Changes into legislation regarding the Employee Benefit space

January 2019

As predicted in our previous newsletter on Employee Benefits, 2018 have delivered several changes into legislation regarding the Employee Benefit space.

National Treasury has introduced changes to the Pension Funds Act which it hopes will make it easier for individuals to make the correct choices about their retirement benefits and lower the costs associated both with products and advice. All retirement funds will have to have implemented these changes by 01 March 2019.  In a nutshell, these changes will provide members with a default retirement investment portfolio and provide a default preservation option, as well as an annuity strategy on retirement. Key to all of this is that members will have to receive retirement benefits counseling before withdrawing funds either due to resignation or retirement.

The compulsory annuitisation of provident funds at retirement has been postponed again to further notice as no specific date has been given.

The latest tax changes announced by Treasury, issued under the draft Taxation Laws Amendment Bill (TLAB) 2018, highlighted the following matters of relevance to retirement funds.

1. From 1 March 2019, members of preservation funds will be allowed to withdraw their full lump sum benefit when they emigrate from South Africa.

2. From 1 March 2017, surplus transfers or transfers within or between retirement funds of the same employer will not create a taxable fringe benefit for the employee.

3. From 1 March 2019, transfers to a pension preservation or provident preservation fund on or after reaching normal retirement age, but before retirement date, will be allowed.

4. A deduction from tax will be allowed when a member transfers from a provident preservation fund to a pension fund, pension preservation fund, provident fund, provident preservation fund or retirement annuity fund.

2019 are believed to introduce its own exiting changes, challenges and opportunities, but with dedication and the end-goal in sight we will get there.

MEDICAL AIDS

On the Medical Aids front, no surprises or significant changes have been made to options being offered by Medical Schemes.

The average increase was between 8.5% and 13%; remaining fairly constant seen that Medical Aid inflation was on average of 10% per year.

The buzzword during mid-2018 was NHI (National Health Insurance). The Health Minister Aaron Motsoaledi gazette two bills during Jun 2018. These are the NHI Bill and the Medical Schemes Amendment Bill, and they seek to address the “terrible twins” of the healthcare system – the exorbitant cost of private healthcare and the poor quality of care in the public health system.  This topic was covered extensively in the press and were closely followed.  The implementation of NHI was widely supported by government stating that “All South Africans will be covered by the National Health Insurance (NHI) by 2025, which will begin in a phased approach from 2019, President Cyril Ramaphosa told healthcare sector representatives on 24 Aug 2018.  The most recent update, dated 06 Dec 2018 is that the Cabinet has turned down the NHI Bill and have sent it back to the health department for further work.

As per the CMS Annual Report 2017/2018, there are 80x Registered Medical Schemes in South Africa as at 31 March 2018.

The current top 5 Open Medical Schemes in South Africa are:

1. Discovery Health – Who has just under 2.8mil beneficiaries covered that accounts for 56% of all beneficiaries covered by open medical schemes.

2. Bonitas – Is the second largest open medical scheme with 731 500 beneficiaries and accounts for 15% of the open scheme market.

3. Momentum Health – Is the third largest open medical scheme with 284 400 beneficiaries, which accounts for 5.8% of the open sector.

4. Bestmed – Is the fourth largest open medical scheme with 200 000 beneficiaries, and accounts for 4.05% of the open market.

5. Medihelp – Is just short of Bestmed and comes in as the fifth largest open medical scheme, with just under 200 000 beneficiaries and accounts to 4.03% of the open market.

by Kobus Herholdt (Head of Employee Benefits at Optimum)