FSCA Communication 25 of 2024 (RF) on Legacy Retirement Annuity Policy Exemptions

1 FSCA COMMUNICATION 25 OF 2024 (RF) Public consultation on the draft Determination of Conditions for Legacy Retirement Annuity Policies to be excluded from the Two–Component System

1. PURPOSE The purpose of this communication is to - (a) confirm under what circumstances a fund will be regarded as being exempted for purposes of the definitions of “retirement component” and “savings component” in the Income Tax Act, 1962 (Act No. 58 of 1962) (Income Tax Act), as referred to in those definitions; and (b) invite stakeholder input by 16 August 2024 on the proposed conditions to be determined by the Financial Sector Conduct Authority (FSCA) that must be met by a retirement fund in order for a legacy retirement annuity policy to be excluded from the application of the two-component system.
2. BACKGROUND 2.1 On 1 June 2024 the President assented to the legislation that gives effect to the two-component system in terms of which the rules of a fund must make provision for the member’s interest in a retirement component, a savings component and a vested component. Related amendments to the Income Tax Act through the Revenue Laws Amendment Act, 2024 (Act No. 12 of 2024) has enabled the FSCA to determine the conditions under which a legacy retirement annuity policy/fund will not be subject to the “two-component” system. 2.2 Section 1 of the Income Tax Act defines a legacy retirement annuity policy as “any policy held by a retirement annuity fund entered before 1 September 2024 with a pre-universal life or universal life construct, subject to such conditions that the Financial Sector Conduct Authority may determine”. These historical policies allowed individuals to purchase an assured lump sum on death and to share in investment returns at portfolio level via, for example, reversionary bonuses on their savings, without a defined fund value. 2.3 The definition of the “retirement component” in the Income Tax Act provides that the retirement component shall not apply to a legacy retirement annuity policy as defined in section 1 that has been exempted from this provision, subject to the conditions that may be required by the FSCA. 2.4 The definition of the “savings component” in the Income Tax Act, provides that the savings component shall not apply to a legacy retirement annuity policy as defined in section 1, that has been approved for exemption by the FSCA. 2.5 Accordingly the FSCA will, by notice on its website determine the conditions as enabled through the Income Tax Act, that will exclude legacy retirement annuity policies from the requirements applicable to the retirement component and the savings component of the two-component system. 2.6 Further, the FSCA will also confirm under what circumstances a fund will be regarded as being exempted for purposes of the definitions of “retirement component” and “savings component” in the Income Tax Act, as referred to in those definitions.

2 2.7 To this end, attached to this Communication as Annexure A is the draft determination setting out the proposed conditions to be met in order for a “legacy retirement annuity policy” to qualify as exempted for purposes of the definitions of “retirement component” and “savings component” in section 1 of the Income Tax Act. 2.8 The FSCA confirms that it may at any time request information or documentation from a fund to evidence compliance with the conditions as determined by notice on its website. 3. INVITATION FOR PUBLIC COMMENT 3.1 Interested stakeholders are invited to submit any comments that they may have on the proposed conditions set out in Annexure A in writing to the FSCA via email to FSCA.RFDstandards@fsca.co.za by 16 August 2024. 3.2 Commentators may make use of the consultation template attached as Annexure B to this Communication. 4. ENQUIRIES For further information regarding this Communication please contact the FSCA by emailing Ms. Fikile Mosoma at FSCA.RFDstandards@fsca.co.za. ASTRID LUDIN DEPUTY COMMISSIONER FINANCIAL SECTOR CONDUCT AUTHORITY Date: 19 July 2024