ANNUAL REPORT OF THE TRUSTEES for 2008

Transcription

1 ANNUAL REPORT OF THE TRUSTEES for 28 to the members of the Corporate Selection Retirement Fund Corporate Selection Pension Fund Corporate Selection Retirement Fund No. 2 Corporate Selection Pension Fund No. 2

2 Chairperson's message Dear member A turbulent year There is no denying that 28 has been the most turbulent of years for international investment markets, triggered by the bursting of the USA housing bubble created in the mid-2s, which first began to unravel in 26. The impact here in South Africa was perhaps not quite so severe, but nevertheless local market investment returns could best be described as rather grim. It is worthwhile reviewing some of the key statistics. Clearly the best performers were bonds and cash: Equity investments listed on the JSE declined by 23.2%; Resources shed 28.6%; Financials moved down by 26.2%; Industrials declined by 16.1%. Bonds delivered a yield of 17%; Cash investments gave a return of 11.7%; The JSE All Share Price Index performance (excluding dividends) recorded the second worst experience since 196 as shown in the graph below. SA All Share Index (Index return (%) 196 to 28) Negative years: 14 (29%) Positive years: 35 (71%) Returns to 31 December 28 Portfolio Corporate Preferred Assets Allan Gray House View with Global Investec House View with Global Oasis House View with Global Coronation House View with Global Prudential House View with Global Median As the Board was particularly disappointed with the results from Stanlib, it met with senior executives of both Stanlib and Liberty Life in late February 29. The agenda included a review of the year's investment activities as well as clarification on certain (somewhat misleading, in the Board's view) negative press commentary on the performance of Stanlib portfolios in 28. STANLIB's comments On the positive side, performance in the property and fixed interest markets fared well. Furthermore, a good contribution to performance came from overweight positions in the banking, telecommunications, food and beverage sectors. Resources 3 Months Year On the negative side, performance was negatively impacted by higher than average market holding in resource and construction stocks. Stanlib started 28 with the view that the global slowdown would not be severe enough to significantly derail high commodity prices, bolstered by the perception that demand in China and other emerging markets would see commodities prices holding up at the higher levels. Regrettably, this view proved to be incorrect as the Industrial Commodities Index lost an unprecedented 5% for 28 in a period of less than six weeks. Construction stocks Stanlib's view on construction stocks was based on the continuance of government efforts to rebuild South Africa with its 214 medium term plan. Construction sector fundamentals have been affected by the economic downturn but the downturn in the share price movement of these stocks may well prove to have been overstated, given the strength of these companies' order books. % NEGATIVE GROWTH % POSITIVE GROWTH The Board's views The result The impact of the poorly performing investments has been reflected in the disappointing returns delivered by Stanlib, which manages the majority of the investments. The other managers available to members as a part of the investment choices in the Corporate Selection Umbrella Funds were likewise impacted by the unfriendly investment markets. It cannot be denied that some of Stanlib's views did not turn out to be correct and a few of Stanlib specialised portfolios (mainly those not currently available to members of the Corporate Selection Funds) were adversely affected. However, it has to be acknowledged that the majority of Stanlib investment portfolios performed adequately in relation to their peers, with results around the median performance of comparable portfolios. It is clear that Stanlib have learnt hard but valuable lessons from their 28 performance. They have reassured the Board that investment processes have been thoroughly scrutinised and risk mitigation will feature prominently in the future. In particular, the Board felt considerably assured to learn that Stanlib top management will play a far greater 'hands on' role in the investment process in the future. -1-

3 The important question is whether Stanlib is correctly positioned for this in 29. Only time will answer this question but the Board is confident that members are in capable hands. Members can rest assured that the Board will continue with its programme of constant vigilance and monitoring of all investment manager performance in partnership with our appointed investment consultants. What action should members take? It is perhaps also worthwhile restating one of the fundamental principles of long-term investment underpinning successful retirement funding; stick with your chosen plan and ride out the peaks and troughs of delivered performance. Switching portfolios for the sake of switching is not advised either as part and parcel of a long-term retirement plan. Research and experience has shown over and over again that underperforming investment managers tend to recover quite rapidly from a poor year. Other important matters in 28 The Board has had an intensely busy time in 28 as there has been much new and changing retirement fund legislation to grapple with. I am very pleased to record that the revised range of investment portfolios first introduced for new participations in 27 has now been bedded down for the existing membership. Our investment strategy is continuously under review in partnership with our independent investment advisers as it is by far the single most important challenge facing the Board. Composition of the Boards There were eight Trustees governing the business of the Funds during 28. Five of the Trustees are fully independent of the Funds' sponsor, Liberty. A further Trustee is independent except for some contractual work for the sponsor and hence is described as a sponsor appointed Trustee, bringing the total sponsor appointed Trustees to three. Appointments and resignations Adv. Cawe Mahlati resigned in April 28 and was succeeded by Ms. Fagmeedah Petersen. The Board has recently (March 29) received resignations from Ms. Bongi Shongwe, Mr. Gert Janse van Rensburg and Mr. Stuart Wenman; all have stepped down as a result of pressure of work in their individual spheres. The Board accepted these resignations with regret and has recognised the major contribution each had given over many years. In their place the Board has appointed Mr. Baron Furstenburg. The Board is in the process of searching for an independent Trustee as a replacement for Ms. Shongwe. Mr. Patrick Mayne (Principal Officer) and his support staff are directly employed by the Funds. Consequently, the Board's independence is in keeping with the highest standards of fiduciary independence, a fairly uncommon position for life insurer sponsored retirement Funds. Very satisfactory progress (in more detail later in this report) has been made towards the completion of the thousands of surplus apportionment submissions that the Board was required to make on behalf of each and every participation. Indeed, I understand that the total submissions made by the Corporate Selection Umbrella Funds ranked high in the umbrella submission stakes. Our task now is to continue to engage with the few remaining employers whose submissions have yet to be delivered to the Financial Services Board. After that, the Board can proceed to have its valuation exemption restored by the regulatory authorities. This action will be of great benefit in speeding up the regulatory compliance surrounding transfers of membership to and from the Corporate Selection Funds. Thanks to our Board members The success and progress made by the Funds during 28 was only made possible by the collective effort and application by the Corporate Selection Board. I would like to take the opportunity to thank my colleagues for their support and guidance, and in particular acknowledge the work done by the chairs of the various Board sub-committees. Alan McCulloch Chairperson March 29-2-

4 Meet your Trustees as at 6 March 29 Alan McCulloch (Chairperson - Independent Trustee) Trustee for 11 years 46 years in the retirement fund industry Chairperson/Trustee of a number of other Boards of Trustees Qualifications: FCII, FIISA, APMI, CFP Retired from Liberty Life in August 25 Director of the Financial Planning Institute (FPI) and chair of its Employee Benefits Interest Sector Group. Martin Oakes (Independent Trustee and chair of the investment sub-committees) Trustee for six years 37 years experience of consulting to retirement funds and individuals Currently acts as a consultant to a number of retirement funds and also acts as an independent Trustee, a Principal Officer and is a member of several FSB-appointed surplus tribunals. Qualifications: BA Honours (UK), ACII, CFP. Johan Drotschie (Independent Trustee and chair of the audit and legal sub committees) Trustee for nine years 39 years experience in the retirement fund industry Currently running own Financial Planning and Consultancy Business Member of the Boards of Stanlib's Preservation and Retirement Annuity Funds Qualifications: B.Com Honours, Certificate of Advanced Trust Law, completed all in-house technical and Managerial training programs at Sanlam, LIMRA manager's diploma, CFP. Mike Garbutt (Independent Trustee and chair of the communication sub-committee) Trustee for three years 42 years experience in the life insurance industry at all levels of management Involved in all aspects of sales and marketing, specialising in: Sales management Marketing Retirement funds Investment marketing Product development Start up operations Trustee of a number of other retirement funds Retired from Liberty Life in

5 Fagmeedah Petersen (Sponsor Trustee) Trustee for one year An independent actuary Is a seasoned retirement fund role-player, with 12 years of local and international experience in the industry. Was previously a Director of Prudential Portfolio Managers, where she headed up the Institutional Business Division and was instrumental in its aggressive growth. She played various leadership roles at Alexander Forbes. She is currently an independent trustee to various large retirement funds, and also runs strategy and governance projects for retirement funds. A well known conference presenter and media personality, Fagmeedah is also involved in various social security and retirement fund reform forums. Patrick Mayne (Principal Officer) Has 4 years in the retirement fund business, 3 of which were in the UK Is a Fellow of the Faculty of Actuaries and the Actuarial Society of South Africa (ASSA) Is an Institute of Directors, Certified Director A Director of the Principal Officers Association A member of the ASSA Professional Matters Board Alumni of the Harvard Advanced Management Programme The Board has a code of conduct in place which supports its practical operation. The overall attendance level by Trustees was 9.6% for 28. Baron Furstenburg (Liberty appointed Trustee) Newly appointed trustee Experience in pensions, investment banking, and financial law and policy for National Treasury Has also served on the statutory Pension Funds Advisory Committee, E- Commerce Advisory Committee, and Financial Services Consumer Advisory Panel of the FSB. Currently, Head: Pension Reform Strategy for Liberty Group Qualifications: B Com (Hons), M Com (Wits), MSc (London) -4-

6 The role of the Employer Representative Section 13A, together with Regulation 33, of the Pension Funds Act contains the framework of the roles and responsibilities of the employer representative. The key responsibilities are to: ensure contributions are paid on time provide the retirement fund administrator with the individual member breakdown of contributions as they are paid provide a conduit for all communication from the Board of Trustees to members In an Umbrella Fund, each participation must have an employer representative to discharge these responsibilities; that person will often be what was historically referred to as the authorised signatory. There is a booklet available on the Liberty Corporate website or from your participation's customer service adviser which explains this role in much more detail. The detailed responsibilities are also set out in section 3.14 of the rules to the Funds. If your participation does not have a functioning employer representative, then you are welcome to bring the omission to the attention of the Principal Officer whose contact details are shown at the end of this report. Funds governance In 27, the Financial Services Board (FSB) issued circular PF 13 which sets out the requirements for the good governance of retirement funds. The Board has worked on the 13 principles set out and is pleased to report that we believe your Board is compliant with all of them. To authenticate this view, an independent governance audit will be completed in 29. It will also be of interest to members to note that the FSB carried out a routine compliance inspection in the last quarter of 28 which resulted in a clean bill of health. The few very minor issues identified by the FSB as requiring review have all been rectified. lump sum death benefits to the beneficiaries of deceased members. It also plays an important role in monitoring the administrator's service performance against the agreed service levels. The investment sub-committee is concerned with the formulation of a broad investment strategy appropriate for the Funds. This sub-committee is possibly the most important as it concentrates on the fundamental reason for the Funds' existence; that of making available a sufficient number of investment portfolios to suit the wide range of member risk appetite that can be found within the Funds, whilst at the same time maintaining a manageable framework of portfolios so that performance against benchmarks can be easily monitored. The legal sub-committee oversees all aspects of legal matters such as Fund rules, policies and administration agreements with the various providers. A subset of this committee's work is the oversight of the granting of pension-backed home loans to members. The communications sub-committee has developed a communication policy. The work is now focused on ensuring all communications and processes are as clearly stated and relevant as possible. This is not an easy task in such a complicated and highly regulated business. Finally, there is an ad hoc remuneration committee which is independent of the Board and recommends the level of compensation for the Trustees and the Funds' full-time staff. Governance Levy As announced last year, the Board introduced a governance levy motivated by the desire to properly disclose the costs of fund governance as opposed to the administration fees derived by the funds' administrator. There is a separate monthly deduction from the individual member accounts to cover these governance costs. The table below shows the 28 budget, the 28 actual costs together with the 29 budget. Governance levy facts and figures The Board met four times in 28 and each sub-committee met at least four times, although most met more frequently. Sub-committees The activities of the various sub-committees are listed below: The audit and risk sub-committee, oversee the safeguarding of the Funds' assets, the operation of adequate systems and processes by the administrator as well as the preparation of accurate financial statements. In addition, the sub-committee is responsible for the appointment of external auditors, finalisation of the audit and the submission of the 27 audited financials to the FSB. The financials were produced and signed within the stipulated timeframes with no major issues identified by the auditors, Sizwe Ntsaluba. This committee also identifies any potential risks and problems which the Funds may face and ensures that adequate measures are in place to minimise these risks. Independent Trustee fees Principal officer plus support staff including office and computer equipment Production of financial statements Investment consultants Annual report and communications Audit fees Fidelity insurance cover Fund governance Principal officer association Trustee training Miscellaneous Legal opinions TOTALS Total governance levy recovery - 28 actual - 29 projected 28 Budget Actual Budget The administration sub-committee monitors all day-to-day service issues, but still has as a main priority the equitable and fair distribution of -5-

7 The governance levy is based on the overall asset values of the members' balances from month to month. The initial projections - made by the Corporate Selection Board when the governance levy was introduced - did not foresee the significant decline in asset values brought about by the present difficult current economic conditions. As a result of this unprecedented decline in asset values, there was an under-recovery of the required levies in the second half of 28. The Board successfully negotiated that the 28 shortfall will be reimbursed by Liberty Corporate without any additional charges being incurred by members. The major governance elements are audit fees, staff costs (Principal Officer and support staff), Fidelity Guarantee and Professional indemnity cover as well as independent Trustee fees. Unfortunately, as these are fixed costs and are regulatory, there is really no scope for reducing these costs whilst continuing to provide the high standards of governance that the Pension Funds Act requires. Nevertheless, the Board regularly reviews expenditure at each Board meeting and is acutely aware of the need to seek economies where at all possible. Fund governance levies adjusted To ensure that an under-recovery is not repeated in 29 and beyond, there is no alternative but to increase the governance levy to stabilise the position. So, from 28 February 29, the governance levy has been increased from the present.5% per month to.6% per month of Funds assets. The Board reviews the levy annually. Levies are held in a contingency account within the Funds and any collections in excess of the required expenses are utilised solely for the benefit of members. Some positive budgetary news The Board has thoroughly reviewed the Funds' budget and decided to postpone some of the planned governance expenditure until there are more favourable economic conditions. The total postponed expenditure of some R7 relates to: investment consultancy, legal, communications, audit fees and training. As mentioned previously Liberty Corporate has also agreed to absorb the under-recovery of R3m as at December 28 and will delay charging a further R1,4m in 29 for the preparation of the Funds' financials until the market recovers. This has helped to further cushion the impact of what might have otherwise been quite a serious governance levy increase. The Board is extremely appreciative of the generous gesture made by Liberty Corporate. Funds' Financial statements The following is an abbreviated financial statement for the combined four Corporate Selection Funds as at the Funds' year-end 3 September 28: Number of Participating employers Number of Members Pension Fund Pension Fund Retirement Fund Retirement Fund Total contribution R income R R R Death claims paid (including insured benefits) Lump sum Disability claims paid( Including insured benefits) Retirement Benefits paid Withdrawal benefit paid Administration costs incl. FSB levies R R48 56 R R R R83 41 R R R R R R R R R R R R Total Assets. R R R R Registration 12/8/36 12/8/ /8/2724 Number SARS approval number 18/2/4/ /2/4/ /2/4/932 12/8/ /2/4/4426 Retirement fund reform Government announced its intention of an overhaul of the retirement funding system in 27. One of the primary proposals was the introduction of a national social security fund. Further discussions and research have been ongoing in 28, without any update from Government being released or an indication of the future direction. The Board monitors developments closely and a number of its Trustees also sit on key industry forums where retirement fund reforms are discussed. Going forward, the Board will keep abreast of developments and will plan for any changes that are proposed. Importantly, members are urged not to make any rash decisions based on speculation and panic. Such action cannot be justified, and any new legislation will be consulted on and will take quite some time to pass through Parliament. Indications are that any reformed system will not be ready for implementation before 212. Investment Strategy for the Corporate Selection Umbrella Funds The following summarises the investment strategy developed by the Boards of the Corporate Selection Umbrella Funds: Employers and members (where the employer has agreed to make individual member choice available) may select from a range of risk profiles and other investment portfolios that the Boards are comfortable to make available to members and employers as sound choices for retirement provision. -6-

8 The Boards (in consultation with its independent investment advisors) and fund members or employers can conveniently and easily monitor performance. The Board has chosen a range of portfolios such as Life Stage, Multi-manager and Single manager - managed by both Stanlib and other recommended asset managers. The range of portfolios will be regularly reviewed but only changed where there is deemed to be a very strong case to so do. Portfolios available to new participations Members or employers who elect to transfer assets to the Multi-manager Life Stage portfolio will be required to invest 1% of existing assets and future contributions into that portfolio as the Multi-manager Life Stage Portfolio concept can only operate effectively subject to this condition. Available Portfolios 27 1 YEAR 28 1 YEAR Perf to 31 Dec Perf to 31 Dec Multi-manager Life Stage consisting of: Multi-manager Growth Multi-manager Consolidation Multi-manager Preservation YEAR 28 1 YEAR Perf to 31 Dec Perf to 31 Dec Corporate Real Estate CPI Corporate Real Estate Corporate ALSI 4 Plus Corporate Balanced Bonus Corporate Financial & Industrial Corporate International Assets Corporate Wealth Development Corporate Specialist Balanced Corporate Gilt Corporate Specialist SA Balanced Stanlib Pooled Portfolio Liberty Managed There are no restrictions preventing switches between these approved portfolios if a member was an existing participant prior to March 26. Assets may also be moved from SA only portfolios to those portfolios with international assets. Single-manager Life Stage consisting of: Single-manager Growth Single-manager Consolidation Single-manager Preservation Standard Bank Money Market Fund Investec House View with Global Allan Gray House View with Global Coronation House View with Global no history -8.9 Prudential House View with Global no history -8.8 Oasis House View with Global no history Portfolios available to existing participations prior to March 26 Additional Portfolios available Stanlib MM Aggressive Balanced Stanlib MM Aggressive Stanlib MM Moderate Balanced Stanlib MM Moderate Stanlib MM Conservative Balanced Stanlib MM Conservative Corporate Range 27 1 YEAR 28 1 YEAR Perf to 31 Dec Perf to 31 Dec Corporate Preferred Assets Corporate Liquid Assets Corporate Preferred SA Assets Corporate Advanced Bonus Corporate Absolute Returns Corporate Specialist Equity Corporate SA Absolute Returns Corporate Specialist SA Equity Corporate Choice Assets Surplus apportionment The task of apportioning surplus amongst members and former members of a few participating employers is still ongoing at the time of writing (March 29). The operation has been a huge logistical exercise for the Funds. The surplus apportionment status report for the Corporate Selection Funds at 31st December 28 is: Nil Submissions (No surplus to distribute) Total number of sub-funds 3 69 Number of submissions to the FSB 3 69 Number of submissions approved by the FSB Small submissions (small surplus within the sub-funds) Total number of sub-funds Number of submissions to the FSB Number of submissions approved by the FSB 1 24 Full submissions (sub-funds with distributable surpluses) Total number of sub-funds 316 Number of submissions to the FSB 268 Number of submissions approved by the FSB 215 Registration of former members A former member is defined as any previous member who left their scheme (sub-fund) prior to the sub-fund's surplus apportionment date (this date varies according to the annual revision date). Former members are required to register their details in order to be considered for any surplus benefits that may be due to them. The Board strongly urges current members who are aware of any former members to encourage them to register their details with Liberty Corporate's Surplus Team.

9 Contact details are: Fax No: (11) Call Centre: Beneficiary nominations Members are again urged to ensure that beneficiary nomination forms are updated regularly to reflect up-to-date information in the event of their death. These nomination forms should be lodged with your employer. Such action will facilitate resolution of death claim payments and avoid unnecessary time having to be spent on obtaining the necessary information. Trustees are required in terms of the Pension Funds Act to make the final decisions on the allocation of death benefits for any approved benefits payable to beneficiaries. Your beneficiary nomination form helps them to do this timeously. Beneficiary Funds Beneficiary Funds became operational from 1 January 29 for approved death benefits where the Board deems it preferable for money to be paid as income rather than as a lump sum. This is most often the case when a benefit is due to a minor child. After due consideration of all the options available and their ramifications, the Board selected the Fairfund Umbrella Beneficiary Fund. The Board has considered carefully whether they should have more than one service provider in this regard but have concluded that they cannot justify to the membership the additional initial and ongoing governance costs that this would result in. In legislation, the Trustees have the authority to make this decision. Consequently, the current position is that all appropriate approved benefits are being paid to Fairfund Beneficiary Fund and all unapproved benefits are paid by default into the existing Coselira Trust. In this way, beneficiaries who have both approved and unapproved benefits have the total benefit with one administrator. However the beneficiary's guardian may choose an alternative Trust for unapproved benefits if so desired although this is not recommended by the Board. Pension Funds Adjudicator cases Members query the outstanding payment of benefits. In order for the administrator to make payment the member must provide certain minimum information e.g. tax number, banking details etc. In most cases the claim form is submitted by the employer and these forms are not fully completed. The outstanding information is request from the financial adviser / employer who do not always have contact with the member after they have left employment. We urge members to visit the Liberty Corporate website for the latest claim forms to ensure that the correct information has been provided. If members need to follow up on their claims they can contact our call centre. Liberty Corporate contact details: Website for claim forms: Call centre: Johannesburg office Tel number: Fax number: Physical address: Legal updates (11) The Pension Funds Adjudicator contact details: Enquiries: (11) (11) nd Floor, Sandown House, Sandton Close, Sandton 2196 enquiries-jhb@pfa.org.za Various changes were effected to different pieces of legislation impacting on retirement funds. Amongst others, this includes changes to the Pension Funds Act, the Income Tax Act and the Financial Services Board Act. Some of the more significant changes were in respect of the following: Payments to non-member spouses on divorce or maintenance payments in terms of Section 37D of the Pension Funds Act. The provision for maintenance payments has now specifically been included in the Pension Funds Act. In respect of pension interest on divorce orders, the amendments have clarified the uncertainty in relation to the retrospective application of the clean break principle and now all divorce orders enforceable against the fund can be paid. The amendment introduced a hierarchy for deductions against a member's benefit. First are housing loans, thereafter maintenance orders and thereafter divorce orders. Timelines in respect of the process of divorce orders have also been introduced. The fund has received a number of complaints addressed to the adjudicator's office and the majority of these cases relate to misunderstanding on the part of the member. To resolve these cases, the adjudicator's office has opted to have a conciliation process where the administrator / Trustees and the complainant are invited to reach agreement on the complaint. The fund had a number of these conciliations and the result has been an easy resolution as the member received a satisfactory explanation. The most common examples of the complaints are: Members are not aware of their right to receive their benefit statements on an annual basis. The benefit statements are provided to the employers for distribution to members. The member benefit statement provides important information which the member should verify e.g. the salary, contributions and also the date of joining the fund. If you require a benefit statement, contact your employer or financial adviser regarding this. -8- The definitions of pension fund and retirement annuity funds now cater for additional access to benefits by members. Definitions of pension and provident preservation funds have been introduced in the Act, providing tax clarity to the treatment of such funds. Revenue has also entrenched the revenue nature of living annuities by inserting a definition in the Act. The definition of 'pension fund' has been amended to allow partners to join a partnerships' pension fund, irrespective of whether or not they were previously employed by the partnership. The revised definition of pension fund also allows beneficiaries to now commute annuities at any time after the death of the member. This will not apply to members already in receipt of annuities.

10 Increased tax-free rebate for retirement fund withdrawals Previous position (before 1 March 29) *Amended position (from 1 March 29) When a person elects to have money paid in cash at resignation, Lump sum withdrawal benefit Tax liability dismissal or retrenchment, only the first R1 8 is tax free, with the R to R22 5 % balance taxed at average tax rates R22 51 to R6 R6 1 to R9 18% of amount above R22 5 R % of the amount above R6 R9 1 and above R % of the amount above R9 Divorce orders granted after 13 September 27 Retirement fund benefits awarded to a former spouse on divorce Date of accrual determined by the date that the amount stated in the divorce order needs to be deducted from the member's minimum individual reserve in terms of the Pension Funds Act. Previous provision (before 1 March 29) Amended provision (from 1 March 29) The tax obligation is in the hands of the member as a The tax obligation shifts from the member to the non-member spouse withdrawal lump sum. Former spouse elects to take lump sum: Tax-free amount must be calculated according to the tables indicated above and tax payable by the former spouse Divorce order granted before 13 September 27 Tax liability for all these payments remains that of the member. Former spouse elects to transfer to approved retirement fund in own name: No tax payable on the benefit by former spouse Previous provision (before 1 March 29) Amended provision (from 1 March 29) Rate of tax: Highest average rate of tax of the current or previous tax year Rate of tax as per table indicated above *Subject to SARS systems upgrade -9-

11 Unclaimed retirement fund benefits From 1 January 29 where any lump sum benefit is paid to a pension preservation fund or a provident preservation fund as an unclaimed benefit, no lump sum benefit will be deemed to have accrued. Previous provision (before 1 March 29) Amended provision (from 1 March 29) Preservation funds can accept transfers or unclaimed benefits for other funds. Unclaimed benefits subjected to tax in terms of GN 35 (SARS) and any benefit unpaid after 6 months is taxed. Preservation funds devoted to the receipt of unclaimed benefits in terms of future regulations. Withdrawal benefits will be deemed to accrue for tax purposes: On the date the member elects to have the benefit paid On the date on which the benefit is transferred to another fund On the date of death, whichever is earliest. Unclaimed benefit funds can pay retirement, withdrawal or death benefits. Unclaimed benefits are taxed in the same way as retirement fund, withdrawal or death benefits from a pension or provident fund. Unclaimed benefits which have been taxed and then transferred to a preservation or unclaimed benefit fund, will be added to the tax-free concessions of Formula B on retirement and death, and to the minimum tax-free concessions on withdrawal, when the benefit is paid from the preservation fund. Formula B: Retirement and Death a) The reduction of the tax-free amount of R3 by Tax free amounts in terms of the R22 5 concession. All withdrawal benefit amounts included in gross income, including divorce awards and deemed accruals for pension to provident transfers. b) The increase of the deductible amount by amounts of pension to provident transfers that were deemed to have accrued to the member, paid or transferred to a preservation fund as an unclaimed benefit if the unclaimed benefit had been taxed before transfer. The date of accrual of the death benefit has been deferred to the date of payment of the lump sum death benefit in terms of section 37C of the Pension Funds Act. The full amount of the transfer is deemed to accrue for tax purposes and will be taxed in full as a withdrawal benefit. SOURCES Old Mutual Hotline, No 1 of 29 Alexander Forbes On the Scales 13 of 28 Anglo Platinum Newsflash of 3 January 29 Transfers from pension to provident funds -1-

12 Rule amendments Funds contact details A rule amendment was submitted to the FSB to enable the Board to collect fees from the membership to defray the costs (governance levy) of running the umbrella. The rule was registered in September 28. The latest sets of consolidated rules of the Funds were registered on 12 September 28 and are available on the Liberty Corporate website. Any general queries relating to the day-to-day administration of your Funds can be directed to your employer or appointed financial adviser, or directly with Liberty Corporate at their call centre: telephone number (11) or fax (11) All queries to Liberty Corporate should ideally be put in writing. Home loans In terms of the Pension Funds Act, members are permitted to use a portion of their share of the Funds' assets (currently the Board allows up to 4%) as collateral for securing a pension-backed home loan from a recognised financial institution. Provided certain conditions are fulfilled, the Funds will stand as guarantor for the collateral. Should a Corporate Selection fund member wish to bring any matter to the attention of the Trustees or have a problem in obtaining a response from the administrator, he/she can contact the Principal Officer, Patrick Mayne, directly. His contact details are: Fax number: (11) patrick.mayne@liberty.co.za In 27 we were required to review the contracts and ensure the suppliers complied with the National Credit Act. Some of the requirements are that members receive proper education and assistance from the institution in relation to the affordability of loan repayments, the purpose for which the loans are granted, the correct and accurate completion of the loan application documents, as well as other relevant matters associated with the acquisition and/or maintenance or improvement of a dwelling. At present, there is only one financial institution, Standard Bank, which meets the Board's requirements in this regard. The Board will consider allowing other financial institutions to offer pension-backed home loans to members if they fulfil the Board's requirements. These requirements are available on request. Expert advisors and service suppliers During the year the Board has taken advice from: Fifth Quadrant (investment advice) SizweNtsaluba (auditors) Alexander Forbes Insurance Services (fidelity cover) Service providers to the Funds are: Liberty Corporate (administration services); and the various investment houses as mentioned previously. -11-