Wednesday, December 3, 2008

Pension Funds - Changes to the Pension Funds Act

The Pensions Industry is undergoing a bit of a shake-up, and the State is undertaking a review of The whole industry with a view to introducing a National Social Security Fund.

The introduction of this Fund could take several years, so in the meantime, some much needed changes to the Pension Funds Act have been promulgated (on 30.9.2008).

Beneficiary Funds

Previously, the trustees could pay a death benefit to an inter vivos trust for the benefit of the dependants of the deceased member. Now this will be possible only where such trust was already nominated by the member, or where a major beneficiary agrees to this course of action.

Otherwise, payment to a Beneficiary Fund is a new option. These are similar to inter vivos trusts but are registered under the Pension Funds Act, and not at the office of the Master of the High Court.

Other changes

Section 37C of the Act now allows payment of a death benefit to the Caregiver of a dependant.

Regarding divorce orders, section 37D now introduces the “clean break” principle. This means That the Fund must give the non-member spouse a choice as to whether she/he wishes to receive a cash payment (taxable) or rather to save tax and transfer her/his benefit to another Fund (for example to a Retirement Annuity Fund).

The non-member spouse then has 120 days to make this choice, and the Fund must make actual payment/transfer within a further 60 days.

For divorces after 1.3.2009, each party will be taxed separately, in contrast to the present position where the member is primarily liable for the tax, although he/she may reclaim the non-member’s pro rata share of the tax from such non-member.

Ranking of deductions is also now prescribed: A housing loan/guarantee deduction comes first, followed by a maintenance order, followed by a divorce order.

There is no doubt that many more changes to the pension law may be expected in the run up to the introduction of a National Fund. What is clear is that existing vested rights will be protected, and that private savings through company pension funds and personal RA Funds will continue to be encouraged.

Clive Hill
Financial Services Manager


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