Daily One-Liners to Empower Trustees

IRF DAILYMonday, 27 June 2011______IN THE NEWS TODAYTrustee Daily Bread Daily one-liners to empower trustees Have an effective risk based internal audit… (this week we will look at what the internal audit should provide)UPCOMING EVENTSUpcoming Events:Trustee Workshop Series 2 – Detangling the BUDGET Proposals - How does it affect your fund? REGISTER NOW!!! Space is limited.Contact the IRF 011 781 4320Johannesburg: Military War Museum – 05 July 2011Durban: Venue TBC - 14 July 2011Cape Town: Metropolitan, Tyger Valley – 19 July 2011Time: 09H00 IRF COMMUNICATIONS OPEN DAY – 07 JULY 2011 – More information to follow shortly . allowing you to see firsthand past winning entries for various categories . Speak to a member of the judging panel to get feedback on your communication material and even previous winners. . Browse through Communication Materials of previous winners 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 www.irf.org.za for more information Don’t forget to Diarise the IRF Annual Conference and Exhibition 4-6 September 2011, Durban International Convention Centre THE EVOLVING RETIREMENT LANDSCAPE – Shaping inclusive growthLOCAL NEWSSentrachem pensioners must pay back surplusIn a partial “rags to riches and back to rags” story, lawyers for the Sentrachem Group Pension Fund are demanding back R51 million from 2 900 former members of the fund – mostly pensioners – who were incorrectly paid the money from a surplus more than three years ago. The claims against the former members range from less than R100 to R4 million. Of the total payout of R51 million, about R45 million was paid to 188 former members, while R6 million went to 2 700 former members. The demands for the money follow a revision of the initial surplus distribution scheme, which was approved by the Financial Services Board (FSB) in November 2007. The High Court has set aside this surplus apportionment scheme. The pension fund is about to sue Sanlam, the fund’s administrator, and Alexander Forbes, the fund’s valuator and actuarial consultant, for their alleged roles in the incorrect payments. The Sentrachem fund’s claim against both service providers is R75 million, less any overpayments that the fund can recover from the former members. Sazi Lutseke, the chairperson of the Sentrachem Group Pension Fund, says the fund must recover, as far as possible, the amounts overpaid to former members and then adjust its claim against Alexander Forbes and Sanlam by the total amount it recovers. Lutseke says that R6.5 million has already been paid back. The fund may have some difficulty in recovering all the money, because the former members may have spent it. The fund is unlikely to take action against former members where there is no reasonable possibility that the money will be recovered or where the costs involved will outweigh the amount recovered, Lutseke says. Former members may also explain why they may not be able to repay the money, and the fund will entertain any reasonable offer to repay the money over time, he says. On the basis of calculations by Alexander Forbes and membership records provided by Sanlam, payments started in September 2008. The surplus distribution and subsequent incorrect payments are a result of the sell-off of major parts of the giant Sentrachem chemical group in the 1990s, as well as transferring most active members to negotiated and company-sponsored provident funds, and outsourcing pensioners in 1998 through the purchase of annuity policies. The combination of transferring members either to the retirement funds of new employers or to provident funds and the purchasing of annuity policies – without members or pensioners receiving any share of the surplus – resulted in the fund accumulating a surplus of R321 million, which was to be distributed among the fund’s stakeholders. Attempts by the Sentrachem group to claim the surplus were blocked by amendments to the Pension Funds Act aimed at ensuring a fair distribution of pension surpluses. One of the reasons the government introduced the surplus apportionment legislation was because of complaints to the Pension Funds Adjudicator by some former Sentrachem fund members and the South African Chemical Workers’ Union about Sentrachem’s attempted attack on the surplus, the payment of exceptional pensions to retiring senior executives and poor annual increases for pensioners. Full Report: http://www.iol.co.za/business/personal-finance/retirement/sentrachem-pensioners-must-pay- back-surplus-1.1088498Personal Finance 26 June 2011 By Bruce CameronDynamic Wealth closesIn a significant victory for the Financial Services Board (FSB), controversial Pretoria-based financial services company Dynamic Wealth, which has been mired in legal battles with the regulator and dissatisfied investors, closed its doors this week. The closure follows a determination by the FSB Appeal Board to reject Dynamic Wealth’s appeal against a decision by Dube Tshidi, the Registrar of Financial Services Providers and the FSB’s chief executive, to withdraw the financial services provider (FSP) licences of two of its subsidiaries, Dynamic Wealth Management and Dynamic Wealth Stockbrokers. An immediate consequence of the Appeal Board’s decision is that Metropolitan Collective Investments has taken control of the seven unit trust funds that Dynamic Wealth managed and marketed using Metropolitan’s collective investment schemes licence (see “Investors’ money in unit trusts ‘should be safe’”, below). Commenting on the status of Dynamic Wealth, Cobus van Wyk, the company’s chief executive, says “we are for all practical purposes closed for business, as the company cannot do financial services business, and all assets that were managed have been (or are in the process of being) transferred”. The FSB is still waging a court battle to place various Dynamic entities under curatorship. Last year, Dynamic successfully challenged an application by the FSB to place the company under curatorship. The FSB has taken the High Court’s decision on appeal, which is still to be heard. Dynamic Wealth initially attracted the attention of the FSB when one of its investment offerings started to go sour, which led to the curatorship application. Some years before the FSB took action against Dynamic, Personal Finance had dealt with complaints from disappointed investors. High-profile forensic investigator David Klatzow had taken up cases on behalf of investors, who claimed that Dynamic misled them into making incorrect investments. Over the years, following reports and investigations into the company’s activities, Personal Finance received a number of what transpired to be hollow threats of legal action from Dynamic Wealth. Among other things, Personal Finance revealed that Dynamic Wealth had a business relationship that involved property bridging finance with Attie du Plooy, who had run an illegal pyramid structure, Jean Multi-Management, which the Reserve Bank closed down. Jean Multi-Management was the recipient of R200 million that was stolen by Angus Cruikshank, the owner of Ovation, the now defunct linked-investment services provider, from the unregistered and illegal Common Cents fund. Cruikshank committed suicide when the FSB moved in on him. The FSB’s grounds for the curatorship application last year included the claim that a number of investment portfolios offered by Dynamic Wealth under the guise of investment clubs were in fact illegal collective investment schemes. Among the “investment club” portfolios was a fund that was caught up in the collapse of Corporate Money Managers (CMM). The fund masqueraded as a unit trust money market fund, but in fact it pooled investors’ money to invest in failed property developments. After the intervention of the FSB, the “investment club” port-folios were converted into com-panies, and the troubled money market fund became Specialist Income Ltd (SIL). SIL is likely to be the biggest loser in the collapse of CMM, with a potential loss of R230 million. Converting the “investment club” portfolios into companies reduced the rights of investors, because they became shareholders rather than investors with a preferential claim to any assets. Full Report: http://www.iol.co.za/business/personal-finance/retirement/sentrachem-pensioners-must-pay- back-surplus-1.1088498 Personal Finance 26 June 2011 By Bruce CameronWhen ex-spouses can’t claim pension interestIn last week’s column I wrote about how only three percent of non-member former spouses are preserving the retirement benefits they receive in a divorce settlement. Sometimes it is not easy for a non-member former spouse to access a share of his or her former partner’s retirement savings, particularly when the matter involves defining a pension interest. A few months ago, I wrote a column about a financial adviser who, in strong language, told me – incorrectly – that I did not know what I was talking about when I said that once you buy a pension with your proceeds of an occupational retirement fund, the money is no longer subject to the Pension Funds Act. As such, on your death you can decide how the residue to which you were entitled must be distributed. While money is in a retirement fund, the trustees of the fund decide who receives the benefits when you die. You can guide the trustees by nominating beneficiaries, but in the end it is the trustees who, in terms of the Pension Funds Act, decide how to distribute the benefits, based on whom they determine to have the greatest financial need. Simply put, when you pay your contributions to a retirement fund, you are in effect placing your money in a trust fund – hence the need for trustees. You do not “own” the money, but you do have a pension interest. Once you leave a fund, for whatever reason, you again in effect “own” your savings, even though you may not be able to access them because of the type of investment vehicle you chose. It is this pension interest that is one of the issues that can cause a problem in divorce settlements. The Supreme Court of Appeal recently ruled that Elizabeth Krugel was not entitled immediately to receive a share of her ex-spouse’s retirement savings accumulated in the Eskom Pension Fund. This was despite a divorce settlement that awarded her a share of the savings and a determination by the Pension Funds Adjudicator that the pension fund must pay up. However, the Eskom Pension Fund, firm that its interpretation of the law was correct and concerned that if the member went to court it may have to pay out twice, took the matter all the way to the Supreme Court of Appeal. The case hinged on what is meant by a pension interest. Krugel’s husband had resigned from both Eskom and the fund by the time the divorce settlement was reached and endorsed in court. He had chosen to leave his accumulated savings in the fund as a deferred pensioner, to be used as a pension when he retired (normally, this is a very good thing to do). On divorce, Mrs Krugel went to the fund to collect what she believed was her due. But the pension fund said in effect: “No, we cannot pay up. Your husband is no longer a member of the fund and as such he has no pension interest. The law under which you are asking for the money does not apply in this case. He may have left his money here for us to look after, but that does not give him a pension interest. He simply made an investment choice.” Full Report: http://www.iol.co.za/business/personal-finance/retirement/when-ex-spouses-can-t-claim-pension- interest-1.1088490Personal Finance 26 June 2011 By Bruce CameronFSB fines financial companiesThe Financial Services Board (FSB) has used its administrative justice system to bring to heel financial services companies MCubed Employee Benefits (Pty) Ltd and CIB Insurance Solutions (Pty) Ltd. The FSB’s enforcement committee in its latest determinations has: u Fined MCubed R10 000 for failing to maintain liquid assets equal to or greater than 8/52 of its annual expenditure for seven months to January 2011. MCubed admitted the contravention and agreed to settle the matter. The Registrar of Pension Funds and FSB chief executive, Dube Tshidi, says there is no evidence of any prejudice resulting from the contravention. The penalty was limited to R10 000 as MCubed has not contravened the Act before, had fully co-operated with the registrar’s investigation and the enforcement action, and its officers displayed remorse for the contravention. u Fined CIB Insurance Solutions R150 000 for publishing an advertisement marketing a short-term policy without disclosing the identity of the short-term insurer underwriting the policy and for applying the word “insurance” to its business and registered trading name, namely CIB Insurance Solutions (Pty) Ltd, without the approval of the Registrar of Short-term Insurance. The registrar says there is no evidence of any prejudice resulting from the company’s contravention. The enforcement committee is an administrative body that came into operation in November 2008, and was created in terms of the Financial Services Board Act. The committee may impose administrative penalties, compensation orders and cost orders on respondents that are found to have contravened any law administered by the FSB. Personal Finance 26 June 2011 By Bruce CameronMore powers for SARSThe Tax Administration Bill, which will establish a tax ombud and consolidate numerous administrative measures designed to ensure that taxpayers comply with the tax laws, was tabled in Parliament this week. The bill, which has been published twice before in draft form, will replace the administrative measures in a number of tax Acts. It gives additional rights to taxpayers, as well as greater powers to the South African Revenue Service (SARS) to ensure that it collects what taxpayers owe. The powers include collecting information from third parties and the ability to search for and seize documents where there is an immediate threat that these will be destroyed. If the bill is enacted as proposed, among the measures that are likely to affect you are: * The appointment of a tax ombud, who will report directly to the Minister of Finance and whose staff will be seconded from SARS. This is similar to the office of the Canadian Taxpayers’ Ombudsman. The ombud will address your complaints about service or a procedural or administrative matter that arises from SARS’s application of a tax Act. Before you can complain to the tax ombud, you must have exhausted SARS’s complaint resolution mechanisms. The memorandum to the bill says the ombud will not be able to review legislation, tax policy or SARS’s policy on determining tax liability. Stiaan Klue, the chief executive of the South African Institute of Tax Practitioners, says that while the Tax Administration Bill is an excellent law that goes a long way to improve the morality and the rights of ordinary taxpayers, he is disappointed at the lack of technical competency requirements for the tax ombud. The bill requires only that the ombud “must have a good background in customer service, as well as tax law”. Klue says it is imperative that the tax ombud is very competent in tax law to best discharge his or her duties, taking into consideration the technical minefield of taxation. * The extension of SARS’s powers to obtain information about your assets and income from third parties, such as your bank, investment house or employer. The bill proposes that SARS be able to list in a public notice the third-party returns it requires. These include information from an employer and a person who pays amounts to you, transacts with you or has control of any of your assets. * Aligning across taxes of provisions for charging interest on the tax you owe, and introducing interest calculated on a compound basis. Interest is currently calculated on a simple basis. If the bill is enacted, interest will be calculated daily and compounded monthly. * Mandatory ongoing penalties if you fail to comply with the administrative requirements of any of the tax laws. These penalties were introduced in March 2009 but only for certain failures. In addition, the bill does away with the discretion SARS has to impose additional tax of up to 200 percent of the tax you owe if you fail to declare the right amount of tax. This will be replaced with a table of penalty percentages that vary according to the seriousness of the matter and your behaviour. Full Report: http://www.iol.co.za/business/personal-finance/tax/more-powers-for-sars-1.1088500 Personal Finance 26 June 2011 By Laura du PreezLISPs simplify compliance with new retirement fund regulationsAll new fund accounts have to comply By providing access to a range of different unit trust funds on one platform, most LISPs offer investors more than sufficient choice to comply with the new requirements of Regulation 28 of the Pension Funds Act.LISPs offer a range of funds that can include both solution and building block funds. When choosing solution funds investors usually select unit trusts based on their personal objectives and risk profile, but the asset allocation is delegated to the unit trust investment manager.Many of these funds are already fully Regulation 28 compliant.Building block funds typically invest in a single asset class such as equities, bonds, property or cash. Investors can use a combination of these as 'building blocks' to create their own portfolios. "Whether you choose to simplify compliance with the legislation by investing in an asset allocation fund that is already Regulation 28 compliant, or build your own compliant portfolio, most LISPs offer you all the choice you need," says Christo Terblanche (Pictured right), head of product development at Allan Gray.Regulation 28 sets out the maximum exposures that retirement funds can have to various asset classes. Under the previous version of the regulation, compliance was required at retirement fund level only."This meant that, provided a fund's total holdings complied with the regulation, the underlying individual investors could invest such that their individual asset class exposures exceeded the regulatory limits." "So, for example, if they wanted to invest their entire retirement savings into an equity fund they could," says Terblanche.But under the new regulations, this is no longer the case, and investors now have to comply with the asset class limits of Regulation 28 at an individual level with effect from 1st April 2011. All new retirement annuity (RA), pension preservation fund, or provident preservation fund accounts have to comply with the regulation.But if you have an account that predates April 1st, you don't need to comply - provided you didn't transact after that date, and don't transact in the future. "Your investments can stay as they are, even if they don't comply," says Terblanche. Nor do you have to change your existing debit orders into your RA account. But the minute you do, you'll need to ensure your selection of funds - and your entire account - complies with the new regulation. This includes setting up a debit order if you didn't have one, or increasing or decreasing the amount of your existing debit order. The exception is your annual escalation - this can continue as is, without triggering the need to make your account compliant. Nor will you have to make your account compliant if you cancel an existing debit order. But if you want to switch out of your existing underlying unit trust investments into other unit trusts, or make any additional contributions, you'll have to make your account compliant. However, an existing phase-in arrangement, whereby you're phasing an investment into a fund over a period of time, isn't considered a transaction and so won't trigger the need to comply.If you transacted after April 1st, and your account doesn't comply with Regulation 28, you'll need to switch into a combination of unit trusts that is compliant. And if you transacted and have an existing debit order, that too will need to change in order to comply with the regulation. This must be done by the 31st of December this year. "Many investors make additional contributions to their accounts at the end of the tax year in February to maximise the tax benefits of their RA. Full Report: http://www.itinews.co.za/companyview.aspx? cocategoryid=31&companyid=76&itemid=5AF81133-4C3C-4047-BDA2-A371B0343EBC Insurance Times & Investment News 23 June 2011 By Sibongiseni DelihlazoTime to help clients get wise to new offshore realitiesInvest time in client re-education on offshore investment opportunities It's business-enhancing and in the long-term best interests of your customer-base.The practice-building tip comes from BJM Private Clients Services, an asset manager and financial planner with dedicated focus on high net worth individuals, families and trusts. "There are indications in both the institutional and retail sector that full advantage has yet to be taken of the new foreign exchange dispensation," says Grant Rossiter, Cape Town-based regional manager of BJM."New regulations enable R4 million per person per year to be placed offshore. This is not a once-in-a- lifetime lump sum, but an annually recurring opportunity."In business terms, this means advisers can add value with an international diversification review on an on-going basis. Time invested in client education or re-education on offshore realities is time well spent as new rules create potential for continual adjustments and continual advice."BJM says many clients remain 'offshore-averse' after disappointments in 1997 when forex controls were relaxed just before the Dow Jones bull-run came to an end and in 2000-2001 when the allocation went up to R750 000. Bets against the rand were often placed as the unit sank to R13.26 versus the US dollar, but a strong rebound soon resulted in losses. Clients have done well by sticking closer to home, says Rossiter. Last year, the JSE's total annual return was just under 19% while listed property achieved gains of 29.6%.This may have induced them to cold-shoulder the opportunities created when National Treasury made its December announcement, lifting exchange control limits to unprecedented levels. Even institutions seem slow to move. They may now invest a maximum of 20% of assets offshore, but there appears to be no rush to "push the new envelope", says Rossiter. "We know an international diversification review can be a prickly subject for clients with long memories," notes Rossiter. "But it may be beneficial to grasp the nettle as we have seen fundamental changes in developed, emerging and frontier markets in recent years. "Clients need to be alerted to these shifts, now and in later years. Current rand strength may also create a timing opportunity."We believe a review could prove performance-enhancing … for both the adviser's business and the client."Insurance Times & Investment News 23 June 2011 By Carol DundasBBE share trading – alternative to JSEAlternative to JSESingular Systems has developed an online trading platform to allow black investors to trade their BEE shares.The JSE might finally be facing some competition. Software development company Singular Systems has developed an online trading platform to allow black investors to trade their BEE shares. It has already secured African Bank’s Hlumisa and Eyomhlaba BEE share schemes. According to Singular Systems Etienne Nel, African Bank approached the company to develop a trading platform as it felt the JSE’s systems were too restrictive and expensive. “ They didn’t go to the JSE because they (African Bank) had unique rules for their scheme which the JSE couldn’t cater for,” he says. These include a phased vesting option which only allows investors to sell the shares after certain periods. The JSE only has Sasol Inzalo shares available for trading on its BEE segment. African Bank says these schemes remove the need to pay a stockbroker. Investors can register online and immediately begin trading with other black South Africans. The bank’s CFO, Nithia Nalliah, says that not going to the JSE was not a cost issue. “The JSE allows non- natural persons, such as CCs, to buy shares,” he says. “We want to empower the right people.” Nel says Singular Systems is also working on a mobile website that would allow potential investors to register and trade from their cellphones. “Still, the platform has been quite successful with over 115000 Eyomhlaba and 42500 Hlumisa shares traded,” he says. “The average transaction size is R2000-R3000.” He says African Bank has listed over R1,5bn worth of Eyomhlaba and Hlumisa shares.Equity Express sells shares on a trade plus two days basis (money and shares are transferred in 48 hours). The JSE sells on trade plus five days, says Nel. Singular Systems is negotiating deals to develop similar tailored platforms for several listed companies. JSE deputy CEO Nicky Newton-King says flexibility has never been a problem . “Our system is one which works for any share or financial instrument, from depository receipts to BEE shares,” she says. “Requirements are generic but create a regulated environment. You have to go through a listing process, which is there to protect investors and ensure they get the best possible price.”Nel admits investors using Equity Express may not get the full value from the sale of their shares. “Eyomhlaba is trading at R12 while the net asset value is R20,” he says. “People buy for one reason but sellers have to pay school fees and put food on the table. I’d rather give them choice.” Financial Mail 23 June 2011 By Zweli MokgataINTERNATIONAL NEWSUS states face pension funding crisis US - American households will have to contribute an average of $1,398 per year to fulfill pension promises, according to a new study. The paper, "The Revenue Demands of Public Employee Pension Promises," calculated the increases in state and local pension contributions required to achieve full funding in the US over the next 30 years and claims economic growth alone will not be enough."This figure is above and beyond revenue generated by expected economic growth," said Joshua Rauh, co- author and associate professor of finance at the Kellogg School. "To achieve fully funded pension systems within 30 years, contributions would have to rise today to the levels we calculate, and then continue to grow along with the economy."For taxpayers, these contribution increases would likely be in the form of tax hikes or spending cuts in public services, the study said. Without policy changes, a total of 13 states would require contribution increases of more than $1,500 per household per year, it added. Five of those states would need contribution increases of more than $2,000 per household per year. New Jersey would require the largest annual per household contribution increase of $2,475."It's similar to credit card debt," Rauh said. "The longer we wait to start paying down these promises, the more the contributions will have to rise."Accounting methods are not reflecting the reality of the tax increases or spending cuts that will be required to pay for pension promises, Rauh said. The distortions made by public sector accounting have hidden the fact that if pension promises are to be honoured, taxpayers and recipients of public services will feel substantial financial pain in many states, he added.As a baseline, Rauh and fellow author Robert Novy-Marx of the University of Rochester State assumed that each state's economy, public sector and employee contributions to pension systems will grow at its historical rate of Gross State Product (GSP) growth.For the primary dataset, the economists used information from the Comprehensive Annual Financial Reports (CAFRs), analysing 193 state and local government defined benefit (DB) pension systems-116 pension systems at the state level and 77 pension systems at the local level. The economists raised all assets and liabilities to their estimated values as of December 2010, accounting for the recent rebound in the stock market. Rauh said that the pension situation has arisen because the current flawed state accounting standards also do not reflect the reality of the costs of making more benefit promises.The authors found that there is no state, with the possible exception of Indiana, for which the current total contributions by all state and local government entities are greater than the true present value of newly accrued benefits for those entities.The study also considered the effects of policy changes such as soft and hard freezes. A "soft freeze," which entails placing new workers in defined contribution (DC) plans, would reduce the average annual contribution to $1,223 per household from $1,398 per household. For states with large numbers of workers outside of the Social Security system, the extent of cost savings is limited by the likelihood that governments undertaking a soft freeze would have to start paying into Social Security and bearing most of the costs themselves.Another alternative for states is a "hard freeze," the report added, which entails stopping all future benefit accruals, even for existing workers. Under this option, no earned benefits (including cost of living adjustments) are revoked, but pensions cease to grow with service and salary, and future contributions are placed into DC accounts.Hard freezes in the private sector are relatively common and have been implemented to deal with pension liabilities, Rauh said. However, he believes even a hard freeze of all benefits at today's levels would not be a panacea, as the unfunded legacy liabilities would still need to be paid off."A hard freeze would save money for every state, even assuming workers not in Social Security would have to be brought in at taxpayer expense," he said. "Nonetheless, contributions would still need to rise by more than $800 per household to achieve full funding in 30 years."Global Pensions 24 June 2011 By Chris PanteliPensions apartheid gets worse as public sector prepares to strike The gap between public sector and private pension provision is growing wider, new evidence shows as 750,000 teachers, lecturers and civil servants prepare to strike. Saving toward retirement has become a minority special interest among the self-employed, in particular, as many struggle to make ends meet each month. Office for National Statistics (ONS) figures show that little more than one third of self-employed men now have any form of pension, compared to two thirds who did so 10 years ago.Gareth James from self invested personal pension (SIPP) provider AJ Bell said the figures were disturbing. He pointed out: “The number of self-employed men saving into a pension has dropped to just 38pc and for the first time there are now more self employed men who have never saved for a pension than those who do.“What’s striking too is that just 10 years ago 65pc of self employed men would save into a pension. It is clear from recent proposals for public sector and state pensions that the proportion of retirement income funded by the Government in the future is going to shrink. The scale of the fall in the percentage of self- employed men belonging to a private pension is particularly alarming when put in that context.“There needs to be an acceptance that individuals – whether in the public or private sector – will have to take a greater share of the responsibility for funding their own retirement.”Only 3.3m people out of more than 21m people working in the private sector are members of company pensions, according to the ONS. That’s about 14pc. By contrast, 5.4m people – or nearly nine in 10 out of 6.2m working in the public sector enjoy risk-free final salary or defined benefit pensions.This form of retirement funding is now available to only 11pc of private sector employees, compared to 34pc a decade ago. Since then, increased taxation and longer lifespans, combined with falling stock market returns and annuity yields, have forced most private sector employers to close final salary schemes and switch to money purchase or defined contribution plans instead.Joanne Segars, chief executive of the National Association of Pension Funds, said: “This is storing up huge problems for the future. Those relying purely on a state pension face a rude shock come retirement and the grim prospect of their final decades spent in poverty.” It’s more than a decade since I began writing in this space about pensions apartheid but the problem got worse while the last government avoided the issue on the orders of its trades union paymasters.Now the global credit crisis has demonstrated that we cannot continue to live on the never and open- ended, unfunded liabilities cannot be loaded onto future taxpayers indefinitely.Nobody can blame teachers and other for wishing to retain very generous terms of employment. But the question they must address before they strike is why other taxpayers should continue to subsidise retirement benefits for the public sector minority which the private sector majority will never have a chance to enjoy for themselves.The Telegraph 27 June 2011 By Ian CowieUK - Public service pensions: how they became a striking matterOur experts examine the issues behind Thursday's strike by workers who are unhappy about changes to their pension schemesWhy are public servants going on strike? Up to 750,000 teachers and civil servants are to take industrial action on 30 June because they are unhappy with proposed changes to pension schemes.What are the changes? Final salary schemes, which link pension payments to salaries at retirement, will end. Pension contributions will go into new "career average" schemes. These are based on the number of years worked in a public sector job, but will pay a retirement income linked to an employee's average pay rather than the last salary.The amount that most employees have to contribute will increase – by three percentage points – as will the length of time they have to work to accrue their pension. Only policemen and firemen will not have their retirement age raised. Staff earning less than £15,000 will be exempt from increased contributions. The normal pension age will be linked to that of the state pension age, rising to 65 by 2018 and 66 by 2020.Ministers had already announced a switch in the rate at which pension payments increase from the retail price index to the less generous consumer price index.Why do ministers say these changes are necessary? Lord Hutton says increasing life expectancy is making the cost of providing pensions unaffordable and final salary schemes are inherently unfair. They are much more generous to high flyers who are promoted rapidly and stay in public service for most of their working lives than those on more moderate earnings.The Local Government Pension Scheme, for example, pays £43 of income a year for every £100 contributed by someone who retired in 2008 on a final salary of more than £25,449, compared with £32 for someone earning up to £12,160.Are public sector pensions really – as critics say – gold-plated? When Hutton published his review in March, he firmly rejected the claim that public sector pensions were "gold-plated". His report says the average public sector average pension is about £7,800 per year, while the median payment is about £5,600. In 2009-10, the average public sector pension payments were: local government worker £4,052; NHS worker £7,234; civil servant £6,199; teacher £9,806; and member of the armed forces £7,722.The PCS union says more than 100,000 retired civil servants receive less than £2,000, while 40,000 get less than £1,000. The union admits these figures exclude the highest earners but includes many who have not spent their whole career in the public sector. That means the figures are lowered by those who worked in the public sector for just a few years, worked part time or took career breaks. According to Unison general secretary Dave Prentis: "The average pension for a woman in local government is just £60 a week, and in health, it's £85. Not gold-plated, but a cushion against poverty in retirement."But I heard that a mid-ranking civil servant earning £23,000 a year could accrue a pension pot of £500,000. Is this true? The cabinet office minister Francis Maude made this claim on BBC Radio 4's Today programme in June. It is true that for the minority of workers who stick at one job over a whole lifetime the market equivalent value of pension pots can seem impressively high, principally because, with low interest rates and rising life expectancy, the market cost for pensions is sky high.Maude's specific claim was investigated by the independent Full fact website, which found that when a retirement lump sum was included in the final figure, a civil servant working for 40 years on £23,000 would indeed accrue a pot of £430,000.But it points out that, according to the Hutton report, fewer than 2% of civil servants achieve this length of service and the average civil service career is 13 years. A £500,000 pension pot would pay out about £20,000 a year. The rightwing TaxPayers' Alliance carried out research in 2006 which found just 100 civil servants have pensions pots of more than £500,000, a tiny fraction of the overall civil service workforce and all of them senior mandarins.So it's the highest paid who do best out of public sector pension schemes? The minority of high-earning, long-serving executives appear to have "gold-plated" pensions which some reports suggest will secure them incomes of about £100,000 a year. According to the National Audit Office, 250,000 civil service pension scheme members receive a retirement income of less than £6,000, while about 4,000 members receive more than £40,000.A similar picture emerges in the NHS: about 300,000 NHS pensioners receive income of less than £6,000, while 15,000 get more than £40,000. The distribution is slightly less stark for the teachers' scheme, where the bulk of pension incomes are between £5,000 and £15,000, and fewer than 2,000 members get more than £40,000.What about local authority employees? The local government pension scheme is different to those for NHS workers, teachers, armed forces personnel and civil servants in that it is funded through its investments, currently worth about £140bn. But like those other public sector schemes, the bulk of the payments are concentrated at the lower end of the scale. Top managers in town halls can earn between £140,000 and £230,000 and, assuming long service, can expect to retire on generous pension incomes. A study earlier this year by Westminster council in London found five of its top officials had accrued pension pots of more than £1m and that its 25 highest-earning managers might expect an average retirement income of £53,000. But Local Government Association (LGA) figures, show the average pension under the local government scheme is just over £4,000 and is paid to 1.16 million pensioners.Are the reforms really as draconian and grossly unfair as unions say? Pensions experts say that public sector workers will be better off than their private sector counterparts even if all the proposed changes are made. Richard Simcox of the PCS union says that members are not averse to the idea of a career average scheme, but do oppose the increase in contributions, the switch from RPI to CPI for pension payment increases and the rise in retirement age: "Imagine that, after agreeing a retirement age of 60 when you start a job, you then find you've got to work until you are 68. If you are a teacher in a secondary school, do you really want to be in a classroom, on your feet, dealing with potentially difficult teenagers at the age of 68?".How do public sector pensions differ from those available to most workers in the private sector? The overwhelming majority of private firms have now closed final salary schemes to new members and offer money purchase schemes instead, where the worker takes all the risk in terms of investment and rising life expectancy. That process has been going on for two decades, but picked up a pace in recent years.Over the past 10 years, a rapidly growing proportion of private employers have been closing their current final salary schemes to existing workers for new accruals; that is to say, the pension they have already saved will be safe but, for years of service they have to complete, all they can now do is pay into a money purchase scheme and take their chances in the markets.In this context, ministers stress that even the cut-back schemes offered to public workers are generous, because they will still be guaranteed particular benefits for the years they work. From the unions' point of view, however, it is possible to argue that cuts in the public side will only encourage the private sector to cut back even further and offer less generous money purchase schemes. What happens if workers drop out of the schemes because they cannot afford increased contributions? Local government leaders are concerned that if too many employees withdraw, this could trigger financial collapse in council pension investment funds, which would have wider repercussions on the stock market. Hutton has warned of the dangers of a "mass exodus." Ministers estimate just 1% of the 4.2m members of the 83 local government schemes will opt out. Unions say the figure could be as high as 50%. The LGA believes that even if as few as 10% leave, the financial consequences would be "dire." It has called for ministers to introduce incentives for lower paid workers not to leave.Is it worth dropping out of your public sector pension scheme to avoid the increased contributions? Almost certainly not, if you want a pension and you can afford to stay in. Tom McPhail, pensions expert with independent financial adviser Hargreaves Lansdown, says public sector pension schemes will still be a valuable benefit following the changes making them expensive to replicate for those deciding to opt out. "The benefits you would be sacrificing would be so great that it would be illogical to make any saving elsewhere at all," he said. The question, of course, is whether members can afford the contributions up front.MPs are public servants. What's happening to their pension scheme? MPs have the most generous final salary pension scheme in the country. They get a choice of contribution levels – the more they contribute the more the state puts into their pension. Many people accrue benefits at a rate of 1/80th of their final salary for every year they have belonged to their scheme (or 1/60th at the most) but some MPs can accrue at a rate of up to 1/40th of final salary. In this year's budget, chancellor George Osborne accepted the recommendations made in Hutton's report and added: "I believe this House should also recommend similar changes to the pensions of MPs." However, no date has been set for this and there are unlikely to be any changes this year.Guardian 26 June By Patrick Butler , Jill Insley and Tom ClarkOUT OF INTEREST NEWSSwaziland on the brink of financial collapseAS THE AFRICAN DEVELOPMENT BANK REFUSED A $150M LOAN REQUEST. Swaziland on Friday found its options narrowing to avoid financial collapse, turning to neighbouring South Africa for a bailout as the African Development Bank refused a $150 million loan request.The African Development Bank (AfDB) on Thursday refused Swaziland the loan because the country has not met conditions set by International Monetary Fund, the finance minister said. "Our sources say our request will only be considered once we meet the International Monetary Fund (IMF) benchmarks," Finance Minister Majozi Sithole told the Times of Swaziland."President of the AfDB is yet to communicate to us, and I believe he is also considering other options so that when he communicates he will let us into the options," said Sithole. In a sign of how desperately Swaziland needs the cash, Sithole had urged the nation to pray on Tuesday for the loan's approval."This is a catastrophe for the hapless government," the Times said in a comment. Without a "letter of comfort" from the IMF, Africa's last absolute monarchy has little chance of getting loans from international institutions. Swaziland is now left waiting to see whether neighbouring South Africa will offer a bailout to keep the tiny kingdom of 1.2 million people solvent. South Africa's foreign ministry on Thursday confirmed that a loan request had been made, but declined to specify the amount.Earlier reports had said that King Mswati III had asked President Jacob Zuma for a $1.4-billion (one- billion-euro) loan, which both countries denied. The loan request places regional powerhouse South Africa in a delicate position. South Africa doesn't want to see its neighbour's economy collapse, but the ruling African National Congress faces pressure from both its powerful labour union allies and the parliamentary opposition, who say Mswati should make democratic reforms first.The opposition Democratic Alliance called on the Treasury "to consider very carefully under which conditions it would approve a loan to Swaziland." "Certainly, it should be made very clear that any financial assistance should go toward improving the lives of the Swazi people, and not to finance King Mswati III's lavish and indulgent lifestyle," the party said in a statement.In March, the IMF told Swaziland that it would have to put in place austerity measures, including cutting thousands of government jobs and reducing salaries, before loans will be approved. Over the past few months the government has begun cutting the salaries of its top earners, including reducing the cabinet's pay by 10 percent.Civil service unions are resisting salary cuts lower down the scale, arguing government top brass will not feel the pinch after they received generous perks last year. The fiscal crisis was brought on by a 60 percent drop last year in revenues from a regional customs union, the government's main source of income.That was partly because of a drop in regional trade, but mainly because of a change in the formula used to distribute customs earnings. The change was agreed to years ago, but Swaziland failed to budget for it. Sithole also admitted in January that the state coffers were losing up to $11 million a month due to corruption.Swaziland has drained its reserves to keep paying salaries for civil servants, who have staged a series of protests against moves to slash their wages. That has turned the financial crisis into a political challenge for Mswati, Africa's last absolute monarch, as the labour protestors have begun demanding democratic reforms.Moneyweb 25 June 2011 What the new Tax Administration Bill covers?Special Report Podcast: Colin Wolfsohn - Wolfsohn and AssociatesALEC HOGG: It’s Friday June 24 2011 and in this Boardroom Talk special podcast we speak with Colin Wolfsohn, he’s on the SAICA National Committee. Colin, earlier this week in Parliament, the Tax Administration Bill was tabled, there’s a lot in it, perhaps just to give by way of a little bit of background, how was this brought forward? Why was the Tax Administration Bill, in fact, focused on?COLIN WOLFSOHN: Well, the minister introduced this to the National Assembly yesterday and he said this whole Tax Administration Bill is only part one of a whole rewrite of all fiscal legislation in South Africa. So, they’ve rewritten the whole Customs and Excise Act, that will be brought through to Parliament later in the year but the Tax Administration Bill is stage number one. What they’ve done is taken out all the administrative procedures and references in the Income Tax Act, VAT Act and Transfer Duty Act and put it into one act. But it’s not as simple as that because there are a lot of changes that they’ve incorporated into this Tax Administration Bill. New search and seizure provisions for SARS, the institution of a tax ombud’s Office, where there are problems and resolution between taxpayers and SARS, a whole host of other issues.ALEC HOGG: Let’s just start off, perhaps if we can, with penalties because in some cases, one still sees a lot of dispute between taxpayers and SARS, say, because there isn’t clarification on it. Has that been changed? COLIN WOLFSOHN: There’s a big section in this document, the document itself is just under 200 pages and the penalty provisions that were introduced two years ago are going to be taken out of the Tax Act and brought into the Tax Administration Bill or Tax Administration Act. When we refer to penalties, one has to look at a number of different issues, one’s looking at the pure provisions for not having submitted returns and there are laid down penalties for those. There are penalty provisions in terms of not having provided SARS with the necessary information, on time, all those penalty provisions are being removed from the different acts and the ombudsman is something that we’ve been asking for SARS for quite a while. There are, obviously, cases that happen that we have two different viewpoints and we need somebody to arbitrate. Yes, currently there’s a system that if you’re not getting success at the moment at the lower level, with the normal branch office, you can go to the SSMO. Yes, you could also have gone to the Public Protector but that is unaffordable for the man in the street or small businesses. But what SARS is doing now is going to be having an ombud’s office with an ombudsman and a number of staffing, so they’ll be able to deal with queries. ALEC HOGG: So, if you’ve got a problem at the moment, you go onto eFiling and you submit an objection. If you don’t really know what you’re doing, I suppose that objection could be rejected just because you’re not doing it technically but in this way, for the ordinary person, you’d be able to approach the ombudsman rather? COLIN WOLFSOHN: Well, no, I think this ombudsman is not a situation that you’ve just described; this is described where you have a totally different viewpoint. You raise the issue about now going, if you have an objection, you can go on eFiling but there are two different forms you can fill in, one form is for individuals and there’s a different form for companies and you must fill in the right form, otherwise it’s not going to be processed because it’s all…ALEC HOGG: So, Colin, the ombudsman really will be for the professionals who’ve had a, maybe, a…see things from a different angle to the way that SARS might see it.COLIN WOLFSOHN: Correct. You can have a situation, we’re not talking necessarily the man in the street, this will be for businesses or certain deals that SARS says this is not tax deductible and you feel it is tax deductible or you can’t get that to come right to get the issue resolved after following the normal procedures, then you can go to the ombudsman. ALEC HOGG: Got it. What about provisional tax, that has been an area of great debate over the past few years, is there anything in the Tax Administration Bill dealing with that? Full Report: http://www.moneyweb.co.za/mw/view/mw/en/page299360? oid=545876&sn=2009+Detail&pid=295683Moneyweb 24 June 2011 The capital conundrumIS THE GAP BETWEEN RICH AND POOR AN INEVITABLE OUTCOME OF FREE SOCIETIES – ASKS JERRY SCHUITEMA.SWELLENDAM - If the current political rhetoric in South Africa shows anything it is how easy it is to become so locked in the past as to forget about the future. It is one thing to learn from the past. It is another to be stuck in it.This is especially true when past perceptions were nurtured in highly emotive circumstances supported by fear and insecurity. None has been more powerful in shaping our destiny than the conflict over economic and political systems. With it have come biased dogma, emotive rhetoric and populist slogans that convert into automatic responses. Nothing could be less appropriate in the times we live in. Nothing threatens our search for balanced solutions more. Slogans such as “imperialism”, “working class”, “capitalist class”, “communism”, and “capitalism” do little to enhance our evolution. They merely lock us into preconceived prejudices.One of the concepts within the debate is the efficient allocation of capital. It goes without saying that this plays a critical role in growth and prosperity.I was reminded of this in reflecting on Moneyweb’s stated key intention of promoting “the efficient allocation of capital, which translates into the promotion of free enterprise and Nation Building”. There is nothing wrong with the concept. It is indeed a highly laudable ideal and is a natural component of the very basic definition of economics which is the allocation of all resources to where they are most needed and can best serve society as a whole. This raises the question in the times we live in, whether efficient as we have come to understand it is the same as appropriate.So the argument is not about the concept itself, but rather how best to achieve it. This again throws us back to the baggage of the past. When you question self interest and the profit motive as being the best driver, you stand a good chance of being given some or other rhetorical label. If you question regulation and controls that aim to influence capital allocation, you are just as likely to be labelled in the opposite camp. And that’s where useful discussion gets stuck.It really is time to ask whether indeed, in any system or past concept, capital has been allocated efficiently or appropriately in serving social needs. All of these past dogmas have been tried in some form or another or in some country or another. Yet, in most places you look, you will find huge imbalances that arguably relate back to capital allocation or dispersion. They include the availability of natural resources and economic growth; the unsustainable pressure on the planet and climate change and the massive disconnect between wealth and real value creation. Surely, it is time for a new theory based on a different mindset and promoting a different value system? Full Report: http://www.moneyweb.co.za/mw/view/mw/en/page492319? oid=545874&sn=2009+Detail&pid=287226 Moneyweb 24 June 2011 Government can't drive growth on its own Government consumption expenditure is increasing, but although it's the main driver of the local economy it's also indirectly pushing up inflation. According to economist Mike Schüssler and BoE Private Clients' Daryll Owen, this trend is unsustainable and will have negative effects on the economy. With household consumption expenditure only mildy up and inflation being largely driven by non-consumer forces, Schüssler and Owen feel that the Reserve Bank should keep interest rates unchanged in the short term.Concern about government's share of economic activity is growing and Schüssler says that, at the same time, growth in sectors like property and construction remain far below the levels seen before the recession, which impacted on South Africa in 2008 and 2009. Daryll Owen, Chief Investment Officer at BoE Private Clients, says that, while the release of GDP data by Statistics SA at the end of May showed that the economy expanded by 4.8% in the first quarter of 2011, up from 4.4% in 2010, much of the growth can be attributed to growth in household consumption expenditure (HCE) as households benefit from the lower interest rate environment. Data released by the SA Reserve Bank in June, also shows that government continues to expand consumption expenditure at a rapid pace. Unfortunately, government investment expenditure continues to decline despite the infrastructure backlogs of the SA economy. "Consumer inflation rose to 4.2% from 4.1% in March, while private sector credit extension and M3 trends remained subdued. This would suggest that the inflationary pressure being predicted by financial analysts to occur before year-end is not the result of excess demand in the economy," says Owen.Furthermore, the rebound in manufacturing data during the first quarter shows that the strong rand is not as bad for the economy as trade unions and some politicians seem to believe, Owen says."Inflation pressures locally are driven by higher international food and fuel prices and rising administered tariffs, not excess demand. As such, tighter monetary policy will have no effect other than impacting negatively on economic growth. Short of the rand weakening significantly in the short term, we maintain our view that inflation will be temporary and that the SARB should therefore maintain interest rates at current levels," he asserts. Full Report: http://mg.co.za/article/2011-06-22-government-cant-drive-growth-on-its-own/Mail & Guardian 22 June 2011Survey reveals 25% of SA brokers unprepared for regulatory exams23% of brokers surveyed do have the study material neededA recent survey conducted by CIB Insurance Administrators has revealed that over one quarter of the brokers surveyed (25.6%) have not yet made the necessary arrangements to write the compulsory Financial Services Board (FSB) Regulatory Exams, with the December 2011 deadline for completion of the first level of the exam fast approaching.Jonjon Smit, Sales Director at CIB Insurance Administrators says that these statistics are extremely worrying as it is recommended that all brokers taking part in the exams should give themselves at least three months to prepare. "We urge brokers to write these exams as soon as possible, in case there is any need to repeat them. One broker revealed that in order to prepare for both the Representative Exam and the Key Individual exam, he spent over 50 hours studying."Whether the industry likes it or not, the regulatory exams are going ahead." "Brokers who fail to pass the exams will find it challenging to continue servicing existing clients and sourcing new clientele, especially as they will now be measured against accredited brokers who have passed the exams."The survey also revealed that 23% of brokers surveyed do have the study material needed to prepare themselves for the exams. Smit says that in order to pass the exam, brokers need to demonstrate a comprehensive knowledge of the subject matter. "We strongly advise that brokers take ample time to adequately prepare for the regulatory exams, in order to effectively showcase their knowledge and expertise." An additional issue raised in the survey was the much debated point that that many brokers would prefer to write the exam in Afrikaans. "The decision made by the FSB, following the legal opinion canvassed by the FIA to allow intermediaries to complete the exams in Afrikaans has been commended by all." "Not allowing Afrikaans speaking brokers to write the exams in their home language would have been deemed unfair discrimination." Smit says that the South African insurance industry will benefit from the introduction of the regulatory exams, which will ensure that local service levels are on par with global standards. "These exams have been introduced to increase a brokers' knowledge of the regulations governing the local financial services industry, and to present the broker fraternity as a professional and credible industry." "CIB encourages all brokers to embrace the exam process and to take this opportunity to enhance their knowledge and create a more professional image for our industry" Insurance Times & Investment News 22 June 2011 By Donna SolomonsConflicts of interest - comply or else, says FSBInstilling the principles into your business practices and transactions with your clients Financial services providers that aren't complying with FAIS Conflicts of Interest legislation won't be given any further leeway.This is according to Wendy Hattingh (Pictured right), Head of Department: FAIS Supervision of the Financial Services Board. She was speaking at the 8th Cape Conference of the Compliance Institute of South Africa."We've always followed the approach of giving companies time to rectify what they're doing wrong. But they've had enough time, and we're moving into a new phase of enforcing the legislation," she said. An amendment to the FAIS General Code of Conduct for financial services providers and representatives, the legislation has been fully in force since 1st of April this year. It addresses concerns the FSB has had about conflicts of interest between financial services providers, representatives and clients and severely affects the practice of incentives that financial services providers use to reward both tied and independent financial advisers for achieving sales objectives. Hattingh reminded delegates that the requirement to avoid conflicts of interest is not new. Though only a few lines long, it has always been part of FAIS. The new amendment spells out the policy in detail and leaves companies with little or no room to prevaricate. However, as it is more principles-based than rules-based, companies need to figure out how best to interpret and apply the amendment to their businesses. Julie Methven, CEO of the Compliance Institute said that some companies view conflicts of interest as a compliance issue that simply requires a policy. Yet effectively managing conflicts of interest rests means instilling the principles into your business practices and transactions with your clients. "While the compliance function plays a key role, ultimate responsibility for ensuring that conflicts of interest are properly managed lies with management," she said. "Companies know the legislation is there, yet management still haven't questioned themselves about what it means to their businesses." Hattingh pointed to the fact that churning is still prevalent. "Clients are being advised to switch out of blue chip shares or a well-performing collective investment into risky investments such as certain property syndication schemes for the sake of the high commissions. Companies that do this aren't thinking about their clients."She said that companies' incentive and commission structures continued to drive their representatives to bring in business by advising their clients to move between products, particularly life products, even though this is often to clients' detriment.These practices in the FSB's view will affect the "quality of business" principle companies must comply with when giving representatives incentives, she said. "Companies say they comply with the "quality business" principle, yet failing to act in the best interests of your clients undermines this." She advised companies to put processes in place to monitor the quality of business that representatives brought in. "Management is responsible for managing business quality but can't do so without proper processes." Insurance Times & Investment News 21 June 2011 By Sibongiseni DelihlazoQuote for the week Both government and business must now show much greater leadership and will to bring certainty to this issue. It is inconsistent to be trying to create partnerships to implement a New Growth Path in the midst of growing uncertainty.It is not conducive to investor confidence”— Business Unity SA on the ANC Youth League’s call for nationalisationFollow IRF on Twitter @IRFSACompiled ByRuwaida Kassim Institute of Retirement Funds, SATel: 011 781 4320WEB: www.irf.org.zaWe would love to hear your suggestions on the type of news you would like more on. Send your suggestions to: [email protected] Disclaimer: 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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