Posted on November 11th, 2010 in Industry News
With effect from 1 March 2009 legislative changes have provided for the tax free transfer of unclaimed benefits to Unclaimed Benefit Funds. It is vital that Trustees are fully informed in respect of the various aspects of Unclaimed Benefit Funds and the options available so as to be able to make the most appropriate choice with regard to the administration of a Fund’s unclaimed benefits.
1. What is an unclaimed benefit?
The definition of an ‘unclaimed benefit’ is set out in the Pension Funds Act. Simply put, an unclaimed benefit is a benefit not paid to a member, former member or beneficiary within 24 months of the date on which it became legally due and payable. This includes benefits due to members on the completion of a surplus apportionment exercise as well as members who remain in a Fund that has applied for cancellation of registration or liquidation.
2. What options are available in respect of the administration of unclaimed benefits?
Unclaimed benefits can be transferred to a fund that has been constituted specifically for the administration of unclaimed benefits. These funds are known as Unclaimed Benefit Funds. They are managed by their own Trustees, registered by the Financial Services Board and approved by SARS. Alternatively, unclaimed benefits can be maintained within the current Fund.
3. How are unclaimed benefits transferred to an Unclaimed Benefit Fund?
Transfers to an Unclaimed Benefit Fund take place by way of ROT (Recognition of Transfer). SARS has allowed for bulk ROT transfers, specifically for unclaimed benefits, until 30 August 2011.
4. How does a Trustee determine which method should be utilized in the administration of a Fund’s unclaimed benefits?
The Board of Trustees is required to set out a policy with regards to the administration of unclaimed benefits. This policy must indicate whether the unclaimed benefits are to be transferred to an Unclaimed Benefit Fund or whether the unclaimed benefits should be retained in the current Fund. Should it be decided that the benefits be retained in the Fund, the policy should also stipulate, amongst other things, what return should be earned, where the benefits are to be invested and what administration fees or tracing costs will be incurred.
5. What are the tax implications on unclaimed benefits?
General Note 35 (issued by SARS) no longer applies to benefits that were (?) unclaimed with effect from 1 March 2009, from which date, no unclaimed benefit tax will be levied on an unclaimed benefit held in a fund or on transfer to an Unclaimed Benefit Fund. Tax will, however, be payable when the benefit is ultimately paid directly to the member.
6. What are the advantages of transferring unclaimed benefits into an Unclaimed Benefit Fund?
The Trustees will not be required to trace members who are due unclaimed benefits as the onus in this regard will fall on the Trustees of the Unclaimed Benefit Fund.
Similarly, the investment strategy in respect of the unclaimed benefits will become the responsibility of the Trustees of the Unclaimed Benefit Fund.
Reporting in respect of unclaimed benefits will form part of the Annual Financial Statements of the Unclaimed Benefit Fund.
7. What are the disadvantages of transferring unclaimed benefits into an Unclaimed Benefit Fund?
The Unclaimed Benefit Fund will charge a fee for the administration and tracing of unclaimed benefits.
Current members could interpret the transferring of unclaimed benefits to an Unclaimed Benefit Fund as an attempt by the employer to decrease its responsibility toward these members.
