete this form, as this will give them an
indication of whom, and in what proportions, you wish for the funds
to be distributed on your demise.
The Act creates three avenues for the paym
So what is the point of completing abeneficiary form if it's not binding onthe fund?
What about minors?
In summary
UNDERSTANDING THE PAYMENTS OF
DEATH BENEFITS FROMRETIREMENT FUNDS
“Live Long and Prosper”
A licensed Financial Services Provider
Johannesburg Office:
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East London Office Port Elizabeth Office:
[email protected] [email protected]@nfbpe.co.za
“Live long and prosper” is the famous greeting from Spock to
Captain James Kirk of the Starship Enterprise. Now I am no Trekkie -
that title belongs to our IT guys. But after watching the latest Star
Trek movie recently with my wife, who in her logical accounting way
commented, “That it was so far-fetched”, I thought…“Well is it?”
I am sure our great grandparents thought that space travel was far-
fetched. Who would have imagined a 3D TV or phones that can
take videos. Gadgets like these were something only found in a 60's
Bond movie. Yet these are with us today and evolving fast. Perhaps
the Starship Enterprise is not so far-fetched after all.
As Warren Buffet commented “Each generation has lived better
than the one before”. Some may argue that in the “old days” life
was easier and there were less worries. This may be true, but the
current generation are used to 2 cars, 3 TV's in the house and each
family member having their own phone. This human desire to make
life better for oneself will ensure that the economies will still run and
we will continue to innovate. This desire has unfortunately also
created the credit generation and the flow of geared money
around the world that led to a credit crisis and a world that has
fallen into depression, but living in denial that it is not that bad.
In the investment world a lot has changed and yet it has also
stayed the same. We now live in a global economy. Technology has
improved, transparency and reporting is better and the investor has
a wealth of information at his fingertips. This has also led to a more
instantaneous gratification requirement. Short term performance
has become the “want”, but long term investment remains the
“need”. Investors are too quick to change course in the hunt for the
latest and greatest fashionable returns, but good old fashioned
investment principles still need to apply!
We may be moving on into the future, but let's not forget that
history tends to repeat itself. History has shown that equities offer the
best protection against inflation and when bad news abounds it
offers value to the long term investor (those with vision) who is
prepared to look past the near term uncertainties.
An investment strategy that includes active asset allocation and
risk profiling around income and growth needs is required. In a world
of uncertainty a balanced portfolio managed by a professional and
reputable fund manager will ensure that you remain on course.
60 is the new 50 and people are living longer and are more in
charge of their own destinies than ever before. Companies are no
longer taking on the responsibility of ensuring that you have a
retirement fund and a medical aid etc. Investors need to not only
manage their pre-retirement portfolio, but their post–retirement
portfolio too. Now more than ever they need to seek professional
advice.
Interest rates are likely to remain lower for longer and growth
over the next few years is likely to be subdued. Returns from the
various asset classes will be tighter and investors in general will be
more cautious as they try to rid themselves of debt. It may be a
case of we are going where no person has dared to go before, but
those that stick to their investment strategy and solid investment
principles, such as diversification, will ensure that they will be able to
navigate the investment universe.
“It's life Jim, but not as we know it!”
In the investment world a lot has changed
and yet it has also stayed the same. And
although we may be moving on into the
future, good old fashioned investment
principles still need to apply. Written by
Travis McClure, Private Wealth Manager,
East London
“Live Long and Prosper”
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