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Proposed tax changes for those taking pension funds abroad

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Through Siphelele Dludla August 18, 2021

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THE GOVERNMENT has proposed changes to the tax law that could have important implications for members of pension funds who wish to transfer their savings abroad.

The National Treasury yesterday proposed changes that could allow the SA Revenue Service (Sars) to subject interest on pension funds to tax when an individual ceases to be a South African tax resident.

Currently, South Africa can waive its tax rights when people become tax residents of another country before or when they retire.

Informing Parliament’s Standing Committee on Finance, the Treasury said the rules were changed last year and a three-year moratorium was in place for people who were no longer South African tax residents. , before they can access their retirement savings.

The Treasury’s chief director for economic tax analysis, Chris Axelson, said that according to double taxation agreements, that money, if taken, might not be taxable in South Africa at all.

Axelson, however, said it was different for people who stay as South African tax residents, who can only access their money once they’re 55 or older.

“Thus, individuals would have benefited from a total tax deduction on the amount paid into the retirement fund. They would have enjoyed tax-free growth on the investments in the pension fund, and when they left the country they would not pay any taxes either, ”Axelson said.

“It really gets rid of our tax rights on these types of assets, so we’re trying to fix that.

“The proposition we are saying is that when an individual ceases to be a South African tax resident, we will consider that a tax must be paid on the day before he ceases to be a resident.

“But we’re not actually asking that the tax be paid at that time, so it can be deferred. This is the same regime or the same treatment as you do for capital gains tax.

As a result, Axelson said the Treasury had proposed a two-pronged approach for both withdrawals and amounts retired.

“If an individual were to retire prior to retirement or death, the individual will be deemed to have ceded his stake in this pension fund on the day before he ceases to be a South African tax resident, and the interest will part of that person’s assets, and they won’t need to make a payment, ”he said.

“However, if they do make a withdrawal after three years of being a non-resident for tax purposes, they will then have to pay a tax that was applicable on this amount the day before their termination, using the tax tables on withdrawals in force at time, plus interest.

Jenny Gordon, head of technical investment advice for Alexander Forbes, said the wording of the proposed section 9HC was inadequate and did not give effect to the intent of the explanatory memorandum. Therefore, Gordon said, it was unlikely to be successfully implemented on March 1, 2022.

“The legislation that would be necessary to give effect to this type of provision is complex, and many other provisions of the Income Tax Act, the Tax Administration Act and the Pension Funds Act should be modified at the same time, in addition to the Sars processes. . It was not proposed in the bill, ”Gordon said.

“We are engaging with regulators in written submissions and hearings on the bill, with the intention of reaching consensus for a workable solution.”

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“No plans to allow pension funds to invest in startups”

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Supratim Bandyopadhyay, chairman of the Pension Fund Development and Regulation Authority (PFRDA), said there were no immediate plans to enable pension funds, including the national pension system, to d ‘invest in startups. The response comes amid reports the government may allow Life Insurance Corp. of India (LIC) and the Employees’ Provident Fund Organization (EPFO) to invest in startups.

Bandyopadhyay, however, said the proposal was not ruled out, but it was difficult to determine the right valuation for a startup.

“NPS pension funds report a daily NAV (net asset value) unlike EPFO ​​and LIC,” he added.

Last month, the regulator gave conditional approval to pension funds to invest in initial public offerings (IPOs). Pension funds can invest in IPOs with sales of shares of at least ??500 crores. The market value of the company after the IPO is also expected to be among the top 200 companies in India.

The number of private sector subscribers to the NPS has exceeded 3 million, Bandyopadhyay revealed. Big fintech players have also started distributing to NPS, including Paytm Money, Bandyopadhyay said. Zerodha also plans to work with PFRDA as an NPS intermediary, he added. The number of private sector subscribers also rebounded by almost 50% in fiscal 22 compared to the previous year. A total of 241,000 private sector subscribers joined NPS in fiscal year 22 through August 12, up from 160,000 last year.

NPS intermediaries called points of presence (PoP) charge 0.25% per contribution to the NPS. The pension fund regulator recently allowed PoPs to hire individual agents to distribute the NPS. However, no decision has been made on compensation, Bandyopadhyay said. NPS has generated returns of 12.94% over the past 12 years for its equity programs, 9.92% for its corporate bond programs and 9.4% for its corporate bond programs. State over the past 12 years, added Bandyopadhyay.

The PFRDA also broadened the investment universe of M&O segment equities with a market capitalization of ??5,000 crore to the top 200 companies on BSE and ESN to allow pension funds to derive returns from a wider range of stocks. Subscribers also benefit from a tax deduction of ??1.5 lakh for investment in NPS Tier 1 under section 80 C and ??50,000 for investment in NPS Tier 2 under section 80 CCD (1B).

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Employees potentially lost pension funds due to actions of Nottingham call center manager

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A former Nottingham call center manager is banned from running a business for the next eight years due to pension plan negligence.

Philip James Hopkinson, 47, ran Target Source Media at Landmark Tudor Square, which initially operated as a call center from November 2011, focused on buying and selling data, Business Live reports.

He then transferred this management of occupational pensions to a third party less than a year later.

Over the next five months, members of the public transferred more than £ 200,000 into the pension scheme which remained unregistered, in violation of the Pensions Act 2004.

The government said that Hopkinson later admitted that he had never met or spoken with those he appointed or verified their ability or experience in administering a pension plan to ensure that members’ funds potentials were properly invested and the risk to members would be minimized.

In June 2017, Hopkinson resigned as director of Target Source Media but remained as an employee for an additional two to three months and helped clear the transfer of members’ funds out of the pension plan’s bank account.

In addition, at the time of Target Source Media’s liquidation in 2018, the company had separate debts of over £ 65,000, according to a statement from The Insolvency Service.

As a result of his investigation, Hopkinson signed an eight-year disqualification pledge that began in June.

Neil North, Chief Insolvency Service Investigator, said: “Mr Hopkinson failed in his duties as a director of a limited liability company and, as a result, members of the public were needlessly endangered and potentially lost funds from their occupational pensions.

“In such cases, the Insolvency Department will not hesitate to take steps to remove the privilege of limited liability status from such persons.”

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Ice cream, politics and pension funds are not a winning recipe

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The boards of state pension funds are not the best place to debate Israeli-Palestinian policy. It may sound like a blatant statement, but these debates are exactly what is happening in states like Illinois, new York and Texas.

The impetus for this unusual mix of global politics and management of public employee pensions was, above all, the decision of ice cream maker Ben & Jerry to withdraw its products from the West Bank in solidarity with the Palestinians. Yes, state pension funds are considering selling their shares in body wash conglomerate Unilever – which owns Ben & Jerrys – due to this escalating dispute.

And while a number of simple ‘rocky road’ or ‘half-baked’ puns might be needed here, there is a seriousness to this situation that shouldn’t be underestimated.

There are some $ 5,000 billion in money currently managed by pension funds for state and local governments across the United States. Roughly 60 percent of that money is managed through various types of stocks and mutual funds, including companies like Unilever.

The primary responsibility of pension fund administrators is to maximize returns on the investments of the millions and billions of dollars under their control. This is accomplished by making long term investment decisions that generate maximum returns. The political and social interests of those who oversee these pension systems should never be a factor when deciding how best to manage public workers’ money.

Pension fund managers sometimes have to make investment choices that are socially unpopular but still represent the best financial interests of public officials’ assets.

There are times when sound investment decisions can be aligned with socially popular politics, but opponents of Ben & Jerry’s failed to make this point. Governor of Florida Ron DeSantisRon DeSantisSchool’s Mask Battle Takes Texas AP Tells DeSantis to Stop Assistant’s “Harassing Behavior”, for example, spoke only of his pro-Israel position in a statement announcing that the state had placed the Fortune 500 company on its list of “companies scrutinized”. Worse yet, the state’s investment manager, in his statement, failed to reconcile the governor’s decision with his duty to bolster the retirement accounts of thousands of civil servants.

The Sunshine State is far from alone in this there are 35 states with laws that cater to companies that engage in boycott, divestment and sanctioning activities – these laws, however, are not based on sound fiscal logic but rather on geopolitical motives. And the problem extends beyond Israeli policy.

Illinois has an Investment Policy Board whose sole purpose is to keep state pension funds out of companies that do business with Iran and Sudan, or boycott Israel. Many states are still weighing on the divestment of any company based in China, which would mean withdrawing stocks from investments in the world’s second-largest economy. Even texas pass a law it would force state pension funds to divest from companies that themselves use social or environmental factors to make business and investment decisions – a reversal of policy, but still very political.

The bigger problem here is that short-term political incentives threaten the returns on investment needed to fund the pensions promised to teachers, firefighters and city workers. Administrations change and the social and political views of a governor may not match those of his successor.

Pension funds should not be subject to the personal opinions of all who take office – the primary goal when managing pension fund assets should be to maximize the returns on that money.

Bringing politics into the investment management equation simply cannot work without causing problems. For example, what policy should decide how the pension fund weighs on complicated issues like Israeli settlements in the West Bank? There are bound to be a lot of officials in Illinois or New York who are on different sides of this debate and who don’t want their money (which goes into the future) to be used to support an opposing political position.

No matter where your policy on these issues lands, it should be ridiculous to you. The board members and staff of the bipartisan nonprofit organization that I manage also have different political views on these issues. But we all agree that it would be inappropriate for state governments to leverage their pension funds to engage in these political debates. It is not about good fiduciary management of the money entrusted to them by public servants for the future payment of guaranteed retirement income.

Anthony Randazzo is Executive Director of the Equable Institute, a bipartisan, nonprofit organization that works to support sustainable public pension systems without sacrificing income security.


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A group of pension funds loses its offer to lead the Green Dot dispute

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  • Judge says funds with smaller losses can’t beat larger shareholder
  • Appoint a New York fund to take the case against a FinTech company

The company and law firm names shown above are generated automatically based on the text of the article. We are improving this functionality as we continue to test and develop in beta. We appreciate comments, which you can provide using the comments tab on the right of the page.

(Reuters) – A California federal judge has rejected an offer by three pension funds to partner up and lead a shareholder dispute against fintech company Green Dot Corp, dismissing the idea that small investors could unite their forces to overcome a bigger one.

Instead, U.S. District Judge Dean Pregerson in Los Angeles ruled on Friday that a New York pension fund should take the reins in the proposed class action lawsuit alleging that the prepaid debit card company misled investors about its 2018 revenue and growth prospects. The company has yet to respond to the complaint.

The New York Hotel Trades Council & Hotel Association of New York City Inc pension fund alleges it lost $ 663,000 on its Green Dot holdings.

The Massachusetts and Pennsylvania pension fund group claimed losses totaling $ 1.1 million.

Lawyers for Berman Tabacco and Labaton Sucharow, who represent the group, and Robbins Geller Rudman & Dowd, who represent the New York fund, did not immediately respond to requests for comment on Monday.

Under the Private Securities Litigation Reform Act, the principal plaintiff is presumed to be the investor, or group of investors, with the largest loss which is otherwise typical and adequate to represent the class.

The lead role involves a potentially lucrative senior advisor appointment for investor lawyers.

In rejecting the group’s offer to conduct the case, Pregerson acknowledged that judges appointed groups of investors in some cases where the offer was not contested or the group contained an investor who claimed to have lost more than any individual candidate.

But the judge said there was no precedent for a group of independent investors to come together to create the greatest financial interest in a case where the group members individually lost less than other suitors.

The 9th U.S. Court of Appeals recently overturned an Arizona judge’s ruling denying a group of investors the lead role. In this case, two of the group’s individual investors had alleged losses greater than any other candidate.

The case is Koffsmon v. Green Dot Corporation et al., US District Court, Central District of California, No. 19-10701.

For the group of investors: Nicole Lavallee, Joseph Tabacco Jr and Jeffrey Rocha of Berman Tabacco and Christopher Keller, Eric Belfi and Francis McConville of Labaton Sucharow.

For the New York fund: Danielle Myers, Tricia McCormick and Juan Carlos Sanchez of Robbins Geller Rudman & Dowd.

Read more:

Nikola’s investors get second chance for lead role in lawsuit

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Pension funds wary of UK government’s call to fund post-Covid recovery

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Pension Industry Updates

UK pension fund administrators balk at government efforts to encourage them to spend billions on the country’s economic recovery, warning of potential conflicts of interest for their savers.

In an unprecedented intervention last week, Prime Minister Boris Johnson and Chancellor Rishi Sunak issued a letter to the industry, urging it to invest more money in sectors such as infrastructure, to help the nation to “rebuild better” in a “big bang of investment” after the Covid-19 pandemic.

But UK pension funds, which have more than £ 1 billion in assets, are generally wary of investments in private markets such as infrastructure and venture capital, fearing high fees that can erode returns on companies. pensions and poor liquidity that can impact the timing of pension payments.

“Suggestions that directors should foster opportunities in the UK to help us ‘build back better’ are not in my opinion,” said Andrew Warwick-Thompson, director of Capital Cranfield, the firm of professional directors , and former senior executive of The Pensions Regulator. “UK illiquids will have to go through the same due diligence process as any other investment decision.”

Scottish Widows, one of the UK’s leading pension providers, supports broader investment in infrastructure to help the country’s recovery, but said any framework to push pension assets in that direction should offer a level risk-adjusted return at least as good as those available elsewhere.

“Those who manage retirement assets on behalf of savers have a duty to achieve the best possible returns for clients,” said Pete Glancy, policy manager at Scottish Widows. “It is a circle that the government will have to crisscross. “

Sir John Kay, the economist who led the 2012 independent review on UK stock market reform measures, said the government needed more details on infrastructure projects that could attract investment from the regimes of retirement.

“There is already long-term financing available for investments in infrastructure such as toll roads and airports, but this is really a refinancing of existing assets,” Kay said.

“It is not certain that pension schemes provide the answer to the financing needs of new national projects, such as [rail project] HS2 and the Hinkley Point nuclear power plant. These are terrible financial investments for individual retirement savers and such projects are only really attractive to large institutional investors as the government and consumers will have to put in a lot of money to subsidize them. “

Johnson announced plans to hold an investment summit in Downing Street in October, to consolidate efforts to boost institutional investment in so-called productive finance, such as infrastructure.

Private market leaders welcomed the move. The British Private Equity & Venture Capital Association said the speech by the Prime Minister and Chancellor was “excellent news” for British retirees.

“Industry is the driving force behind many essential innovations in the UK, creating enormous economic and social value for our country in the form of jobs, growth and leading products and services,” said Michael Moore , Managing Director of BVCA. .

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San Jose pension funds post record returns

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The city of San Jose’s retirement system posted its highest returns in decades thanks to a timely rebalancing amid the coronavirus pandemic.

The pension fund, which is split in two, brought in 29.46% for its pension system for employees of federated cities and 26.49% for its police and firefighter pension plan, according to its investment manager, Prabhu Palani.

Palani joined the city’s pension funds as CIO in 2018, having spent the first part of his career in portfolio management. Since then, the plan has gone from the 99th percentile of performance relative to its peers to the top quartile, Palani said.

In 2020, the fund had about a quarter of its assets allocated to fixed income securities.

“I thought assets at all levels were expensive,” Palani said. Institutional investor. “I thought maybe there was a recession coming.”

Although he said he could not have predicted a pandemic, it turned out that the decision was fortuitous. In March 2020, the markets collapsed. “We had the fastest bear market in history,” Palani said. “This one lasted all 12 trading days.”

As the market fell about 35%, Palani’s team decided it was time to redeploy capital into growth assets.

“We weren’t sure if we were going to time the bottom perfectly,” said Palani. “Personally, I thought they would go down even more.”

The San Jose investment team classifies assets into three categories. Growth, to which the fund moved in March 2020, includes public and private equities, other private asset classes, high yield credit and emerging market bonds.

The other two categories are a low beta compartment, which contains short-term fixed income and absolute return strategies, and an inflation protection category, which contains TIPS and commodities.

Earlier in 2021, San Jose revisited these allocation strategies. Amid broader market concerns about rising inflation, funds made the decision to allocate a small portion to commodities.

“It hasn’t manifested itself in asset prices yet,” Palani said of rising inflation. “You’ve certainly seen other prices go up. If you look at the bond markets, they always indicate it’s transient. The problem is unanticipated inflation, and it is something we are hedging against.

Palani attributes his team to one of the sources of the fund’s outperformance. Since joining us in 2018, Palani has expanded the investment team, bringing in members with experience in portfolio management.

“When we talk to a manager, we know exactly what they’re thinking, and you can’t put a price on that,” Palani said. “We are very sympathetic to the managers, but we are also very skeptical. ”

The board also played a role, Palani said. San Jose requires that some of its board members have experience in the investment industry. Palani said the team was lucky in that regard: three board members are venture capitalists, which is a boon for Palani’s burgeoning venture capital program.

The investment team also has more freedom compared to some of its peers. The pension system is independent from the city, and the team itself has an investment delegation.

Going forward, Palani has a keen eye on inflation and the Delta variant of Covid-19, and, perhaps most importantly, is looking for yield. “I get paid to worry,” he joked, adding that there are few asset classes that can overcome the return hurdles necessary for a public pension fund to be successful.

“The past has been great, but have we borrowed from the future in terms of performance? Said Palani. “And how often can you get a 30% year?” ”

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British pension funds urged to support investment ‘big bang’

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Pension Industry Updates

Boris Johnson called on British pension funds to invest more money from retirement savers in British assets to trigger an “investment big bang” to support economic recovery.

In a letter to the investment industry, Prime Minister and Chancellor Rishi Sunak said UK institutional investors need to ‘seize the moment’ and use their ‘hundreds of billions of pounds’ to support assets that often have a longer term return on investment, such as infrastructure, which includes bridges, roads and wind farms.

They argue that UK assets are overlooked by domestic investors. “UK institutional investors are under-represented in UK asset ownership,” the letter reads. “More than 80 per cent of UK defined contribution pension fund investments are primarily listed securities, which only represent 20 per cent of UK assets.”

Some of the world’s largest pension funds, including Canada and Australia, have actively supported infrastructure projects, notably in the UK, which officials say have provided long-term income for their investors. .

Ministers also want millions of savers to be better able to support high-growth UK tech companies, which often lack institutional investment due to the nervousness of fund managers to back riskier, loss-making start-ups .

Pension fund trustees have a duty to act in the best interests of their members with the higher fees and charges associated with non-standard investments, such as infrastructure and private equity, seen as a barrier to flow. liquidity to these sectors.

To address this, the government this year relaxed a 0.75% cap protecting millions of savers in defined contribution pension plans from high fees, so that trustees can invest in areas such as private equity. investment, where high performance fees are common.

The Financial Conduct Authority is also helping set up the Long Term Assets Fund, an investment vehicle designed to stimulate pension plans’ cash investment in illiquid and long term assets. This has been supported by the Productive Finance Task Force, chaired by City Minister John Glen, which is examining barriers to investing in such assets.

The letter says the government is doing “everything possible – unless it requires more investment in these areas as some have advocated – to encourage a change in mentality and behavior among institutional investors.”

“The government remains open to removing other barriers when they are identified,” he adds.

Dom Hallas, executive director of the Coadec technology group of companies, said investing in pension funds was “the next big step for the UK start-up ecosystem. . . the sooner we can move from discussion to capital allocation, the better.

The Pensions and Lifetime Savings Association, which represents pension schemes with 30 million savers and more than £ 1.3 billion in assets, said it supports the government’s ambition to ensure that funds pension have the opportunity to invest in the widest range of assets.

“It is also welcome to see [them] recognize that there is no one ‘right answer’ when it comes to how much pension fund managers should invest in UK assets over the long term, ”said Richard Butcher, chairman of the PLSA.

The government’s efforts to encourage administrators to allocate more pension funds to help the country’s economic recovery have raised concerns in some areas of the industry.

Andrew Warwick-Thompson, former executive director of The Pensions Regulator for regulatory policy, in May accused the government of “bowing” to asset managers with its reforms to the workplace pension expense cap, which , he said, would increase the costs of millions of retirement savers in the workplace.

Roger Barker, director of policy at the Institute of Directors, also said there was a lack of detail on how the government will meet its goals.

“The business models of many UK institutional investors are heavily biased towards achieving short-term financial performance. It is unclear how the changes suggested by the government in this letter will fundamentally realign their approach to the longer term. “

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