Legacy RA policies (2-pot)

The FSCA is seeking public comment on conditions that would allow legacy retirement annuity policies to be excluded from the Two-Pot Retirement System.

Essentially, legacy retirement annuity policies represent a "grandfathered" type of retirement savings product that has different rules and regulations compared to newer products.

If a legacy policy meets the determined conditions, it will not be subject to the rules of the Two-Pot Retirement System regarding a retirement component and a savings component.

Stakeholders can submit comments on the proposed conditions by 16 August 2024.

To qualify as a legacy retirement annuity policy and be exempt from the Two-Pot Retirement System, the following conditions must be met:

Policy Specific Conditions:

• The policy must have been established before 1 September 2024.
• It must be closed to new members.
• It must have a specific contract structure - a binding contract that cannot be changed without agreement from all parties involved.
• The benefit structures must either be a guaranteed lump sum payable at death or retirement, which increases over time through regular bonus additions, or a death benefit linked to accumulated contributions with a minimum guaranteed payout.

Fund related conditions:

• The fund must demonstrate that applying the Two-Pot Retirement System would negatively impact the fair value of members' benefits.
• All members must have the option to transfer to a different product or fund that complies with the Two-Pot Retirement System.
• All members within a particular legacy retirement annuity policy must be ringfenced from the Two-Pot Retirement System - the system cannot apply to only a select group of members within the fund.
• The fund's rules must be changed to exclude the relevant elements of the Two-Pot Retirement System.
• A clear communication strategy must be developed to inform members about the exemption and its impact.
• The insurer's actuary and the fund's board must certify that the policy meets the exemption criteria.

Disclaimer: This post is for informational purposes only and does not constitute financial or legal advice. The views expressed are my own and do not necessarily reflect the views of my employer.