Living Annuities

1. Living Annuities March 2012

2. General What is a Living Annuity? • A product wrapper which provides a member with a regular income based on a percentage of the investment selected by the member. • Post-retirement product where the income is not guaranteed, based on the performance of the underlying assets.

3. Types of annuities Linked Living Annuty (ELLA) = may build capital + receive income. At death, market value is transferred to estate or beneficiary/ies. Joint-life annuity = will pay an income until both assureds passed away Annuity with growth = income which increases over time (yearly) Pension with capital repayment = earn the income but capital is preserved for beneficiary/ies Single-life annuity without guaranteed term = Receive an income till the day you die, but no option of transferring capital to your beneficiary/ies Single life-annuity with guaranteed term = Receive an income until you die. If the guaranteed time is not over, income will pay to your beneficiary/ies until the guarantee is over.

4. Where does it fit in? Platform Offering Investment Pre-retirement Post-retirement Voluntary Investment Endowment Retirement Annuity Preservation Funds Living Annuity Retirement builder (max 60% due to income) Capital Protector (max 60% due to income) Various Unit Trusts as per Portfolio Selection List

5. Retirement Annuity: Preservation: Living Annuity Structured Products Retirement builder One year Three years Five years Fixed returned of capital: Market Portfolio: Cash Capital protector 100% Capital protection over 12 months Unit Trust, Segregated Mandates, White Labels, Share Portfolios

6. Pricing All life investment products are taxed according to the “four fund approach” That means a life company classifies its clients into four different tax categories 01 – Individuals 30% 02 – Companies 28% 03 – Trusts (taxed according to beneficiary status 01 or 02) 04 – Non taxable entities The tax and fund fees are then taken out of the price and paid on behalf of the member Admin and risk management fees are generated by selling units from the client’s investment LA’s are not subject to income tax on distributions and capital gains and hence the client will not receive an IT3(b) or IT3(C)

7. Pricing Since we are a LISP, we will make use of NAV pricing for most of our investments Where a fund does not have unit trust pricing, life pricing (four fund approach) will be used according to the tax classification

8. Investments Any natural person who are retiring from their Pension or Preservation or Retirement Annuity, or transferring from an existing Living Annuity Recurring Premium LA – not allowed Portfolio Selection does NOT have to be Reg 28 compliant Once all requirements received and submitted, t+1 for investment to settle Single Premium LA Minimum R50 000 (R20 000 for PSG Konsult and Online) “Top ups” allowed if from a registered retirement fund/LA Can be phased in – daily/weekly/monthly phase ins Income will be adjusted accordingly

9. Documents Needed PSG Application form (fully completed) Certified copy of client’s ID Certified copy of client’s proof of address (less than three months) Certified copy of client’s proof of bank details (less than three months) Proof of deposit (match to unallocated spreadsheet) Recognition of Transfer

10. Investment Options Unit Trusts Within the LA wrapper – subject to market movements Retirement builder Fixed outcome – quoted rate for 1 year, 3 years or 5 years Rates sent out weekly, trading monthly – inform Admin to open One month prior to maturity we send out a letter to inform the client that we will switch to PSG Money Market if we don’t receive instruction Maximum 60% due to liquidity requirements for income, determined by Actuarial Capital Protector CPP – option to guarantee CAPITAL, with growth on the upside of the market Quarterly tranche, if enough investors, info (rates) sent out per tranche In for a year, if we don’t receive instruction, the client will be switched to PSG Money Market Fund Maximum 60% due to liquidity requirements for income, determined by Actuarial

11. Section 37(2) Transfers in Transfer from another LA fund to PSG ELLA Follow the Section 37(2) process Cannot go directly into a Retirement Builder or CPP, as we do not know when the funds will be received and rates have to be accepted by the client by signing the quote (funds invested in PSG Money Market whilst waiting for signed quote) Separate training for Sectional and Unit Transfers

12. Transfers Summary LA to LA – Section 37(2) Pension to LA – Retirement Provident to LA – Retirement PresPen to LA – Retirement PresProv to LA – Retirement RA to LA – Retirement Voluntary to LA – Not allowed (may use RA and retire)

13. Switches Switch form, fully completed and signed Where a standing instruction exists on the client’s investment, confirm with the client that it will follow the switch (complete on batch form) t+4 (this can differ based on the type of source and destination fund as well as possible liquidity constraints in the source fund) Offshore limits on fund level, not enforced on individual level

14. Repurchase If the value of the investment is less than R75 000, the client may repurchase the full amount IF the client didn’t commute a portion at retirement (subject to tax) If the client commuted a portion at retirement, the full value may be repurchased if it is less than R50 000 Signed and completed Notification of Withdrawal Form Form C FICA (if details changed) Certified proof of bank details (less than 3 months old), if different from system Admin will apply for a tax directive before loading the instruction on GLS Benefit paid out will be net of tax t+7 for tax application, repurchase to settle and paid

15. Incomes (annuity) 2.5% - 17.5% of the investment value as at anniversary for new clients after 21 February 2007 Other clients may choose to stay on the 5% - 20% limits, provided that you are already on the old limits Once a client chooses to be bound to the 2.5% - 17.5% limits, they cannot return to the old limits (See Addendum B to RF 1/96) Disposal of units, time to price and settle, depending on nominated instrument(s) and liquidity Paid by the 25th of the month (T-8, as we pay by the 22nd to reflect by the 25th for all clients

16. Incomes (annuity) Income Review Letter is sent to the client three months before anniversary No changes are allowed outside of anniversary (Notice 290 of Government Gazette dated 11 March 2009) Income tax will be deducted and paid to SARS in accordance with tax tables

17. Standing Instructions Change Static Details Change Form OR Letter from client instructing change (signed by client or mandated broker) Income amount/frequency/escalation Client can switch and confirm how the allocation of the income should be drawn, if required

18. Annuity reports Should an income fail for some reason (bank account closed/incorrect), the system will attempt payment again in future. Annuity shortfall report = sent to the team to deal with depleted instruments Failed annuity report = 1 day after generation for annuities that did not generate – investigate Returned annuity report = 3 days after payment

19. Static Details Change Address / Contact details change Residential Address Signed and completed Change of Static Details form AND Certified proof residential address not older than three months (FICA) Postal Address Signed and completed Change of Static Details form OR Letter from client instructing change Contact Details (email / tel / cell / fax) Signed and completed Change of Static Details form OR Original Letter from client instructing change

20. Static Details Change Bank Details Change Signed and completed Change of Static Details form AND Certified proof of bank details (less than 3 months old) NOTE: Internet bank statements will not be accepted

21. Static Details Change Beneficiary Changes Signed and completed Change of Static Details form OR Letter from client instructing change Beneficiary Title Beneficiary name and surname Date of birth or ID number Relationship Share of benefits

22. Static Details Change ID Number or Name Changes Signed and completed Change of Static Details form AND Certified copy of marriage certificate (if surname change) Certified copy of ID

23. Cession A LA may not be ceded to another client or offered as security for a loan Creditors may not attach a LA upon insolvency (Section 37B of the Pension Funds Act)

24. Combining Living Annuities A client may not increase the income due to combination/consolidation This level must continue and may only be revised ONE YEAR after combination

25. Examples Combining existing LA’s Contract A = Anniversary 1 March, 10% on assets of R100 000 Contract B = Anniversary 1 October, 5% on assets of R200 000 Contracts are consolidated on 1 July 2011. New income = R20 000 (6.67% of R300 000) Review letter will be sent 1 April 2012 for income to be revised before 1 July 2012.

26. Examples Combining a new LA with an existing LA Existing Contract A = Anniversary 1 March, 10% on assets of R100 000 New Contract B = Taken out 1 July 2011 for R200 000 New income under combined contracts = R30 000 (10% of R300 000) Earliest date for review: 1 July 2012

27. Death Claim Documents needed Certified copy of death certificate Post mortem report (if unnatural death) Certified copy of deceased’s ID Certified copy of letter of Executorship (If the beneficiary is Estate) Signed and completed Death claim application & discharge form Certified copy of marriage certificate (if married within community of property before 1984 or anti-nuptial contract with accrual) Certified copy of ID of beneficiaries Copy of Will (if applicable) Certified proof of bank details (less than 3 months old) OR Cancelled cheque If benefit will transfer to beneficiary – New application form (PSG or other Provider) Equity Linked Living Annuities – Form C for application of tax directive (Only for lump sum payments)

28. Section 37(2) Transfer out Signed and completed Application to Transfer Form Copy of application form for Transferee Fund Certified copy of members ID Same Section 37(2) process as Transfers IN to be followed in terms of Annexures

29. Cut offs for processing Any instruction for processing has to be batched and submitted to Admin before 9:00 Ensure that your broker actually SENDS it well within cut off so that there is sufficient time for batching and submission to Admin Income cut off: 15th of the month for payment on the 25th of that month

30. Turn around time Should all requirements have been received: Before 9:00 – processed for prices on t After 9:00 – processed for prices on t+1

31. Tax No IT3(b) for distributions No IT3(c) for capital gains/losses Income tax on annuity as per yearly Income Tax Tables Death claims – as per retirement tables No Dividend Withholding Tax

32. Legislation Collective Investment Schemes Act Income Tax Act Pension Funds Act, Section 37 Long Term Insurance Act Directive 135 Regulation 28 – Prudential Investment Guidelines – NOT APPLICABLE Financial Intelligence Centre Act (FICA) Financial Intermediary and Advisory Services Act (FAIS)

33. Fees IFA initial fee 0% - 1.5% excl VAT IFA ongoing fee – up to 1% excl VAT No initial platform fee Ongoing platform fee PSG – before 1 Aug 2011 = sliding scale PSG – after 1 Aug 2011 = 0.4% for Konsult & Online 0.5% for Retail Neg for Best of Breed LESS REBATES

34. Fax and E-mail Indemnity Faxed instructions will be accepted, FICA docs have to be certified Where an advisor did not certify FICA docs, we will check if Fax and E-mail Indemnity is on file If a client signed the F/E Indemnity in the application form/ other transaction form, we will accept instructions via e-mail

35. Disclaimer The information contained in this document is correct at time of the presentation. All figures and points must be verified prior to any business dealings due to the dynamic nature of legal and financial environments. Though every effort is made to ensure the accuracy of the information contained herein, the author cannot guarantee the validity and or current information in future circumstance when legislation is adapted. The author accepts no responsibility for the use of validated information and the misuse of current information. Individuals misusing current information or using outdated information will be personally liable for any damages/consequences incurred. PSG Asset Management Administration Services Limited reserves the right to adapt provisions as set out in this presentation where applicable legislation and practices change. PSG Asset Management Administration Services Limited is an approved financial services provider.