National Treasury has extended the comment period on the draft regulations to the Pension Funds Act to Friday, 31 October 2015.  The main impact of the draft regulations are the proposed obligations on retirement funds to offer a default investment strategy, default (not compulsory!) preservation and a default annuity strategy on retirement.

1. Default investment strategy – trustees will be required to ensure that there is a default investment strategy in place that is appropriate, simple and cost-effective.  The draft regulations also place emphasis on the transparency of the strategy, particularly with reference to the disclosure of the objectives and fee structure of the strategy to members.  The draft regulations include requirements that the trustees give consideration to passive investments and that there are no performance-related fees for investments in the default strategy.

2. Default preservation and portability – the rules of each fund will be required to provide that each member will automatically become a "paid up" member when they leave employment, unless the member directs otherwise.  The rules will also be required to provide that the benefits that have accrued to a "paid-up" member will automatically be transferred into a new fund of which that individual becomes a member, again unless the member directs otherwise.  The purpose of these changes is to encourage members to leave their retirement savings to grow throughout their working life.

3. Default annuity strategy – every fund will be required to have a default annuity strategy in place in terms of which a retiring member can convert their accumulated fund credit into an income payable by the fund or an insurer.  The default could be in-fund living annuities, external life annuities guaranteed by a long-term insurer, in-fund guaranteed pensions (but not with-profit annuities due to the structural conflicts of interest between annuitants and shareholders).  The draft regulations again place emphasis on the transparency of the annuity strategy.  

Members will have the choice to opt out of the default arrangements however National Treasury hopes that more members will fall into the default arrangements (which National Treasury regards as being in the long-term best interests of the members) by virtue of these arrangements being default in nature.  The draft regulations also introduce the concept of a "retirement benefits counsellor" who must be paid solely by the fund and will assist the members in understanding the default offerings when making decisions to follow or opt out of the defaults.