General
What is a Living Annuity?
A product wrapper which provides a member with a regular income based on a percentage of the investment selected by the member.
Post-retirement product where the income is not guaranteed, based on the performance of the underlying assets.
Types of annuities
Linked Living Annuty (ELLA) = may build capital + receive income. At death, market value is transferred to estate or beneficiary/ies.
Joint-life annuity = will pay an income until both assureds passed away
Annuity with growth = income which increases over time (yearly)
Pension with capital repayment = earn the income but capital is preserved for beneficiary/ies
Single-life annuity without guaranteed term = Receive an income till the day you die, but no option of transferring capital to your beneficiary/ies
Single life-annuity with guaranteed term = Receive an income until you die. If the guaranteed time is not over, income will pay to your beneficiary/ies until the guarantee is over.
Various Unit Trusts as per Portfolio Selection List
Platform Offering
Investment Post-retirementPre-retirement
Voluntary Investment
EndowmentRetirement Annuity
Preservation Funds
Living Annuity
Retirement builder
Capital Protector
Where does it fit in?
Structured Products
Retirement builder
One year Five years Three years
Fixed returned of capital: Market Portfolio: Cash
Capital protector
100% Capital protection over 12 months
Unit Trust, Segregated Mandates, White Labels, Share Portfolios
Retirement Annuity: Preservation: Living Annuity
Pricing
All life investment products are taxed according to the “four fund approach”
That means a life company classifies its clients into four different tax categories
01 – Individuals 30%
02 – Companies 28%
03 – Trusts (taxed according to beneficiary status 01 or 02)
04 – Non taxable entities
The tax and fund fees are then taken out of the price and paid on behalf of the member
Admin and risk management fees are generated by selling units from the client’s investment
LA’s are not subject to income tax on distributions and capital gains and hence the client will not receive an IT3(b) or IT3(C)
Pricing
Since we are a LISP, we will make use of this pricing for most of our investments when we launch
Where a fund does not have unit trust pricing, life pricing (four fund approach) will be used according to the tax classification
Investments
Any natural person who are retiring from their Pension or Preservation or Retirement Annuity, or transferring from an existing Living Annuity
Recurring Premium LA – not allowed
Portfolio Selection does NOT have to be Reg 28 compliant
Once all requirements received and submitted, t+4 (for processing, settlement and statement, depending on the fund)
Single Premium LAMinimum R50 000
“Top ups” allowed if from a registered retirement fund/LA
Can be phased in – daily/weekly/monthly phase ins
Income will be adjusted accordingly
Documents Needed
PSG Application form (fully completed)
Certified copy of client’s ID
Certified copy of client’s proof of address (less than three months)
Certified copy of client’s proof of bank details (less than three months)
Proof of deposit (match to unallocated spreadsheet)
Recognition of Transfer
Investment Options
Unit Trusts
Within the LA wrapper – subject to market movements
Retirement builder
Fixed outcome – quoted rate for 1 year, 3 years or 5 years
Rates sent out weekly, trading monthly – inform Admin to open
One month prior to maturity we send out a letter to inform the client that we will switch to PSG Money Market if we don’t receive instruction
Maximum determined by Actuarial, as remaining balance required for income payments
Capital Protector CPP – option to guarantee CAPITAL, with growth on the upside of the market
Quarterly tranche, if enough investors, info (rates) sent out per tranche
In for a year, if we don’t receive instruction, the client will be switched to PSG Money Market Fund
Maximum determined by Actuarial, as remaining balance required for income payments
Section 37(2) Transfers in
Transfer from another LA fund to PSG ELLA
Follow the Section 37(2) process
Cannot go directly into a Retirement Builder or CPP, as we do not know when the funds will be received and rates have to be accepted by the client by signing the quote (funds invested in PSG Money Market whilst waiting for signed quote)
Separate training for Sectional and Unit Transfers
Transfers Summary
LA to LA – Section 37(2)
Pension to LA – Retirement
Provident to LA – Retirement
PresPen to LA – Retirement
PresProv to LA – Retirement
RA to LA – Retirement
Voluntary to LA – Not allowed (may use RA and retire)
Switches
Switch form, fully completed and signed
Where a standing instruction exists on the client’s investment, confirm with the client that it will follow the switch (complete on batch form)
t+4 (this can differ based on the type of source and destination fund as well as possible liquidity constraints in the source fund)
Offshore limits on fund level, not enforced on individual level
Repurchase
If the value of the investment is less than R75 000, the client may repurchase the full amount IF the client didn’t commute a portion at retirement (subject to tax)
If the client commuted a portion at retirement, the full value may be repurchased if it is less than R50 000
Signed and completed Notification of Withdrawal Form
Form C
FICA (if details changed)
Certified proof of bank details (less than 3 months old), if different from system
Admin will apply for a tax directive before loading the instruction on GLS
Benefit paid out will be net of tax
t+7 for tax application, repurchase to settle and paid
Incomes (annuity)
2.5% - 17.5% of the investment value as at anniversary for new clients after 21 February 2007
Other clients may choose to stay on the 5% - 20% limits, provided that you are already on the old limits
Once a client chooses to be bound to the 2.5% - 17.5% limits, they cannot return to the old limits (See Addendum B to RF 1/96)
Disposal of units, time to price and settle, depending on nominated instrument(s) and liquidity
Paid by the 25th of the month
Incomes (annuity)
Income Review Letter is sent to the client three months before anniversary
No changes are allowed outside of anniversary (Notice 290 of Government Gazette dated 11 March 2009)
Income tax will be deducted and paid to SARS in accordance with tax tables
Standing Instructions Change
Static Details Change Form OR
Letter from client instructing change (signed by client or mandated
broker)
Income amount/frequency/escalation
Client can switch and confirm how the allocation of the income should be drawn, if required
Annuity reports
Should an income fail for some reason (bank account closed/incorrect), the system will attempt payment again in future.
Annuity shortfall report = sent to the team to deal with depleted instruments
Failed annuity report = 1 day after generation for annuities that did not generate – investigate
Returned annuity report = 3 days after payment
Static Details Change
Address / Contact details change
Residential Address Signed and completed Change of Static Details form AND
Certified proof residential address not older than three months (FICA)
Postal AddressSigned and completed Change of Static Details form OR
Letter from client instructing change
Contact Details (email / tel / cell / fax)Signed and completed Change of Static Details form OR
Original Letter from client instructing change
Static Details Change
Bank Details Change
Signed and completed Change of Static Details form AND
Certified proof of bank details (less than 3 months old)
NOTE: Internet bank statements will not be accepted
Static Details Change
Beneficiary Changes
Signed and completed Change of Static Details form OR
Letter from client instructing change– Beneficiary Title
– Beneficiary name and surname
– Date of birth or ID number
– Relationship
– Share of benefits
Static Details Change
ID Number or Name Changes
Signed and completed Change of Static Details form AND
Certified copy of marriage certificate (if surname change)
Certified copy of ID
Cession
A LA may not be ceded to another client or offered as security for a loan
Creditors may not attach a LA upon insolvency (Section 37B of the Pension Funds Act)
Combining Living Annuities
A client may not increase the income due to combination/consolidation
This level must continue and may only be revised ONE YEAR after combination
Examples
Combining existing LA’s
Contract A = Anniversary 1 March, 10% on assets of R100 000
Contract B = Anniversary 1 October, 5% on assets of R200 000
Contracts are consolidated on 1 July 2011.
New income = R20 000 (6.67% of R300 000)
Review letter will be sent 1 April 2012 for income to be revised before 1 July 2012.
Examples
Combining a new LA with an existing LA
Existing Contract A = Anniversary 1 March, 10% on assets of R100 000
New Contract B = Taken out 1 July 2011 for R200 000
New income under combined contracts = R30 000 (10% of R300 000)
Earliest date for review: 1 July 2012
Death ClaimDocuments needed
Certified copy of death certificate
Post mortem report (if unnatural death)
Certified copy of deceased’s ID
Certified copy of letter of Executorship (If the beneficiary is Estate)
Signed and completed Death claim application & discharge form
Certified copy of marriage certificate (if married within community of property before 1984 or anti-nuptial contract with accrual)
Certified copy of ID of beneficiaries
Copy of Will (if applicable)
Certified proof of bank details (less than 3 months old) OR
Cancelled cheque
If benefit will transfer to beneficiary – New application form (PSG or other Provider)
Equity Linked Living Annuities – Form C for application of tax directive (Only for lump sum payments)
Section 37(2) Transfer out
Signed and completed Application to Transfer Form
Copy of application form for Transferee Fund
Certified copy of members ID
Same Section 37(2) process as Transfers IN to be followed in terms of Annexures
Cut offs for processing
Any instruction for processing has to be batched and submitted to Admin before 9:00
Ensure that your broker actually SENDS it well within cut off so that there is sufficient time for batching and submission to Admin
Income cut off: 15th of the month for payment on the 25th of that month
Turn around time
Should all requirements have been received:
Before 9:00 – processed for prices on t
After 9:00 – processed for prices on t+1
Tax
No IT3(b) for distributions
No IT3(c) for capital gains/losses
Income tax on annuity as per yearly Income Tax Tables
Death claims – as per retirement tables
No Dividend Withholding Tax
Legislation
Collective Investment Schemes Act
Income Tax Act
Pension Funds Act, Section 37
Long Term Insurance Act
Directive 135
Regulation 28 – Prudential Investment Guidelines – NOT APPLICABLE
Financial Intelligence Centre Act (FICA)
Financial Intermediary and Advisory Services Act (FAIS)
Fees
IFA initial fee 0% - 1.5% excl VAT
IFA ongoing fee – up to 1% excl VAT
No initial platform fee
Ongoing platform fee– PSG – before 1 Aug 2011 = sliding scale
– PSG – after 1 Aug 2011 = 0.4% for Konsult
0.5% for Retail
Neg for Best of Breed
LESS REBATES
Fax and E-mail Indemnity
Faxed instructions will be accepted, FICA docs have to be certified
Where an advisor did not certify FICA docs, we will check if Fax and E-mail Indemnity is on file
If a client signed the F/E Indemnity in the application form/ other transaction form, we will accept instructions via e-mail
Disclaimer
The information contained in this document is correct at time of the presentation. All figures and points must be verified
prior to any business dealings due to the dynamic nature of legal and financial environments. Though every effort is made
to ensure the accuracy of the information contained herein, the author cannot guarantee the validity and or current information in future circumstance when legislation is
adapted.
The author accepts no responsibility for the use of validated information and the misuse of current information. Individuals misusing current information or using outdated information will be personally liable for any damages/consequences incurred.
PSG Asset Management Administration Services Limited reserves the right to adapt provisions as set out in this presentation where applicable legislation and practices
change. PSG Asset Management Administration Services Limited is an approved financial services provider.