Management Board Report 2005

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Management Board Report 2005

  1. 1. UNIVERSITY OF THE FREE STATE PENSION FUND AND DISABILITY RESERVE FUND (PF 12/8/31370) REPORT OF THE MANAGEMENT BOARD TO MEMBERS FOR THE FINANCIAL YEAR 1 JANUARY 2005 TO 31 DECEMBER 2005
  2. 2. REPORT OF THE PENSION FUND OF THE UFS The Management Board of the Pension Fund has pleasure in presenting their report to members for the year ended 31 December 2005. The report is intended to provide members with a brief overview of the management, activities and financial results of the Fund and to inform members of recent developments in the retirement funds industry. STATUS OF THE FUND The Fund is both a defined benefit and a defined contribution fund. It provides benefits when members retire, but also if they resign or die before retirement. The Disability Reserve Fund provides income replacement in the case of disablement. The Pension Fund of the UFS is registered in terms of the Pension Funds Act (registration number 12/8/31370) and approved in terms of the Income Tax Act. The participating employers in the Fund are the UFS (Principal Employer) and FARMOVS (Participating Employer) MANAGEMENT The Fund is managed by a Management Board consisting of employer and employee representatives in accordance with the requirements of the Pension Funds Act. The Management Board meets regularly to discuss investments, benefits and administrative matters pertaining to the Fund. The following persons were appointed and elected as Management Board members as from 1 December 2004:- Employer representatives Employee representatives Prof JV du Plessis (Chairman) Mr A van der Bijl Prof FP Retief Prof T Verschoor Prof DA Viljoen Mr PJG Coetzer Mr CR Liebenberg Pensioner representative Pensioner secundus Prof LC Buys Prof EG Boonstra Employer secundi Employee secundi Prof MJ Crous Mrs EJ Raubenheimer Prof DJ de Waal Prof PPC Nel Mrs WF Hoexter Prof HJ van der Linde Mr J Swanepoel These members’ term expires at the end of November 2009.
  3. 3. The following persons and bodies assist the Management Board in managing the fund: Principal Officer: Mr A van der Bijl (Phone 051-4013634) Actuary: Mr C Heymans (ABSA Consultants and Actuaries (Pty) Limited) Auditors: PriceWaterhouseCoopers Inc. Administrator and secretary: ABSA Consultants and Actuaries (Pty) Limited PO Box 12839 BRANDHOF 9324 (051) 4010500 Bankers: ABSA Bank and Nedbank Assurance: Momentum Life Old Mutual INVESTMENT OF FUND ASSETS With regard to the pensioners the Management Board aims to achieve investment returns of 6,5 % per annum plus not less than 75 % of the inflation rate. With regard to active members the aim is to achieve 3 % per annum above the salary inflation rate while maintaining acceptable risk levels. In determining the investment strategy and selecting an investment manager careful consideration is given to the requirements of the Fund and the credentials of investment managers. Mr Antony Lester of the firm Fifth Quadrant has been appointed as investment adviser. A new investment strategy has been developed on his advice. Assets are allocated to specialist asset managers. The equity portfolio for instance, has been allocated to asset managers who have proved to be most successful in the management of equities while bonds are managed by specialist bond managers. The management board also decided on a division between the assets of pensioners that differs from that of active members and which should lead to lower volatility in the returns on those assets and a higher probability of reaching the investment aims. The fund’s assets are currently managed by: - Abvest - Allan Gray Investment Management - Coronation Asset Managers - Investec Asset Management - RMB Asset Management The total market value of the Fund’s assets increased from R 760 million on 31 December 2004 to R 987 million on 31 December 2005. The large increase in the value of assets was largely due to the increase in the market value of investments. Members should not expect
  4. 4. similar increases in every year. PENSION FUND 362,143,980 275,003,668 248,117,630 91,809,793 963,443 RAB INVESTEC ALLAN GRAY CORONATION ABVEST DISABILITY RESERVE FUND 7,091,599 7,028,018 4,103,784 OU MUTUAL SANLAM ABVEST The total assets of the disablilty reserve increased from R15 million on 31 December 2004 to R 18.8 million twelve months later. PENSION INCREASES Since inception of the fund pensions have been increased as indicated in the following table. The change in the consumer price index for the preceding period is also supplied:- PENSION INCREASES INFLATION 1 April 1995 6,5 % 9,9 % 1 April 1996 6,0 % 7,8 % 1 April 1997 3,0 % 8,1 % 1 April 1998 4,5 % 7,6 % 1 April 1999 1,5 % 7,6 % 1 April 2000 6,5 % 3,9 % 1 August 2000 3,0 % - 1 April 2001 4,5 % 6,5 % 1 April 2002 5,5 % 5,3 % 1 April 2003 4,5 % 10,4 % 1 August 2003 2,0 % - 1 April 2004 2,0 % 3,4 %
  5. 5. 1 April 2005 4,5 % 2.0 % 1 April 2006 5,5 % 3,6 % (Note: Inflation on 1 April 1995 is the average for the period 1 December 1994 to 31 March 1995) Disability pensions have also been increased regularly and were increased by 1.6 % with effect from 1 April 2005 and a further 2.5 % from 1 April 2006. FINANCIAL STATEMENTS (Extracts from the audited financial statements for the year 31 December 2005) Funds received Pension Fund Disability Reserve 2004 2005 2004 2005 R000 R000 R000 R000 Contributions by members 10 806 12 426 - - Contributions by employer 24 352 *24 443 3 921 4 511 Reinsurance 2 267 1 295 2 581 2 449 Transfers received 3 275 10 349 - - Investment income 144 083 221 199 879 1 912 Total 184 783 269 712 7 381 8 872 * Includes an additional contribution of R 4,4 million by the employer Income as a percentage of total income Pension Fund Members Employer 9% 15% Investment returns 69% Reinsurance and transfers 7%
  6. 6. Disability Reserve Fund Reinsurance 30% Investments 14% Employer 56% Payments Pension Fund Disability Reserve 2004 2005 2004 2005 R000 R000 R000 R000 Pensions 22 025 24 270 2 162 2 081 Lump sums at retirement 6 274 9 301 - - Lump sums at death 1 265 384 - - Resignations 3 162 4 096 - - Reinsurance 2 317 2 277 2 146 2 458 Administration 1 046 1 194 5 6 Contributions t Pension Fund - - 564 548 Tax / Levies 2 138 2 879 Total 38 227 44 401 4 877 5 093 Payments as a percentage of total payments Pension Fund Reinsurance Tax 5% 6% Administration 10% Resignations 9% Retirement 19% Pensions Deaths 1% 51%
  7. 7. Disability Reserve Fund Administration 1% Pensions 46% Reinsurance 53% MEMBERSHIP 2004 2005 Active members 1019 74 % 1085 75 % Pensioner’s 352 26 % 370 25 % TOTAL 1371 100 % 1455 100 % AVAILABILITY OF RULES The registered rules and audited financial statements of the Fund are available for scrutiny during office hours at the office of the Principal Officer, Room 306, George du Toit building. Copies of such documents are available from the Fund upon payment of a fee of R10 plus R2.00 per page. THE MANAGEMENT BOARD PENSION FUND OF THE UFS MARCH 2006 PENSION FUND OF THE UFS
  8. 8. GENERAL INFORMATION PERSONAL FINANCIAL PLANNING Preserving your retirement money Very few people nowadays stay with one employer for their entire working life. Every time you resign from employment, you have the option of taking your benefit in your retirement fund in cash or to preserve it for your retirement. Should you elect to take the money in cash, you must keep in mind that you will only receive the greater of R1 800 or your transfer from the AIPF free of tax. The balance will be taxed at your average tax rate. However, should you elect to preserve the money no tax will be payable. If you preserve your benefit, you may transfer the money free of tax to a retirement annuity fund or a preservation fund of which your current employer is a member. Had you found new employment you could also have transferred the money to the retirement fund of your new employer if your new employer’s fund allows for transfers. Upon your resignation you can ask the Human Resources Department for a list of the preservation funds of which your employer is a member. Keep in mind, though, that you must exercise the option to transfer to a preservation fund and ensure that your employer is a member of the particular preservation fund before you resign. After your money has been transferred to a preservation fund, you will be allowed to make one withdrawal from such fund prior to your retirement. This is a once-off withdrawal and no further withdrawal from the preservation fund will be allowed. The withdrawal from the preservation fund will be taxable as described above. On transferring your money to a retirement annuity fund no withdrawal benefit can be paid out of the annuity fund. You are however entitled to your retirement benefit from age 55 years. If you consider that your retirement money will probably be the biggest investment you will make in your lifetime, it makes sense to preserve rather than spend that money if you change jobs so that you can provide for yourself and not be dependent on another person when you retire. Tax
  9. 9. As mentioned above, you will only receive the greater of R1 800 or your transfer from the AIPF free of tax if you resign and elect to take your money in the Fund in cash. The balance will be taxed at your average rate. When you retire an amount calculated in terms of the Income Tax Act will be free of tax and the balance will be taxed at your average rate of tax. Payment of lump sum death benefits The lump sum benefits payable by the Fund on your death will be paid to your dependants and/or your nominees. A dependant is your spouse, your child, a person for whose maintenance you were legally liable or for whose maintenance you were not legally liable but whom you were actually supporting or for whose maintenance you would have become legally liable had you not died. A nominee is any person, other than a dependant, that you have nominated to receive your lump sum death benefits. The Pension Funds Act and the rules of the Fund provide for lump sum death benefits to be paid to: * any one or more of your dependants; or * any one or more of your dependants and nominees who are not dependants; or * any one or more of your nominees if you leave no dependants; or * your estate if you leave no dependants or have not nominated nominees to receive your full benefits. The management board must determine to whom and in what proportions lump sum death benefits are to be paid, after careful consideration of each case. Lump sum death benefits may also be paid into a trust for the benefit of a beneficiary if the management board deems it appropriate or if a member has indicated the use of a trust on his/her nomination form. It is very important that you complete a nomination form, which is to be kept at the Human Resources Department. Every time your circumstances change, you should complete a new nomination form, for instance if you get married, divorced or if a child is born. You are requested to complete the attached nomination form and to return the completed form to the Human Resources Department as soon as possible to bring your file up to date. To ensure confidentiality you may place the nomination form in a sealed envelope with the Human Resources Department. They will return it unopened to you on request or will keep it sealed until your death. In the event of the death of a member the lack of information about the member’s dependants causes delays in the payout of death benefits with the resulting
  10. 10. hardship to the dependants. It is therefore absolutely essential that members use the nomination form (or a letter included with the nomination form) to inform the trustees of the particulars of his/her dependants. The minimum information that should be supplied is the full name and ID number, relationship with the member (example son, daughter, wife, husband, stepchild, foster child) as well as the physical address where the dependant lives. Payment of benefits: Partners living together As result of determinations by the Pension Funds Adjudicator and recent court judgments, the Management Board of the Fund took the following resolutions with regard to payment of benefits to beneficiaries: (i) People of the opposite sex living together Current legislation allows two people of the opposite sex to marry. Two persons of opposite sex living together do not constitute a permanent arrangement of mutual care for each other and by not marrying apparently do not wish to be treated as married persons. For this reason the member’s partner will not be entitled to a benefit as if he or she is the husband or wife of the member. (ii) People of the same sex living together Current legislation does not allow people of the same sex to marry. For this reason the Management Board decided under the following circumstances to acknowledge the member’s partner as a dependant when a claim arises: a) The relationship must be registered with the Management Board before a claim arises. (Registration forms are available from the Principal Officer); b) The relationship must be of a permanent nature and must be uninterrupted in existence for more than twelve months; c) The nature of the relationship must be an intimate relationship and not just be based on a financial considerations. The rules of the fund are being amended accordingly. Your Will A will is an important feature in your retirement planning. It is important that you draw up a valid will clearly expressing your wishes regarding the disposition of your assets on your death. Your will should also be updated every time your circumstances change. Although lump sum death benefits from the Fund do not form part of your estate and any stipulation in your will regarding the disposition of these benefits will not bind the Management Board it could nevertheless supply valuable information to the trustees that could be taken into consideration when they have to consider the division of death benefits.
  11. 11. Deductions from benefits No deductions may be made from your retirement benefits when falling due, except in certain specific circumstances stipulated in the Pension Funds Act. These circumstances include the following: a divorce order in which a portion of your benefits is allocated to your former spouse; an outstanding housing loan for which the Fund acted as guarantor; or compensation payable to your employer in respect of any damage caused to your employer by reason of theft, dishonesty, fraud or misconduct by yourself. Additional provision for retirement Members are encouraged to make additional provision for their retirement. Retirement annuity funds enjoy certain tax concessions and can therefore be utilized successfully for this purpose. Adjudicator Should you have any complaint regarding the administration of the Fund, the investment of its assets or the interpretation or application of the rules of the Fund, section 30 of the Pension Funds Act stipulates that you must first lodge your complaint with your employer or with the Fund. Your complaint must be replied to within thirty days. If you receive no reply or if you are not satisfied with the reply that you do receive, you may lodge a complaint with the Pension Funds Adjudicator. Advocate Vuyani Ngalwana is the Pension Fund Adjudicator. You can reach his offices telephonically at (021) 6740209 or via his web site, http://www.enquiries@pfa.org.za. The Adjudicator’s postal address is as follows: P.O. Box 23005 CLAREMONT; 7735 The Adjudicator will then make a ruling, which has the same legal status as judgement in a civil court of law. Should you not be satisfied with the determination of the Adjudicator, you may, within six weeks apply to the division of the High Court which has jurisdiction for relief. Persons to contact for advice The Financial Advisory and Intermediary Services Act was promulgated during November 2002. According to the Act all financial service providers (FSP’s) had to be registered with the Financial Services Board at 30 September 2004. In terms of the Act no FSP may provide
  12. 12. financial advice unless he/she is licensed to do so. If you make use of the services of a financial broker or advisor for retirement planning you should ask for proof that he or she is licensed to provide advice in this regard. If you would like an appointment with the Fund’s administrator to discuss aspects about the fund, please contact Mr Danie Janeke at 051-4010652. Housing Loans As mentioned under deductions from benefits above, legislation allows retirement funds to grant surety ship for housing loans. The Management Board laid down the following guidelines and control measures to ensure that the purpose of the provisions in the Pension Funds Act will be met: - - Proof of right of occupation (or title deed) - Handing in of plans or sketch plans - Appointment of an inspector - Payments only to the service provider and only after inspection The Management Board decided to lay down the following limitations on the amount that can be borrowed: - - The monthly premiums may not exceed 25 % of the member’s gross monthly salary; - The maximum loan amount will be limited to 50 % of the member’s accrued value in the fund, subject to the above-mentioned re-payment limit. Mr PJG Coetzer, telephone number 051-401 3035, room 210, George du Toit building, can be contacted for more information. RECENT DEVELOPMENTS Late retirements The rules of the Fund were amended to allow members whose normal retirement age is 60 years to retire late but not later than 31 December of the year in which the member attains the age of 65 years, on condition that the employer so requests.
  13. 13. Transfer of membership During the year the Management Board provided the members of the Pension Fund and Provident Fund with a once-off irreversible option to transfer their membership to category D of the Pension Fund. Category D of the Pension Fund is a defined contribution fund and the only category available for new entrants. The existing category C is like categories A and B a closed category. Individual investment choices As from 1 December 2005 members of option D can decide in which of a limited number of portfolios their benefits should be invested. Sessions to communicate information in this regard were held on all three campuses. In those instances where members did not indicate in which portfolio their benefits should be invested the benefits were invested in a so-called default portfolio. A member can make changes annually as from 1 September 2006. Members of options A and B were not offered this opportunity because they belong to defined benefit options and it therefore does not apply to them while members of option C were not offered this opportunity because their benefits are guaranteed. Members of option C were however offered the opportunity to transfer to option D and some in fact did so. It is recommended that you consult your financial advisor to assist you with your choice. GENERAL With the inception of the Fund on 1 December 1994 the funding level was approximately 60 %. The Management Board, at that stage, made it their objective to have the Fund 100 % funded by 1 January 2003. The last actuarial valuation of the Fund was done on 1 January 2003. The results of the valuation revealed that the funding level had improved to 99 %. That the initial objective could be reached was largely due to the additional contributions made by the employer. The Board expressed its gratitude to the University council. The implementation of tax on retirement funds during 1998 prevented the objective from being reached sooner. The implications of the Second Amendment Act to the Pension Funds Act which came into effect on 7 December 2001 resulted into a further reduction in the funding level. Some of the stipulations of the Act compel funds to make provision for the payment of certain minimum benefits on termination of service. This places a new, additional liability on the Fund. According to the actuary’s latest calculations the funding level on 1 January 2003, taking the additional liability into account, amounted to 94,7 %. The results of the 1 January 2006 valuation are not yet available but will be made known shortly.
  14. 14. The employer monthly contributes an additional amount with the objective to have the Fund 100 % funded not later than 2012. During the last budget speech the Minister of Finance announced that the tax on retirement funds will be reduced from 18 % to 9 % as from 1 March 2006 THE MANAGEMENT BOARD PENSION FUND OF THE UFS May 2006

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