Trustee Daily Bread

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Thursday, 21 July 2011



Trustee Daily Bread    

 Daily one-liners to empower trustees

In the event that trustees receive any gift, reward or favour by virtue of their position as board members, they are required to declare such gift, reward or favour in writing to the chairperson of the board

Upcoming Events:

  • Enter your funds in the IRF Communications Challenge 2011  and encourage effective communication to members. 

Entries close 29 July 2011. New category for BEST FIRST SUBMISSION! Go to for more information

  • IRF Annual Conference and Exhibition 4-6 September 2011, Durban International Convention Centre



SA’s dire retirement savings rate: Latest figures

Poor saving adds a burden to the next generation.

JOHANNESBURG - Only 53% of employed metropolitan South Africans contribute to a pension or provident fund to save for their retirement. Deduct those who contribute to a retirement annuity and almost 40% of the formally employed have no retirement savings. And these are not just lower income earners. Around 16% of people earning R40 000 per household have no pension.
South Africans disregard for the importance of saving is well documented. But attitudes towards savings shift with the economic climate and ongoing research from Old Mutual attempts to track these changes.
Insight into South Africans’ savings habits was provided by the financial services company which released its fourth Savings Monitor on Tuesday. The survey, conducted twice-yearly among employed metropolitan South Africans, found that in the past six months the number of households managing to save each month has fallen sharply.
This came as a surprise to researchers. The trend in the previous survey, completed last November, suggested that saving levels were increasing – albeit off a low base in 2009. It appears this was a temporary blip. “Last year was an artificially positive year,” says Old Mutual’s chief researcher, Lynette Nicholson. “The World Cup, lower interest rates, and inflation coming back into target gave consumers a sense of comfort. Savings increased as a result.”
But six months later a full 53% of those surveyed say they’re saving less. “People are feeling the pressure – though interest rates have remained flat, fuel, food, rates and electricity costs have increased,” says Nicholson. The majority of people surveyed, 82%, have been negatively affected by the recession. Of these, 22% have been affected by retrenchment, loss of commission and reduced working hours.
While consumers respond by trying to cut back on expenses and lowering their debt, savings are the next to go in the household budget. “Under those difficult circumstances, those consumers who don’t regard saving as an expense will find it very hard to save anything at all.”
The tough economic climate has not just squeezed household budgets, it has dented people’s confidence in their own ability to manage their money and their savings. “People’s belief in their ability to handle their finances has fallen,” Nicholson says. “They seem rattled.” More than 80% of those surveyed want to learn more about saving, she adds.
Another trend is the growing polarisation in attitudes toward saving. People are either so panicked by the state of their finances that they’re ignoring them and aggravating their problems, or have taken cognisance of the need to act and are doing so, she explains.
Certain people are more pre-disposed to saving than others. Old Mutual divides them into two groups – the savers dubbed “contented organisers” and the non savers, dubbed “panicked procrastinators”. Old Mutual notes that saving is not a luxury reserved for the wealthy. The flip side applies. “Even people with modest incomes are able to save. We see some very creative methods – grocery clubs are an example,” says Nicholson.
The contented organisers grew by nearly a fifth, from 20 to 24%, but the panicked procrastinators also grew from 30% to 40%. The in-betweens fell by 14%, from 50% to 36%, showing a hardening in attitudes towards the positive and negative extremes.
Perhaps explaining South African’s poor attitude towards saving, a third of respondents feel the government should care for them once they retire and a third feel their children should do so. This attitude is consistent across all age-groups.
Old Mutual noted the rise in the number of people who are caring for both parents and children – the so-called sandwich generation. These households in particular are hard-pressed to save for their retirement, says Nicholson. The increases in the prices of essentials mean that the 47% of respondents who haven’t already started saving for their retirement will find it increasingly difficult to do so.
The monitor shows an increase in the number of people saving for funeral expenses, and saving to pay off debt. Saving for holidays has decreased, while saving for home-improvements has climbed, Nicholson notes.

The positive trend, if one can find one, is consumers’ growing thirst for financial information.


20 July 2011

Your kid’s education policies may not be enough

Those with or planning to have children NEED to annually review their education policies.

JOHANESBURG – Old Mutual (JSE:OML) has advised that South Africans fully understand their future liabilities like their children’s university tuition as the education policies they hold may not be enough to finance their kids tertiary education.
Rian le Roux, chief economist at Old Mutual Investment Group of South Africa (Omigsa), told journalists and staff at the presentation of Old Mutual’s Savings Monitor in Johannesburg on Wednesday that often people complained to insurers about the inadequacy of their children’s education policies and yet the reality was that they had not saved enough.
Le Roux said some people tend to have an inflation linked premium for their children’s education policies, despite the reality that the increase in education costs far outstrips consumer price inflation. As a result when the child or children go to university the policy is not enough to pay for the entire undergraduate degree.
“Education costs have risen faster. So you need to add [more money] to that policy. It’s got to increase faster than consumer price inflation (CPI) because education costs increase faster than CPI... Over the last 20 years education costs have risen 11 times ... more than three times the CPI rate.
“On an annual basis revisit your financial provisions. The best advice is to find out every year if you are saving enough ... Get a decent financial adviser and make projections what those costs could be,” Le Roux said.

In the presentation of the Old Mutual Savings Monitor for 2011, the goliath insurer revealed that there was a decline in savings across all income groups in the country partly due to an increase in food, electricity and fuel prices.

Old Mutual’s findings come from a bi-annual survey which comprises of  1 000 South African households in major metropolitan areas like Johannesburg, Pretoria, Cape Town, Port Elizabeth, East London and Durban. The comprehensive household income sample ranged from less than R6 000 per month to more than R40 000 per month. The study aimed to reflect the approximately  5m working metropolitan population.
The survey, which is now on its fourth year, shows that the uptake in education policies fell slightly compared to last year. In 2011 the number of those in the sample with education policies stood at 19% compared to 23% and 20% in the bi-annual survey of 2010.  The number of those who held policies with dependent children was 29% in 2011 compared to 32% and 36% in the bi-annual survey of 2010.
In terms of retirement provisioning the Old Mutual Savings Monitor showed that only 53% of the respondents contributed to a pension or provident fund to save for retirement fund and one in three of the respondents felt government would look after them if they are unable to and 33% believed their children would look after them. For more read SA’s dire retirement savings rate: Latest figures.
Lynette Nicholson, Old Mutual’s chief researcher, said people needed to find ways of putting money away every month. “Monthly savings has to become an expense .... Those consumers who don’t regard saving as an expense and who don’t make it a part of their monthly budget will find it very hard to save anything at all,” Nicholson advised.
“What makes this situation worse is that the later you start to put savings aside for your retirement, the more you need to save each month and the longer it will take to start generating the compound interest that’s vital for retirement savings.”
The survey showed that 82% of the respondents wanted help in order to save, but savings took a backseat after cutting costs and reducing debt.

21 July 2011

By Phakamisa Ndzamela
Decline in savings across all groups
There has been a decline in savings levels across all income groups, the fourth Old Mutual Savings Monitor released on Wednesday shows. It also indicates that there has been a polarisation in attitudes towards saving, which takes a backseat with most after cutting costs and reducing debt.

The news is likely to be viewed as somewhat disturbing, especially given the fact that July is national savings month.

The latest survey showed that more than 82% of respondents want advice on overall money management, while 22% of South Africans have been affected by retrenchment, either directly or indirectly, including loss of earnings such as commission, and unemployment among family members.
Old Mutual's chief researcher Lynette Nicholson says South Africans' belief in being able to manage their money has fallen and their mean satisfaction level with their finances has declined from 6.5 to 5.7 out of 10.
The survey of working metropolitan households in South Africa found that more people are saving less than they did before. This is worrying as the previous Old Mutual Savings Monitor, released in November 2010, indicated a slight improvement in saving patterns.
“82% of respondents say the recession has affected them in some way, irrespective of their income levels,” says Ms Nicholson.
Most people have reacted in one of two ways, she explains. Some are so unnerved by the state of their finances that they're ignoring them and thus aggravating their problems. But a second group has taken cognisance of the need to act and is doing so.
Another eye-opening finding was that only 53% of employed metropolitan South Africans contribute to a pension or provident fund to save for their retirement.
Equally alarming is that 1 in 3 of the respondents feel the government will take care of them once they are unable to take care of themselves, while 33% also believe their children will do so. This attitude is consistent across all age groups.
Business Report

20 July 2011
PFA refuses pension funds to be used to settle housing loans
A fund may only pay out to its members those benefits provided for in its rules

Fifty-eight members of a provident fund have failed in their efforts to be allowed have amounts owing on their housing loans to be settled by using their fund values.
F Dadoo and 57 others complained to acting Pension Funds Adjudicator Dr Elmarie de la Rey that Avusa Ltd Provident Fund (first respondent") and Alexander Forbes Financial Services (Pty) Ltd (second respondent) had refused to allow them to settle the balance of their housing loans by using their accumulated fund values.
The complainants said they were "struggling to make ends meet" due to the economic climate and they preferred to settle their home loans so that they would have more disposable income thereafter.
The complainants were members of the first respondent (previously known as the Johnnic Entertainment Provident Fund) by virtue of their employment with Avusa Limited (the employer). The second respondent was the administrator of the first respondent.
On 21 August 2008 the complainants had submitted a request to the second respondent to have the outstanding balances on their housing loans with HomePlan settled by using their fund values in the first respondent.
The complainants had obtained housing loans from HomePlan and their retirement savings in the fund were utilised as security.
The respondents refused to accede to the request on the basis that section 37A of the Act prohibited any reduction, attachment, cession, transfer or pledge of a retirement benefit.
The aim of this section 37A of the Act was to ensure that pension benefits were protected for members and their dependants until such time as it became payable when the member exited the fund.
Since section 37A specifically excluded the set-off of debts against a benefit from a retirement fund (the HomePlan loan in this case), the fund could not accede to the complainants' request to reduce their benefits in the fund in order to settle their outstanding housing loans.
The second respondent requested the Office of the Pension Funds to dismiss the complaint on the basis that reducing the complainants' fund values would be contrary to the provisions of the Act.

In her determination, Dr De la Rey said the rules of a registered fund were binding on the fund, its members, shareholders and officers, and on any person who claimed under the rules or whose claim was derived from a person so claiming.

Due to the binding effect of the rules, a fund may only pay out to its members those benefits provided for in its rules.
As a general principle pension benefits were not reducible, transferable or executable save to the extent permitted by the Act, the Income Tax Act No. 58 of 1962 and the Maintenance Act No. 99 of 1998.
The Act allowed for exceptions to this principle in certain circumstances such as a fund may make deductions from the member's fund value where a loan had been granted and the member had defaulted in the repayments and where his membership in the fund had not terminated. The deduction could only be effected as a last resort after the board of management of the fund was  satisfied that no other arrangement for the repayment could be made.
"In the present matter, although the complainants' fund memberships have not terminated, they have not defaulted in loan repayments and there is no proof that there are no alternative repayment arrangements available to them.
"The respondents have indicated that there is a possibility of extensions of the repayment period, so the facts suggest that there are alternative arrangements available to the complainants. 

"In the result, the complaint cannot succeed and is dismissed," ruled Dr De la Rey.

Investment News & Insurance Times

20 July 2011

By Bashira Mansoor
Benefit must be paid upon termination of employment, PFA rules
He was told that he may not access withdrawal benefit until his retirement age

Upon termination of employment, a member of a pension fund is entitled to be paid the withdrawal benefit, acting Pension Funds Adjudicator Dr Elmarie de la Rey has ruled.
She was pronouncing in a matter concerning the non-payment of a withdrawal benefit following the termination of the complainant's employment.
The complainant S K Tsoeute of Welkom submitted he was a contributing member of the Mine Employees Pension Fund (respondent) from 5 February 1997 until 19 July 2001.
Upon being promoted from 20 July 2001, he contributed to Sentinel Mining Industry Retirement Fund (Sentinel) until he left service on 19 February 2008.
He said he did not receive his withdrawal benefit from the respondent and that he was told that he may not access it until his retirement age.
In its defence, the respondent said the complainant became a non-contributory member by not terminating his membership - despite the fact that he did not make an explicit election within six months of ceasing to be a contributory member.

The respondent further submitted that the complainant was informed when he took a benefit from Sentinel that he could not access his fund credit in the respondent until he was eligible for a retirement benefit.

The respondent submitted that when the respondent's structure was converted with effect from 1 March 2003, the complainant was credited with a conversion credit.
The respondent further submitted that these restrictions were imposed by South African Revenue Services to avoid tax arbitrage by members who took withdrawal benefits some years after leaving service when their tax rates had reduced.
In her determination, Dr De la Rey said the issue was whether or not the respondent had failed to comply with its duties in not paying the complainant his withdrawal benefit upon termination of his employment. She said the complainant left service on 19 February 2008 and was paid his withdrawal benefit from Sentinel.
The complainant ceased contributing to the respondent on 19 July 2001.
She said Rule 21 (1) of the Act that was applicable at the time that the complainant was promoted provided as follows: "Every employee in the service of an employer on the fixed date shall, as from the fixed date, and every person subsequently becoming an employee shall, as from the date of becoming an employee, become a member of the Fund.
"Subject to the provisions of paragraphs (2) and (4) of Rule 23, a member shall not be permitted to withdraw from membership of the Fund while he remains in the service of an employer."

Dr De la Rey said since the complainant was still in the service of the employer, he could not receive his withdrawal benefit from the first respondent.

However, the complainant left the service of his employer altogether on 19 February 2008 and, therefore, he could be paid his withdrawal benefit from the respondent together with fund growth thereon.
Dr De la Rey ordered the respondent to pay the complainant his withdrawal benefit, less any permissible deductions in terms of the Act, plus the member's fund growth to date of payment.
Investment News & Insurance Times

20 July 2011

By Bashira Mansoor
SA investors look to hedge funds for offshore diversification solution
There is a lot more transparency now from most hedge funds

With relatively high equity market valuations and low interest rate environments in virtually all developed markets, South African investors looking for offshore diversification are faced with a challenging prospect in terms of both risk and returns.
According to Kevin Ewer, portfolio manager at Blue Ink Global, Blue Ink Investments' offshore division, one solution for these investors would be to allocate a portion of their offshore portfolio to global hedge funds, which he believes currently offer far higher prospects of outperforming other asset classes on a risk/return basis, especially over the mid to long term.
"The case for hedge funds has been less clear from a return perspective since the turn of the equity markets in March 2009, but over longer periods of 3, 5 and 10 years hedge funds, across almost all strategies, have out-performed the traditional equity indices with both lower levels of volatility and drawdown. Positioned correctly within a portfolio, they are able to offer good diversification and return benefits."
He suggests that investors should be allocating some of their equity allocation to hedge funds with a long-short equity mandate, benchmarked against 50% equity markets and 50% cash.
He adds that investors should also be doing a similar thing with fixed income allocations.

"There is a lot investors can do here rather than simply being long only that can enhance their payoff profile. They should also then look to make strategic allocations that are uncorrelated to equity markets."

Total Returns to June 2011


HFRI Fund Weighted Composite

S&P 500 Total Return

3 years

9.43% (volatility: 8.52%)

10.35% (volatility: 21.21%)

5 years

26.38% (volatility: 7.42%)

15.61% (volatility: 17.88%)

10 years

91.20% (volatility: 6.35%)

30.76% (volatility: 15.82%)

"This would come specifically from global macro and managed futures type strategies."

He says that South Africans also need to be realistic about the levels of returns they should expect from investments in offshore hedge funds.
"Low double digit numbers should be considered excellent, while even high single digit returns should be considered acceptable. There may be some funds that are currently shooting the lights out, but they often are taking high levels of risk."
"I would urge investors to stay away from them, unless they understand the risks being taken and are happy with the potential downside. Ewer says that while local investors may still be wary of offshore hedge funds in the wake of the global financial crisis, many of these funds have made massive adjustments since 2008 in the way they approach risk and also their investors.
"One of the biggest problems used to be that many of the longer running funds had always done self-administration and investors were relying on  auditors to sign off on valuations at year end as to the validity of the performance. Post 2008, that game was over. Hedge funds realised no matter who they are, they needed a third party administrator for governance reasons."
He says there is a lot more transparency now from most hedge funds. "For example, most managers now provide monthly outlines of sector and regional exposures, largest positions etc."

"This gives investors a good idea of how they are managing the fund. While this transparency is still not to the level that is in South Africa, it will be possible to pick up issues such as changes in style and risk levels."

According to Ewer, these changes are more market driven than regulatory.
"I am not convinced that transparency changes due to any new regulations are that noticeable. It is more a case of managers realising that the more that people know, the less the negative reaction will be in a period of poor returns."
Investment News & Insurance Times

20 July 2011

By Sarah Gould
The Registrar of Pension Funds referred a case against Retirement Fund Solutions Holdings
Failed to maintain sufficient current assets to meet its current liabilities

The Registrar of Pension Funds (Registrar) referred a case against Retirement Fund Solutions Holdings (Pty) Ltd (Retirement Holdings) to the Enforcement Committee of the Financial Services Board.
The referral relates to a contravention of section 13B(1) of the Pension Funds Act, No. 24 of 1956 (Act) read with conditions 7.2 and 7.3 as determined in Board Notice 24 of 2002, in that during the period 1 March 2009 to 28 February 2010 it failed to maintain sufficient current assets to meet its current liabilities and also failed to maintain liquid assets equal to or greater than 8/52 of its annual expenditure.
Retirement Holdings admitted the contravention and agreed to settle the matter.

The Registrar took into account, amongst others, that: the officers accepted responsibility for the contravention; there is no evidence of any prejudice resulting from the contravention; Retirement Holdings had not contravened the Act before; Retirement Holdings fully co-operated with the Registrar's investigation and the enforcement action; its officers displayed remorse for the contravention.

Consequently, the Registrar agreed to a penalty of R7500, which penalty was imposed by the Enforcement Committee on Retirement Holdings on 18 July 2011.
Investment News & Insurance Times

20 July 2011

By Logan Ramalu
Spouse not entitled to interest in a pension fund after divorce
The complainant was of the opinion that the former spouse was entitled to interest

A non-member spouse is not entitled to any interest or growth in a pension fund which may accumulate after the date of divorce, acting Pension Funds Adjudicator Dr Elmarie de la Rey has ruled.
Professor EW Derman of Hout Bay brought a complaint against the University of Cape Town Retirement Fund (first respondent) and Sanlam Life Insurance Ltd (second respondent) following the non-payment of interest on the 50 percent share of the pension fund paid to his former spouse.

The complainant's marriage was dissolved by a decree of divorce. In terms of the divorce settlement agreement, the complainant's spouse was entitled to payment of one half of the complainant's pension value in the University of Cape Town Retirement Fund accruing to the complainant for the period from 1 September 1993 to the date of the divorce.

In terms of the agreement, the said half share of the former spouse's pension value shall bear interest at the prescribed legal rate of 15.5% per annum from date of divorce to date of payment.

The former spouse informed the respondents that she wished to transfer her 50% share of the pension interest to another approved pension fund, which was duly done.

Following the amendments to section 37D(4) of the Act brought about by the Pension Funds Amendment  Act No. 11 of 2007  which came into effect on 13 September 2007, the former spouse claimed payment of the pension value assigned to her in terms of the court order.
The first respondent transferred the portion of the pension assigned to her to an approved pension fund, but did not pay any interest as stipulated in the divorce settlement agreement.
The complainant was of the opinion that the former spouse was entitled to interest. The former spouse threatened to institute legal action against him to compensate for the unpaid interest or fund return and he did not have the funds to pay it. He submitted that the first respondent should, therefore, pay interest as stipulated in the divorce settlement agreement.
The second respondent filed a response in its capacity as the administrator of the first respondent. It advised that the Act did not allow for the payment of interest or fund returns on the pension value assigned to the former spouse.
In terms of section 37D(4)(a) of the Act, a fund may only deduct from a member's pension benefit the portion of pension assigned to the non-member spouse in terms of the court order granted in terms of section 7(8) of the Divorce Act No. 70 of 1979 ("Divorce Act"). Section 1 of the Divorce Act did not include any interest or growth which may accumulate after the date of divorce.
In terms of section 37D(4)(c)(ii) of the Act, interest will only be payable to a non-member spouse upon the expiry of 120 days after the fund has requested the non-member spouse to make an election for the mode of payment of her pension interest.
Dr De la Rey said in her determination that section 37D(4)(c)(ii) only permits payment of interest or fund returns after the expiry of 120 days from the date the non-member spouse was requested to make an election regarding the payment of pension interest.
"The fund return that is contemplated is calculated from the expiry of the 120 day period to the date of payment or transfer to the non-member spouse, so it is not fund return from the date of divorce to the date of payment. Full Report:
Investment News & Insurance Times

20 July 2011

By Bashira Mansoor
SA its own worst enemy

World Bank says it has huge growth potential but just isn’t getting there.

JOHANNESBURG – The World Bank says South Africa has huge potential for growth but several factors are hampering investment. Among them are skills shortages and the lack of adequate schooling.
A World Bank report on the South African economy has echoed Finance Minister Pravin Gordhan’s call for people to learn to save. Earlier this month Gordhan said South Africa’s gross savings were 16% of gross domestic product in 2009, which compared to China’s savings rate of 52% and Russia’s 22%.
The report suggests that resolving this country’s high youth unemployment rate can go some way in promoting growth. Another would be for employers to revert back to hiring labour instead of relying on machinery. However, small business, in particular, has said in recent months that the high minimum wage required by law and industrial action is prohibitive in hiring workers, forcing them rely on machinery and technology to keep their businesses afloat.

The World Bank’s Marcelo Giugale declined to be drawn on the scale of industrial action in South Africa costing the country millions each year. He told a news conference in Johannesburg that industrial relations were “a fact of life everywhere. unions have a voice to be heard.” Full Report:


20 July 2011

By Micel Schnehage
Good intentions fail to translate into savings in SA
Many South Africans fully intend to become diligent savers but are just not translating these intentions into action. This trend was highlighted in a survey conducted by Sanlam, as part of its National Savings Month activities. And the high debt rate in the country remains one of the biggest obstacles to saving.
According Karin Muller, head of Sanlam Growth Markets at Sanlam Personal Finance, the survey highlights the continued need for South Africans to become more financially savvy. "National Savings Month has once again placed the very low savings rate in South Africa under the spotlight. It has forced individuals to place a microscope on their savings habits, and to understand how to start saving. We hope it will spur some individuals into taking the necessary action to secure their financial stability and security."
The poll, conducted on Facebook on Sanlam's National Start Something Day page, found that nearly 55% of respondents want to have a more financially secure future and want to start saving as a result. But just under half the respondents say they fail to do so, as they have nothing left to save after paying their expenses.
Muller says the biggest concern is the country's high debt rate. According to the latest Quarterly Bulletin released by the Reserve Bank, South Africa's household debt to disposable income was just under 77% in the first quarter of this year. While this is lower than 2008's level of 82%, it comes at a time of low interest rates -- with the repo rate currently standing still at its lowest point in more than 30 years. Muller says, "Despite the low interest rates, we're still not getting rid of our debt, and that's one of the biggest impediments to saving."
The poll also found that one in ten of us cannot control our spending habits, and will most likely get into debt using our credit card on a shopping spree. And two in ten say we can't save because we're unwilling to skimp on our lifestyle. Muller says our perception of value has become skewed. "Many of us find it difficult to put R300 away in a savings product, but spend R300 on a pair of shoes fairly easily. Consumer behaviour is often such that immediate gratification gets priority -- but saving hard earned cash can be equally rewarding."
Muller says there are a number of steps we can take in order to become a nation of savers:

Get rid of debt:

She says not all debt is bad, such as debt incurred when buying a house. "Debt allows access to 'big ticket' items such as property that for most of us would be impossible through savings. But it is vital to put extra money away to pay off debt, and to ensure you do not incur unnecessary debt.

Start small:

Start putting a small amount away in a savings product as soon and often as possible. "Regularly putting something away is the most important thing, especially in a low interest rate environment." While this is often more easily said than done - the poll found that two in ten fall into debt because our expenses are more than our income - it is definitely something which should be made a priority.

Put money away before spending it:

Ideally savers should set up their account so that savings are taken out shortly after being paid, and before other debit orders go off. In that way, the money is out of the account, and cannot be spent. Muller says, "Invariably there's nothing left by the end of the month, so take the savings out before this happens."

Become educated on the value of savings:

Consumers should see their savings as a way of investing in themselves, by paying themselves regularly. "Savings are an enabler: they enable us to take our dreams, and make them a reality or something achievable."

In encouraging South Africans to make their dreams a reality, Sanlam launched its savings campaign, through its National Start Something day. According to Muller, "The idea is to encourage people to make the most of every opportunity they're given, and to make their own opportunities, from learning a new language, to saving for retirement. The sooner you invest in something, the sooner you'll reap the rewards." The campaign on Facebook already has thousands of fans. The National Start Something day will be officially celebrated on September 2.
Mail & Guardian

18 July 2011
Retirement Holds fined by FSB
A penalty of R7500 has been imposed on Retirement Fund Solutions Holdings (Pty) Ltd for contravening a section of the Pension Funds Act, the Financial Service Board (FSB) said on Wednesday.
The Registrar of Pension Funds referred a case against Retirement Fund Solutions Holdings to the enforcement committee of the FSB, it said in a statement.
The referral related to a contravention of section 13B(1) of the Act read with conditions 7.2 and 7.3 as determined in Board Notice 24 of 2002, in that during the period March 1, 2009 to February 28, 2010 it failed to maintain sufficient current assets to meet its current liabilities and also failed to maintain liquid assets equal to or greater than 8/52 of its annual expenditure.
Retirement Holdings admitted the contravention and agreed to settle the matter.
The registrar took into account, among others, that the officers accepted responsibility for the contravention, there was no evidence of any prejudice resulting from the contravention, Retirement Holdings had not contravened the Act before, Retirement Holdings fully co-operated with the registrar's investigation and the enforcement action, and its officers displayed remorse for the contravention.
“Consequently, the registrar agreed to a penalty of R7500, which penalty was imposed by the Enforcement Committee on Retirement Holdings on 18 July 2011,” it said.

The enforcement committee is an administrative body created in terms of the FSB Act. It may impose administrative penalties, compensation orders, and cost orders on respondents found to have contravened any law administered by the FSB.

Business Report

20 July 2011
Government reaches deal with unions on public sector pension talks
UK - The UK Government has announced public sector pension negotiations will continue on ‘scheme by scheme’ basis in the future.
Chief secretary to the Treasury Danny Alexander (pictured) said the government and the TUC have agreed that initial discussions on reform should be opened at a scheme by scheme level, with the central process continuing alongside this.
Alexander said these discussions were necessary to ensure a fuller understanding of the implications of reforms, before final conclusions are reached.
The government said schemes would begin consultations on its proposals for member contribution increases from April 2012 in a bid to meet the target of £1.2bn savings set out in the Spending Review for 2012-13. The consultations will begin by the end of this month.
Alexander said these consultations will only relate to delivering these savings in the first year (40% of the average 3.2 percentage point increase). They will begin by the end of July and be completed by the end of October, in order to ensure implementation from April 2012.
The government said it remains committed to securing the full Spending Review savings of £2.3bn in 2013-14 and £2.8bn in 2014-15, requiring each scheme to find savings equivalent to a 3.2 percentage point increase in member contributions.
Separate scheme specific discussions will make proposals by the end of October on how these savings are achieved. The government has made clear that lower earners should be protected from the impact of any contribution increases.
Today the government proposed that there should be no increase in member contributions for those earning under £15,000 and no more than a 1.5 percentage point increase in total (before tax relief) by 2014-15 for those earning up to £21,000.
It said this means 750,000 people should pay no extra contributions and another 1 million should pay no more than 1.5% extra. This amounts to a 0.6 percentage point increase in 2012-13 on a pro-rata basis.
The total increase will be capped at 6 percentage points (before tax relief) by 2014-15 for the highest earners. This amounts to a 2.4 percentage point cap (before tax relief) in 2012-13 on a pro-rata basis.
The government said Lord Hutton's recommendations will inform scheme level discussions and the it will provide scheme specific cost ceilings (a total cap on the cost of a scheme) to ensure that public service pensions remain affordable and sustainable by setting a limit on the contribution made by the government and ultimately the taxpayer.
It said cost ceilings will be based on Lord Hutton's proposals but will go further and ensure that the pension individuals receive at normal pension age would be broadly as generous for low and middle income earners as it is now. Scheme talks will be asked to provide initial proposals for reformed schemes by the end of October 2011.
The government said cost ceilings alone cannot manage the risks that taxpayers are exposed to in defined benefit schemes. This is why Lord Hutton recommended that the normal pension age should be linked to the State Pension Age. The Government continues strongly to believe that this is the right approach to managing the rising and uncertain risks of longevity. Scheme talks will also consider their preferred approach to managing risks, especially longevity risk. However, since risks ultimately lie with the taxpayer any approach will need to be agreed with the Treasury.
Alexander said: "The Government and the TUC have held a series of constructive meetings to discuss public service pension reform and have now agreed that to further inform the discussions on Lord Hutton's recommendations, there should be scheme level discussions alongside the central process already established.
"I can also confirm today that to deliver the first year's savings of £1.2bn through employee contribution increases, scheme-by-scheme consultations for the unfunded public service pension schemes will commence by the end of this month. The government remains committed to securing the full Spending Review savings of £2.3bn in 2013-14 and £2.8bn in 2014-15."

Alexander said, with regards to the Local Government Pension Scheme, the government recognises that the funded nature of the scheme puts it in a different position and will discuss whether there are alternative ways to deliver some or all of the savings in respect of contribution increases.

It said the armed forces will continue to be exempt from any increase in member contributions.

The Chief Secretary to the Treasury and TUC general secretary Brendan Barber have published an exchange of letters setting out further details.

Global Pensions

19 July 2011

By Jonathan Stapleton
Financial advisers accused of 'ripping off' pension savers
Financial advisers stand accused of needlessly switching consumers from one pension plan to another simply to earn commission.
The 60-page report by Consumer Focus showed that some consumers are being advised to switch to different pension products, often with higher charges or higher risk. The higher fees wipe thousands of pounds off a fund’s value.
The consumer watchdog added that the trend for products to charge ongoing fees, known as ‘trail commission’, is increasing in advance of the expected ban on trail commission when new rules on financial advice are introduced in 2012.
It is estimated that pension companies pay IFAs between £200 million and £800 million in commission a year, with a quarter being trail commission. The report highlighted that consumers do not fully understand the purpose of the trail commission: whether it is for ongoing service or deferred commission.
It also found that over 50pc of customers paying trail commission had received no service in the last two years from their IFA. Worryingly the research shows many consumers do not appreciate the impact this additional annual charge will have on their pension pot, Consumer Focus said.
Christine Farnish, Chair of Consumer Focus, added: “Too many consumers are being persuaded to switch their pension into different pension products which may well leave them worse off.

“Others are signing up to paying trail commission to their adviser for the life of the product – which may be decades – without receiving any tangible benefit. The FSA needs to get a grip on this market and tackle consumer detriment as soon as possible.”

The IFA industry has hit back at the report and said that it “appears to be very thin on evidence" to back up some of their claims, which are based on "a great deal of conjecture and speculation" and undermines the conclusions they draw. Full Report:

The Telegraph

20 July 2011

By Paul Farrow

The eurozone crisis – on the brink

The euro debt crisis is intensifying, the US economy is faltering, and China’s growth is coming off the boil. Financial markets are reeling. Claire Bisseker looks at what this means for SA

The global economic recovery is in danger of unravelling. The consensus that this is just a soft patch and the world economy will bounce back soon is beginning to fray.
Still haunted by the 2008 financial markets crash, policy makers are worried and investors nervous as the euro and US debt crisis deepens. There is a flight of capital from emerging markets into currencies like the Swiss franc and safe- haven commodities such as gold, which hit US$1600 for the first time on Tuesday.
has intensified, the US economy is faltering, and China’s growth may be coming off the boil. Financial markets are reeling, still haunted by the spectre of the 2008 crash. The consensus - that this is just a soft patch and the world economy will soon bounce back – is beginning to fray, as are investors’ nerves.
Despite the benefits for mining, the timing could not be worse for the SA economy. The fragile domestic economic recovery is rapidly losing momentum as inflationary pressures rise and the country plunges into what has all the makings of a bitter and protracted strike season.
But SA’s economy is still in better shape than Europe’s . Last week, the eurozone crisis entered a more dangerous stage as the contagion spilt from the peripheral economies — Greece, Portugal and Ireland — into the core, gripping Italy and Spain, countries that are too big to bail out. Italy is the eurozone’s third-biggest economy, as well as the biggest sovereign-debt market in Europe, and the world’s third-biggest.
As 10-year Italian government bond yields pushed past 6% last Tuesday (their highest since the euro was created), Rand Merchant Bank currency strategist John Cairns warned that the global economy risked “another crisis at least as bad as Lehman’s bankruptcy”.

After three days of market turmoil early last week, when at times it appeared that the wheels were coming off in Europe, calm returned later after Italy rushed a € 48bn austerity package through its parliament.

Reassurance that the US Federal Reserve would be prepared to provide additional monetary stimulus if the US economy weakened, coupled with better than expected growth figures from China, also helped soothe nervous markets. However, in the absence of a definitive plan to solve the eurozone crisis, any respite is likely to prove temporary. In this climate, the markets are spooked by any bad news. Full Report:
Financial Mail

21 July 2011

By Claire Bisseker
Pension savers switched to new products to generate commission
Financial advisers get up-front fee – even where transfers or new pensions are inappropriate – Consumer Focus finds
Consumers are being "churned" into different pension products, often with higher charges or risks, to generate commission for their financial advisers, according to Consumer Focus.
The consumer champion says much of this churn is not appropriate and could leave consumers worse off in retirement. The report said that in every case where a pension was transferred or a new pension taken out the adviser received an up-front payment. In the cases it looked at where the fees and value of the pension pots were outlined, the average value transferred was £33,400 and the average fee £1,552 – the equivalent of 4.6% of the value of the fund.
Consumer Focus is urging the Financial Services Authority and pensions minister Steve Webb to act to improve the personal pensions market and protect consumers from making a costly mistake with their retirement savings.
In its report, Consumer Focus also criticised the trend for products to pay ongoing fees, or trail commission, to advisers, even if they had not reviewed a customer's investments.
The report found that pension companies paid between £200m and £800m in commission a year, of which an estimated 25% was trail commission. Deducting this from investments resulted in the saver ending up with a smaller pension pot.
The report also found that disclosure of costs and charges was complex and opaque, making it virtually impossible for consumers to shop around or know what represented good value for money.
Christine Farnish, chair of Consumer Focus, said the investigation showed "that practice in the individual personal pensions market still leaves much to be desired".
She added: "The complexity of costs and charges, despite years of work by regulators on disclosure, make it all too easy for savings that should be going into a pension pot to be siphoned off in costs and charges. This complexity makes it impossible for consumers to judge price, and shop around for a good deal as they would in other markets." Full Report:
UK Guardian

20 July 2011

By Hillary Osborne

Rates to remain unchanged while inflation continues to be fuelled by strikes
While there has been talk about interest rates going up sooner rather than later it’s clear that it won’t be during this MPC meeting. So rates will remain unchanged until later in the year.
The reason behind this decision is a difficult one as the MPC has a challenging situation on its hands. “We know inflation is trending high and is expected to breach the upper band of the target (6%) later in the year through early next year. For that reason the MPC should be seriously considering to raise the interest rates,” says Tendani Mantshimuli, Consumer Economist at Liberty Retail SA.“Inflation will be further fuelled by the wage settlements from the current ‘strike season’ which are way above 6 per cent. This is besides other administered prices like the higher electricity and other municipal rates increases. We know that motorists too will pay higher prices particularly in Gauteng with the impending toll fees.”
The balancing act for the MPC is that in trying to keep inflation within target they should be careful not to stifle the fragile economic recovery. We know that the current strike, particularly in the petroleum sector will have a negative impact on growth. “Also, the chances of a robust global recovery grow dimmer each day we hear of still another European economy falling deeper into sovereign debt crisis. The balance of these views is that the MPC should be considering raising rates only later in the year,” continues Mantshimuli.
She goes on to mention that this is an opportune time for indebted consumers to work their debts down while rates are still low. Also, when entering into new debt contracts you should bear in mind that interests rates are going to go up sooner rather than later, it’s important to factor in about 2.5 percentage point of interest payments; that way you can really tell if you can afford the debt. What may seem affordable now may not be a year from today when repayments go up with the interest change. Those consumers who depend on interest income can breathe easier because as rates go up later in the year their income will increase.
“It’s unfortunate that we concentrate on the indebted consumers instead of highlighting the plight of those who save and might be discouraged from doing so because the return is very low at the current low interest environment. It’s important for them and the rest of us to save, it’s just important to get the help of a qualified financial adviser to help you put your saving in a vehicle suited for your purposes and which will yield reasonable returns no matter what the interest rate is,” says Mantshimuli.
When interests go up the cost of borrowing increases, currently as rates remain unchanged at this low level it’s cheaper to borrow, both for corporate and consumers, provided you do it prudently. Not all debt is bad debt, particularly if it’s going to finance investment which increases the economy’s future production capacity. Full Report:;43,General;1198,Rates_to_remain_unchanged_while_inflation_continues_to_be_fuelled_by_strikes;10326
FA News

20 July 2011

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Compiled By
Ruwaida Kassim

Institute of Retirement Funds, SA

Tel: 011 781 4320


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The IRF aims to protect, promote and advance the interests of our members. Our mission is to scan the most important daily news and distribute them to our members for concise reading.
The information contained in this newsletter does not constitute an offer or solicitation to sell any security or fund to or by anyone in any jurisdictions, nor should it be regarded as a contractual document. The information contained herein has been gathered by the Institute of Retirement Funds SA from sources deemed reliable as of the date of publication, but no warranty of accuracy or completeness is given. The Institute of Retirement Funds SA is not responsible for and provides no guarantee with respect to any information provided therein or through the use of any hypertext link. All information in this newsletter is for educational and information purposes and does not constitute investment, legal, tax, accounting or any other advice.

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