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Legislation

Annuity strategy at fund level: what Reg 39 asks boards to own

Orientation on fund-level annuity strategy — consent, suitability, living-annuity caps, annual review.

Legislation · ~9 min · Education only

Which funds must establish an annuity strategy — and what “consent” means

Pension, pension preservation and retirement annuity funds must establish an annuity strategy. Provident and provident preservation funds must do so where the rules enable a member to elect an annuity. That strategy is a board-owned document, not an insurer brochure left in the pack.

Member consent is in the definition: soft or opt-in, not silent enrolment into an irreversible life annuity. “Every provident fund must have an annuity strategy regardless of rules” is wrong — Reg 39(1)(b) is rules-gated.

Suitability factors boards must be able to demonstrate

For each annuity in the strategy, Reg 39(2)(a) expects appropriateness and suitability to be demonstrable — income level, investment, inflation and other risks, and beneficiary income protection.

This is orientation and ownership evidence. It is not a life-versus-living product pick, not an insurer rate quote, and not member how-to.

Living annuities in the strategy: four-portfolio cap, Reg 28/37 alignment, drawdown gap

Living annuities that sit in the strategy are capped at four portfolios and must align with Regulations 28 and 37. Drawdowns are meant to follow a prescribed standard.

Whether that standard is currently in force, or whether an FSCA exemption pathway still applies, is a living gap in the sources packet — say “check the current FSCA instrument,” do not invent a drawdown table or “safe” withdrawal rates. Income-sustainability monitoring and member notification when drawdowns are deemed not sustainable still belong in the pack where living annuities are paid from the fund or a fund-owned policy.

Fees, counselling (≥ three months before NRA), and at-least-annual review

Annuity fees and charges must be assessed as reasonable and competitive and disclosed to board and members. Retirement benefits counselling access is required not less than three months before normal retirement age — and as may be prescribed.

Counselling is not FAIS advice and not a product recommendation from this desk. Reg 39(2)(f) requires at least annual annuity-strategy review — contrast that with Reg 37’s “regular basis” language for accumulation defaults. Guidance Notice 8 practice tips stay unverified without a locked FSCA PDF.

Checklist — board ownership evidence in the pack

• Fund type scoped under Reg 39(1)(a) or (b); strategy recorded as a board-owned document.
• Each annuity in the strategy: appropriateness/suitability demonstrated — income level, investment/inflation/other risks, beneficiary income protection (Reg 39(2)(a)).
• Living annuity (if any): ≤ four portfolios; Reg 28- and Reg 37-aligned; drawdown handling tied to a current prescribed standard or documented exemption pathway — without guessing if the standard is final.
• If living annuities paid from the fund or fund-owned policy: income-sustainability monitoring and member notification when drawdowns are deemed not sustainable.
• Annuity fees and charges assessed as reasonable/competitive and disclosed to board and members.
• Retirement benefits counselling access not less than three months before normal retirement age — and as may be prescribed.
• Evidence of at least annual annuity-strategy review (Reg 39(2)(f)); what changed or was affirmed last time.
• Member journey makes consent clear — soft/opt-in, not silent enrolment into an irreversible life annuity.

Questions to table (check current FSCA drawdown standard / exemption — do not invent)

• Is this fund in Reg 39(1)(a) or rules-gated (b), and where is the board-owned strategy document?
• For living annuities: are the four-portfolio cap and Reg 28/37 alignment evidenced?
• What is the current FSCA instrument for drawdown standards or any exemption pathway — check primary; do not invent rates?
• When was the last at-least-annual review, and what changed?
• Is counselling access timed at least three months before NRA without being treated as FAIS product advice?