So you are a member of a medical scheme.  This scheme makes provision for covering your day-to-day medical needs by way of a medical savings account.  But, what happens when you run out of medical savings?

An additional benefit is available, if you are prepared to pay just a little more.

This is commonly known as the above-threshold benefit.  Your medical scheme can inform you regarding how this benefit is applied … but there is a caution, and that is the self-payment gap.

Since calculations that determine the self-payment gap amount and how this amount can change has caused much misunderstanding for as long as this innovation has existed.

What you need to know

Self-payment gaps are tools that medical schemes use to try control members from accessing the risk portion of their benefits, as this benefit is funded by the medical scheme and not member’s savings.  The risk portion of the scheme’s benefits is the main part of your contribution and acts in the same way that short term insurance does. You pay this premium in the event that you need to access the funds from your medical scheme to pay for treatment in hospital.

Here are a few key factors I believe are useful for you as a member to understand in order for you to manage your self-payment gap – your aim is to keep the self-payment amount as low as possible. Unfortunately, medical schemes make it quite difficult for members to minimise this amount.

Factors to take into account are:

• Understand what your annual threshold and annual medical savings are. The difference between your annual threshold and annual savings give you your initial self-payment.
• Be aware that you can increase your self-payment gap
• It is essential to understand that self-payment gaps only get reduced by claims you pay for at medical aid rates. Let’s take the following scenario to demonstrate the point. You are in your self-payment gap and it is R1 000. You visit a GP who charges you R500; you pay the GP R500 and submit that claim to the medical scheme to reduce your self-payment gap. The medical aid rate for a GP consultation is R320, so even though you have paid R500, your self-payment gap will only reduce by R320.

Perhaps the most important point to note about self-payment gaps is to make sure you really do need a plan that employs an above-threshold benefit. If you have been on a plan for two years or more, and you have never closed your self-payment gap (that is, you have paid the amount determined by the medical scheme from your own pocket and submitted those claims to the medical scheme; the scheme then started paying for your day-to-day claims from the above-threshold benefit), you are in all likelihood a little over insured.

It is always helpful to consult your financial advisor – he or she can assess your needs and place you on the appropriate plan.

In our previous blog post, we advised that the 2015 Taxation Laws Amendment Bill had been passed by Parliament and only required the signature of the President.

The Bill has now been signed, effectively making T-Day law with effect from 1 March 2016.

In summary, the tax changes effective from 1 March 2016 (T-Day), are:

• Employer contributions to retirement funds will be taxed as a fringe benefit, but these contributions will be deemed to be employee contributions for the purposes of claiming the deduction.
• All approved funds (Pension, Provident and Retirement Annuity Funds) will be subject to a contribution deduction of 27.5% of the greater of taxable income or remuneration.
• A yearly maximum contribution of R350 000 across all retirement vehicles will apply. Contributions exceeding this maximum may be carried forward to following tax years.
• The rights of Provident Fund members to take retirement benefits in cash will be protected for all benefits that they have accumulated to T-Day, plus the growth thereon until their retirement.
• Provident Fund members under 55 years: All contributions from 1 March 2016 will be subject to 1/3 cash and 2/3 pension at retirement; however, if this benefit is less than R247 500, the member may take the entire benefit in cash.
• Provident Fund members who are 55 years or older as at 1 March 2016 will still be allowed to take their retirement benefit in cash, irrespective of the amount, if retiring from the same fund.
• Provident Fund members are likely to see an increase in their take-home pay, as their contributions will now be tax deductible.
• For a Provident Fund member, any pre T-Day savings plus growth thereon may be taken in cash.
• All members will still be able to take their benefit in cash when they leave their employment prior to retirement.

What should employers do?

• Ensure that their HR and payroll systems are adapted to meet the new SARS requirements as a result of the changes.
• Take careful consideration of the impacts of transfers for fund members over 55 years.
• Make certain that member communications focus on:

1. Ensuring that your employees are aware of, and understand, the upcoming changes.
2. Explaining the benefits of additional voluntary contributions and providing instructions on how to make these.
3. Reinforcing the message that your employees do not need to resign to protect their retirement savings or their rights as a fund member.

The tax changes have created uncertainty among members of retirement funds. This uncertainty is mainly owing to rumour and misunderstanding.

The tax changes are largely a positive step for the retirement fund industry as it encourages saving through greater tax relief, thereby creating the conditions for members to be financially secure at retirement.

We are approaching the last few weeks of hard work and then Christmas is upon us yet again.

Everyone seems to have tired of the clichéd expression that time seems to fly by, especially as we get older. This prompted me to conduct some research on the topic.

Psychologist William James wrote in 1890 that, as we age, time seems to speed up because adulthood is accompanied by fewer and fewer memorable events. Perhaps if the Springboks could beat the All Blacks when it counts, this would not be the case!

When the passage of time is measured by “firsts” (first kiss, first day of school, first family holiday), the lack of new experiences in adulthood, James argues, causes “the days and weeks to smooth themselves and … and the years grow hollow and collapse”.

Another theory suggests that our biological clock slows as we age. Relative to the unstoppable clocks and calendars, external time suddenly appears to pass more quickly.

As we age, we pay less attention to time.

As a child, I remember counting down the days from 1 December until Santa brought my bicycle down the chimney. As adults, on 1 December, we are a little more focused on work, bills, family life, scheduling, deadlines, travel plans and Christmas shopping. The more attention we focus on tasks such as these, the less we notice the passage of time.

The research would not be complete without discussing the impact of stress on our perception of time.

When we feel that there is not enough time to get things done, this may be reinterpreted as the feeling that time is passing too quickly … when perhaps all that is needed is prioritising and serenity …

On behalf of Chartered I wish you and yours the opportunity to slow down time over the festive period and perhaps experience some memorable events.

Warm regards
Trevor

The 2015 Taxation Laws Amendment Bill was recently passed by Parliament, effectively bringing into effect T-day (date for introduction of the new tax regime for retirement funds) with effect from 1 March 2016.

Some background

The ‘T-day’ changes were proposed in 2013, and were originally supposed to take effect on 1 March 2015. The first draft of the Taxation Laws Amendment Bill 2015 (‘TLAB’ 2015) was released earlier this year.

This Bill clarified some issues on the annuitisation requirements for provident funds. Extensive comments were submitted to National Treasury (‘NT’) on the first draft of TLAB 2015. On the 15th of October 2015 NT and SARS briefed the Parliamentary Standing Committee on Finance on TLAB 2015.

At the briefing session, NT explained Labour’s opposition to the annuitisation of provident funds in isolation to the release of the comprehensive Social Security Paper. On 26 November 2015, TLAB 2015 was passed by the National Assembly, and was then passed by the National Council of Provinces on 1 December 2015. Both Houses of Parliament have now passed TLAB 2015, which now only requires the signature of the President.

Tax changes – effective from 1 March 2016

Capping of contribution deductions

• Employer contributions to pension and provident funds will constitute a fringe benefit in the hands of employees and will also be regarded as employee/member contributions for purposes of the new regime.
• Currently, contributions to provident fund do not qualify for a tax deduction. The new provisions relating to the capping of the contribution deduction will also apply to provident funds from 1 March 2016.
• The fringe benefit of employer contributions to defined benefit schemes not allocated to a specific member will be calculated based on a formula. A draft notice has been issued to set out how the tax deductibility caps will apply in defined benefit funds. This is still to be finalised.

Increase in de minimus retirement fund lump sum amount

• Currently, a retirement benefit of R75, 000 or less is not subject to annuitisation.
• TLAB 2015 says that from 1 March 2016 this de minimus amount will be increased to R247, 500.
• This means that on retirement where two thirds of the retirement benefit is less than R165, 000, the full amount may be commuted to cash.

Annuitisation of provident funds

• Currently, for provident funds, the entire retirement lump sum amount is available to be taken in cash. The new law will allow a maximum of one third of this amount to be cashed out as a lump sum, with the remaining two thirds to be annuitised.
• Vested rights will be protected; that is, members of 55 years or older, on 1 March 2016, will not be required to annuitise.
• Members younger than 55 years will be subject to the two thirds annuitisation requirement, but only once their retirement benefit exceeds the de minimus threshold (R247,500).

The effect of the changes

• Simplifies the tax treatment of retirement funds
• Provident fund members will benefit from a tax deduction on their contributions
• Pension funds and retirement annuities will be unaffected by the change to the law with regard to annuitisation, but will benefit from the 27,5% tax deduction (limited to R350,000 per annum)
• The increased tax deduction on retirement contributions encourages saving
• The tax deduction for employee/member contributions to provident, pension and retirement annuity funds will be limited to the greater of 27,5 per cent of taxable income or “remuneration”.
• An overall annual tax deductible limit of R350,000 will be applied to contributions regardless of the contribution rate.

The Council for Medical Schemes, which regulates the medical scheme industry, released its 2014 Annual Report on all medical schemes in South Africa, and our comments are as follows:

The trend in the reduction of the number of medical schemes continues in South Africa. There are currently a total of 83 medical schemes, comprising 23 open and 60 closed schemes, with a combined total of 8.81 million members in December 2014. This is a year-on-year increase of 0.4% from December 2013. This increase is of concern as the number of people joining medical schemes appears to be decreasing. This could be owing to the ever-increasing premiums and the burden it creates on household incomes.

In an attempt to advance access to quality and affordable healthcare, the CMS has developed a proposal to introduce low-cost benefit options to those who can’t afford to belong to a medical scheme. There has been support from government and industry for this proposal and the Council has approved the LCBOs framework, allowing medical schemes to apply for registration.

Both the average age of beneficiaries and the pensioner ratios have increased since 2013, and this is a constant challenge for medical schemes in South Africa, given that they are based on a community rating system. This means premiums are standard and not determined by risk; as a result, medical schemes are constantly trying to bring on young and healthy members to offset the cost of older and high-risk members. There is a concerning increase in the amount paid by medical schemes for specialist benefits between 2013 and 2014. The increase was 12%, and this could indicate that medical scheme members are getting sicker or that providers are increasing their rates.

In our view, it could also be a unique trend among South Africans, who are tending to go straight to a specialist for treatment instead of first seeing a GP, who would then refer them to a specialist. Considering the decline in the number of new members joining medical schemes, this will only add to the challenges that medical schemes are faced with.

On a positive note, there was an increase in the number of claims for prescribed minimum benefits (PMBs) from 2013, possibly indicating an increase in awareness about PMBs by consumers.

The increases in non-healthcare expenditure (that is, administration fees, managed care fees, broker fees, and so on) rose by 7.1%, and because of the high increases on non-healthcare expenditure in previous years, the CMS has been keeping a close eye on medical schemes. Although there have been some decreases in non-healthcare expenditure, there are components, such as advertising and marketing, consulting and legal fees and trustee remuneration of non-healthcare expenditure that are increasing and require attention. The CMS works in the interest of members and will ensure that any expenditure adds value to its members and the medical scheme.

Chartered Employee Benefits comments on Aaron Motsoaledi proposed amendments to section 8 of the Medical Schemes Act 0f 1998. Click here to access the link.

Section 8 of the Medical Schemes Act states that emergency care, certain chronic conditions and certain types of cancer (referred to as Prescribed Minimum Benefits) must be covered in full by all registered medical schemes. The health minister’s proposed amendment seeks to adjust this legislation and provide a cap to the amount that medical schemes need to pay when paying for a PMB.

The main reason for this type of amendment is an attempt by the minister’s office to try to control the cost of care provided by medical practitioners. Currently, there is no regulation on healthcare providers and what they are permitted to charge for their services. As a result, medical schemes in South Africa have designed specific medical aid rates for procedures using procedure codes and diagnosis codes commonly known as ICD-10 codes. However, the current act supersedes the medical aid rates when it comes to paying for PMBs.

It is the view of the minister’s office (and many others) that, as a result of this legislation, providers are taking advantage and increasing the cost of their services, with the rationale that they need to be reimbursed in full. This creates a risk to medical schemes and is a contributing factor to the ever increasing medical inflation. It is our contention, however, that most medical schemes don’t pay PMBs in full; unfortunately this does not stop providers from inflating their prices.

We at Chartered believe that although this is a step in the right direction, the amendment needs to be carefully considered and a wider range of industry experts needs to be consulted.

If this amendment is passed, it ultimately means that members will bear the brunt of claims not covered in full by medical schemes. The real issue, though, is the rate at which medical costs is on the increase, hence this proposed amendment. We all need to have an open mind when it comes to regulation and we believe that the Council for Medical Schemes has members’ best interests at heart.

Ultimately the key is balance.  It is our hope that the minister’s office – in consultation with the Council for Medical Schemes – can come to some resolution in regard to  this complex problem.

NEAT is non-exercise activity thermogenesis, a variety of low-impact movements that keep your metabolism humming and your blood circulation flowing – really just everyday activities, like a short walk, gardening or cooking.

Here’s how to include NEAT into your daily life:

Stand every time you take a phone call and if you have a cordless phone, pace up and down during the conversation.  Whenever you press ‘send’ on an email, use it as a prompt to get up and stretch.

• If your boss will allow it, stand during meetings, or better yet, have a walking meeting.
• There are a lot of gadgets available to make you move more at the office – sitting on a stability ball rather than a chair for part of the day keeps your muscles engaged, while a ‘standing desk’ allows you to do your desk job from a sitting or standing position.
• Can’t sit on a ball at work? Try using it when you are at home, whether watching television, having dinner or doing your hair. Any time spent seated, you could be sitting on a stability ball.
• When taking a bathroom break, walk to the loo on another floor instead of going to the one closest to your office.
• Do you commute by bus or train? Stand while riding or get off a stop early and walk an extra couple of blocks home.
• When you unwind in the evening, don’t just collapse on the couch in front of the TV.  You can still watch your programmes while clocking some distance on the exercise biker, or doing the ironing.
• To find out how much you’re moving, get a pedometer. It will track your steps throughout the day and provide you with a visual reminder.  Motivate yourself to improve your tally every day and you’ll soon be moving more regularly.

(This is an extract from an article by Wilma Stassen, published in Issue 2, 2015 of the Jump Magazine)

Technology makes our lives easier, but it could also be cutting our lives short. Find out why sitting makes you a sitting duck for disease.

Human ingenuity has made our lives more convenient than ever before.  Instead of getting up and walking down the passage to ask your colleague a question, you can just pop her an e-mail and get a response without leaving your desk.  And with online shopping you don’t have to trudge through busy malls or stand in long queues to buy groceries – from the comfort of your sofa you can order and pay for everything using your cellphone or tablet.

Technology offers a lot of convenience, and ideally we should use the time it saves us to go outside and be active.  But instead, we spend it behind the computer, either doing more work, surfing the internet or checking Facebook, or we plop down in front of the TV to watch a mini-series or play games on the Xbox.

“Research has shown that South Africans are simply not getting enough exercise and are sitting way too much,” says Kathleen MCQuaide
from the Cape Town-based Sports Science Institute of South Africa.  “Here’s a scary statistic: sitting for more than six hours a day almost doubles your chances of dying within 15 years, compared to someone who sits for only three hours a day.”

Our lifestyles have become so passive that doctors are now referring to our inactivity as ‘sitting disease’.  Although not an actual sickness, sitting disease is a lifestyle pattern that can lead to a whole range of conditions such as obesity, diabetes, heart disease and cancer, which can eventually shorten your lifespan.

How sitting hurts us

• Passive sitting burns far fewer kilojoules than walking or even just standing, which means you’re more likely to pile on weight if you sit constantly for long periods of time. Being overweight or obese is the precursor of many diseases, including type 2 diabetes and certain cancers.
• It is well known that exercise gives the brain a boost, not just by improving your memory, but also improving your mood through the endorphins it releases. Unfortunately, long hours of sitting can do the opposite.  It can make you forgetful and no exercise means no feel-good hormones get to the brain.
• Too much sitting can lead to sleep apnoea (a condition whereby you temporarily have difficulty breathing or stop breathing) which interferes with your quality of sleep and can leave you feeling tired and lethargic.
• After a day of sitting, your lower back, hamstrings, and hip flexor muscles are tightened.

(This is an extract from an article by Wilma Stassen, published in Issue 2, 2015 of the Jump Magazine)

Click here for some easy to implement suggestions

The key role of an authentic independent consultant is to provide an accurate and objective comparison of costs, benefits and underlying terms and conditions of the various offerings.

Here are six key attributes of independent advice that show why it is such a valuable service.

1. Independent advice puts the interests of the client first

Expert independent advice is the cornerstone of a prudent financial decision. Independent financial advice is free from bias, not tainted by share holdings or other interests, nor influenced by incentives.

2. Independent advice is free from any conflicts of interests and recommends the most suitable product

Independent advice should not tie an employer to one benefits provider or product without considering various options. There are consultants who claim to be independent advisers, but who are, in essence advising on their own administration, investment, actuarial and risk benefit products. The advice offered by these so-called independents guides the decision to the purchase of their products.

3. Advice that is independent recognises the importance of costs, clearly discloses all costs and fees in a way that allows for comparisons and encourages informed decision making

A key aspect of independent advice is that it must clearly state the advantages and disadvantages of products; and all costs and fees.

Investment costs and fees have received a lot of attention in our retirement reform process – correctly so because they affect investment returns. But there is no clarity on how these should be disclosed, fees are opaque, and comparing different products from different product providers is extremely difficult because costs have become so complex.

4. Independent consultants will separate services when it is in the best interests of the client

There are risks when you receive and act upon advice that is not independent. A client may overpay for benefits or administration services, and there could be a selection of an inappropriate investment strategy that compromises members and employers. The selection of one provider for all benefits could also pose a problem if there is another provider who can offer a particular risk benefit at a more suitable price with more suitable options. An independent adviser is able to recommend the most suitable package of benefits – from one or many providers.

5. An independent consultant will advise and assist in the formulation of an investment policy statement

An independent consultant can offer advice on the investment policy statement. The Regulator guides the industry via Pension Fund Circular 130  and requires all funds to have an investment policy statement: it must meet the needs of the majority of members and cater for outliers (a member whose investment requirement differs markedly from the majority of the members in the fund, for example, a solitary older member who has two years until retirement). Using one investment strategy that coincides with the prevailing view or approach of the provider for all members is risky when the members include 20 year olds, 40 year olds and 60 year olds – all with very different investment needs.

6. An independent adviser will value their services, make recommendations and charge a fee for the services they offer

How do you determine if advice is independent? Look at the shareholding of the consultant, where the key individuals (decision-makers) are registered and the disclosure letter. If there are just a few names on this letter, you need to ask if the consultant is truly independent.

Good independent consultants will make recommendations and charge a fee for their services. This is going to be increasingly important as an independent charge for services rendered should remove any potential for fees to be taken from investment profits.

TCF (Treating Customers Fairly) has set Outcomes: the consultant should be familiar with this regulation and there should be evidence that the principles are embedded in the ethos of the business.