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UNIVERSITY OF THE FREE STATE
PENSION FUND AND DISABILITY
REPORT OF THE MANAGEMENT BOARD TO MEMBERS
FOR THE FINANCIAL YEAR 1 JANUARY 2006 TO 31 DECEMBER 2006
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 2006. 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
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 served on the Management Board during 2006 :
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`
The above Management Board members’ term expires at the end of November 2009.
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 A Lester (Fifth Quadrant Consultants and Actuaries (Pty) Limited)
Auditors: PriceWaterhouseCoopers Inc.
secretary: ABSA Consultants and Actuaries (Pty) Limited
PO Box 12839
Bankers: ABSA Bank and Nedbank
Assurance: Jacques Malan Risk Management (Meritum Insurance Pool)
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
In terms of the fund’s current investment strategy 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
As far as the category D members are concerned, the members have access to individual
investment choice and can therefore invest their assets in a portfolio or combination of
portfolios that best suite their personal risk profile. The available portfolios are selected by the
management board in collaboration with the investment consultant.
The fund’s assets are currently managed by:
- Allan Gray Investment Management
- Coronation Asset Managers
- Investec Asset Management
- RMB Asset Management
The members with access to individual investment choice can choose between the following
Long Term Capital Growth portfolio
Money Market portfolio
Life Stage portfolio (Predetermined combination of the above portfolios according to the
The total market value of the Fund’s assets increased from R 978 million on 31 December
2005 to R 1 241 million on 31 December 2006. The large increase in the value of assets was
largely due to the increase in the market value of investments. Members should not expect
similar increases in every year.
Alan Gray RAB
DISABILITY RESERVE FUND
Old Mutual Investec
The total assets of the disablilty reserve increased from R 18.8 million on 31 December 2005
to R 25.2 million as on 31 December 2006
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 %
1 April 2005 4,5 % 2.0 %
1 April 2006 5,5 % 3,6 %
1 April 2007 7,5 % 5.2 %
(Note: Inflation on 1 April 1995 is the average for the period 1 December 1994 to 31
Disability pensions have also been increased regularly and were increased by 2.5 % with
effect from 1 April 2006 and a further 5.8 % from 1 April 2007.
(Extracts from the audited financial statements for the year 31 December 2006)
Funds received Pension Fund Disability Reserve
2005 2006 2005 2006
R000 R000 R000 R000
Contributions by members 12 426 14 004 - -
Contributions by employer *24 443 **25 413 4 511 5 077
Reinsurance 1 295 760 2 449 2 477
Transfers received 10 349 1 116 - -
Investment income 221 199 277 973 1 912 4 590
Total 269 712 319 266 8 872 12 144
* Includes an additional contribution of R4.4 million by the employer
** Includes an additional contribution of R2.9 million by the employer
Income as a percentage of total income
Reinsurance and Employer
transfers 0,35% 7,96%
Transfer received Members
Reinsurance and transfers
DISABILITY RESERVE FUND
Payments Pension Fund Disability Reserve
2005 2006 2005 2006
R000 R000 R000 R000
Pensions 24 270 27 154 2 081 2 100
Lump sums at retirement 9 301 13 437 - -
Lump sums at death 384 1 116 - -
Resignations 4 096 6 074 - -
Reinsurance 2 277 2 480 2 458 2 465
Administration 1 194 1 274 6 7
Contributions t Pension Fund - - 548 561
Tax / Levies 2 879 1 824 -
Total 44 401 53 359 5 093 5 133
Payments as a percentage of total payments
Tax, 4% Resignation
Deaths, 2% Tax
Pensions, 51% Deaths
DISABILITY RESERVE FUND
41% Reinsurance Contributions
Active members 1085 75 % 1077 74 %
Pensioner’s 370 25 % 382 26 %
TOTAL 1455 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 R20 plus
R3.00 per page.
THE MANAGEMENT BOARD
PENSION FUND OF THE UFS
PENSION FUND OF THE UFS
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.
After 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
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
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
* 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 lodge 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
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 (for example son, daughter, wife,
husband, stepchild, foster child) as well as the physical address where the dependant lives.
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.
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
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.
Ms Mamodupi Mohlala is the Pension Fund Adjudicator. You can reach her offices
telephonically at (021) 6740209 or via her web site, http://email@example.com.
The Adjudicator’s postal address is as follows: P.O. Box 23005
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
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 Kobus Kunz at 051-4010654.
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.
Payment of voluntary transfers in the event of death before retirement
Before 1 December 2006 the lump sum death benefit payable in the event of death before
retirement was equal to two times annual salary. Any benefits from a previous employer’s
retirement fund, transferred voluntarily to the Pension Fund of the University of the Free
State, were not paid in addition to the benefit described above. This practice inevitably would
dissuade members in future to transfer the proceeds of their retirement investment from a
previous employer’s fund to this fund. This was never the intention of the Management
Board. In fact, since this is the financially most beneficial form of preservation of assets from
a cost point of view the Management Board would like to encourage new members to
transfer their assets from previous employers’ retirement funds to the Pension Fund of the
University of the Free State. After careful consideration the rules were amended with effect
from 1 December 2006 to make provision for the payment of any voluntary transfer into the
fund in addition to the standard death benefit in the event of death before retirement.
Same sex partners and non-married opposite sex partners living together
The Civil Union Act was amended recently to provide for same sex partners to get legally
married. During 2005 the management board amended the fund’s rules to allow persons in
same sex relationships to register their partners in order to qualify for spouses’ pensions in
the event of the member’s death. The reason for the amendment was the fact that same sex
partners could not get legally married. At the same time the management board decided that
should legislation change, allowing same sex partners to get legally married, the rules would
be changed again to require same sex partners to be married legally in order to qualify for
The rules of the of fund will therefore be amended with effect from 1 January 2008 to state
that in order to qualify for a spouses pension, proof of a legal marriage needs to be
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. The next opportunity for these members to revise
their investment choices will be on 1 September 2007. Member sessions will be held at all the
campuses and members will be provided with the necessary information to enable them to
make informed choices. These choices are not available to the members in options A, B and
C as they are entitled to defined benefits or a least a minimum guarantee. It is recommended
that members of option D consult their financial advisors to assist them with their choices.
The purpose of this part is to show:
- What the policy regarding pension increases has been up till now.
- How successful (or unsuccessful) that policy has been.
- What necessitates a change in policy?
- How these changes can be dealt with
- What the influence will be in future.
This document is applicable to pensioners and future pensioners, i.e. those members that
belong to Option B, only.
1. Present policy
The rules of the Fund, like the rules of the AIPF before 1994, do not provide for increases in
pensions after retirement. The contributions by the employee and the employer also do not
provide for this, in other words, the contributions should have been far higher than they were
and are if the rules had to provide for pension increases. In his calculations, the actuary of
the Fund assumed that the return on the assets of pensioners after retirement would be at
least 6.5% and that the return above 6.5% could be used to increase pensions. The
Management Board aims to increase pensions by at least 75% of inflation as measured by
the retail consumer price index (CPI).
In February of each year the Fund’s actuary estimates what the return on investments for the
year until 31 March will be and makes recommendations to the Management Board about an
increase in pensions. The Fund is valued every three years by the actuary. If his valuation
shows that larger increases in pensions could have been afforded the Board grants interim
increases as indeed has been the case in August 2000 and again in August 2003.
The underlying principle is that pensions are increased to the extent that it can be afforded
taking the return on investments in excess of 6.5% into account.
2. The success (or not) of the present policy
The table below compares the pension increases since 1 December 1994 with the inflation
rate and shows that pension increases over this period were slightly higher than 75% of
inflation (178.8 against 174.3):
Pension increases b as % 75.0%
Date Percent Index of f Inflation x Inflation Index
a b c d e f
1-Dec-94 100.0 100.0
1-Apr-95 6.5% 106.5 99.1% 9.90% 7.4% 107.4
1-Apr-96 6.0% 112.9 99.3% 7.80% 5.9% 113.7
1-Apr-97 3.0% 116.3 96.4% 8.10% 6.1% 120.6
1-Apr-98 4.5% 121.5 95.3% 7.60% 5.7% 127.5
1-Apr-99 1.5% 123.3 91.5% 7.60% 5.7% 134.8
1-Apr-00 6.5% 131.3 94.7% 3.90% 2.9% 138.7
1-Aug-00 3.0% 135.3
1-Apr-01 4.5% 141.4 97.2% 6.50% 4.9% 145.5
1-Apr-02 5.5% 149.2 98.6% 5.30% 4.0% 151.2
1-Apr-03 4.5% 155.9 95.6% 10.40% 7.8% 163.0
1-Aug-03 2.0% 159.0
1-Apr-04 2.0% 162.2 97.0% 3.40% 2.6% 167.2
1-Apr-05 4.5% 169.5 2.00% 1.5% 169.7
1-Apr-06 5.5% 178.8 102.6% 3.60% 2.7% 174.3
In the case of members of the Fund who for example retired on 1 April 1999, the following
table shows that the pension increases were somewhat higher (12.1%) than 75% of inflation:
Pension increases b as % 75.0%
Date Percent Index of f Inflation x Inflation Index
a b c d e f
1-Apr-99 1.5% 100.0 100.0% 7.60% 5.7% 100.0
1-Apr-00 6.5% 106.5 103.5% 3.90% 2.9% 102.9
1-Aug-00 3.0% 109.7
1-Apr-01 4.5% 114.6 106.2% 6.50% 4.9% 107.9
1-Apr-02 5.5% 120.9 107.8% 5.30% 4.0% 112.2
1-Apr-03 4.5% 126.4 104.5% 10.40% 7.8% 121.0
1-Aug-03 2.0% 128.9
1-Apr-04 2.0% 131.5 106.0% 3.40% 2.6% 124.1
1-Apr-05 4.5% 137.4 2.00% 1.5% 125.9
1-Apr-06 5.5% 145.0 112.1% 3.60% 2.7% 129.3
The Management Board is very aware of the fact that the buying power of pensions
decreases if pensions are not increased at the same rate as the increase in the rate of
inflation. The Board therefore continuously considers the question of maximising the return
on the investment of pensioner’s assets without increasing risks to unacceptable high levels.
3.1 Investment policy
The Management Board consulted the Fund’s investment consultant (who is also an actuary)
and, taking into account the desirability of a more even yield it was decided to separate the
assets of active members from those of pensioners for the purpose of investment.
Working on the assumption that long-term inflation rate will be 5% and in order to be able to
grant pension increases at 75% of inflation, it is the objective to achieve a real net return of
5.25% p.a. relative to inflation measured over ten year periods, with a less than 5%
probability of a net nominal return of less than 6.5%.
Why a real return of 5.25%?
Increase of 75% of inflation, 75% x 5%= 3,75%
Return required to maintain pension 6,50%
Less inflation 5,00%
Modeling by the investment consultant indicates that an investment strategy with the
following mix of asset classes:
SA shares 30.0%
SA effects 27.5%
SA index-linked effects 27.5%
Foreign shares 15.0%
offers a 50%-55% probability of achieving the objective, i.e. the dual objective of achieving a
real return of 5.25% with a smaller than 5% probability of a nominal return of less than 6.5%.
3.2 Lower inflation and (possibly) lower investment returns
For the purposes of calculation, the Fund’s actuary accepted that the return on the assets of
pensioners after retirement would be 6.5%. This means that a return of 6.5% is required to
maintain pension payments. A return above 6.5% would then be available for pension
increases. While inflation was high or if it is high, it is “easier” to achieve a return exceeding
6.5%. Please see the table below.
% % %
Inflation high, say 15.00 14.00 11.00
Return high, say 18.00 21.00 14.00
Less actuary requires 6.50 6.50 6.50
Available 11.50 14.50 7.50
75% x inflation 11.25 10.50 8.25
Surplus/Deficit 0.25 4.00 -0.75
While inflation is low, it is possible that returns will also be lower and that, as indicated in the
table below, it might be more difficult, or even impossible, to obtain a return of more than
% % %
Inflation low 5.3 3.4 2.0
Returns low 9.0 8.0 7.0
Less actuary requires 6.5 6.5 6.5
Available 2.5 1.5 0.5
75% x inflation 4.0 2.6 1.5
Deficit -1.5 -1.1 -1.0
The calculations of the investment consultant indicated that there was a 50%-55% probability
that the investment return would be at least 6.5% plus 75% of inflation. Put the other way
round, it may, however, be stated that there is almost half a chance that the objective will not
be achieved and that future increases will be less than 75% of inflation.
4 Actuary’s findings (Option B members and pensioners)
In the valuation report of the Fund as on 1 January 2006, the valuator discussed the
objective of the Fund to grant pension increases of 75% of inflation or more, should
investment returns permit, in detail. In his opinion the value of the so-called notional
pensioner accounts exceeded the liability in respect of existing pensioners to such an extent
that there is a reasonable probability that the Fund will be able to grant pension increases
equivalent to 75% of inflation.
As far as active, i.e. working, option B members are concerned the position as on 1 January
2006 was not quite as favourable and a further reserve of R 67.6 million would have been
required to provide a reasonable probability of granting pension increases of 75% of inflation
after retirement. The continuing high returns earned on the Fund’s investments after 1
January 2006 probably improved the Fund’s position significantly and expectations are that
this will also be possible.
It must be kept in mind however, that the rules of the Fund, and in effect therefore the
member’s and employer’s contributions do not make provision for any pension increases.
Pension increases are not guaranteed but will depend on the quantum of investment returns
earned on the pensioners' assets.
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 results of the actuarial valuation done on 1 January 2003
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 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 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 that were released during the course of 2006 revealed that the fund was more than
100% funded. This was good news as the target date to get the fund 100 % funded was set
for 1 January 2012. These results were mainly as a result of the extremely good investment
returns earned on the Fund’s assets and the employer continuing to make additional
contributions during 2006.
During the last budget speech the Minister of Finance announced that the tax on retirement
funds will be abolished as from 1 March 2007
THE MANAGEMENT BOARD
PENSION FUND OF THE UFS
HIERDIE DOKUMENT KAN IN AFRIKAANS BY DIE HOOFBEAMPTE BEKOM WORD