We believe that the answer to the question whether pension fund capital at retirement can be used to purchase a member owned annuity for a retiring member from an insurer, as opposed to purchasing a fund owned annuity for the benefit of the member from another approved fund, lies squarely in the domain of NAMFISA. NAMFISA has recently informed us that the issue has proved rather complex. It has consulted on several occasions internally, with the insurance regulators, with the tax authorities and with insurance providers. It was pointed out that blurred lines exist between insurance providers and pension funds internationally, also with regulators from around the world.
After all these consultations NAMFISA still finds very diverging views amongst affected parties. Due to the implications that this will have on two industries, it does not want to rush the process but rather to ensure that is has interrogated all eventualities before arriving at its position. As such, NAMFISA is looking into engaging external legal counsel to advise on this matter.
In the light of the fact that the matter is not resolved yet, we caution pension fund members and insurance company intermediaries on the risk that the purchase of a member owned annuity from pension fund capital at retirement may pose to the retiree. Should NAMFISA conclude that such transactions are not consistent with the Pension Funds Act, all persons who have entered into such a transaction are facing the prospect of being presented a tax bill for tax that was to have been paid at the time of retirement. Should this realise, the member is furthermore facing penalties and late payment interest.
Important notice and disclaimer
This article summarises the understanding, observation and notes of the author and lays no claim on accuracy, correctness or completeness. Retirement Fund Solutions Namibia (Pty) Ltd does not accept any liability for the content of this contribution and no decision should be taken on the basis of the information contained herein before having confirmed the detail with the relevant party. Any views expressed herein are those of the author and not necessarily those of Retirement Fund Solutions.