State of the Retirement Industry: what you need to know, state of the industry, planning for retirement, and Retirement Annuities.

1. Vunani Wealth Management
29 / March/ 2012

2. AGENDA
• Introduction
• Principle Focus
State of the Retirement Industry
• Why all the problems
• Consequences and Facts
• What you need to know
• How do you plan for
retirement
• Retirement Annuities
Market Commentary
• Vunani Investments
Questions and Answers

3. Vunani Wealth Management
•1985. "Compushare". Educational institution dealing in correspondence courses designed to
teach stock market investments to public. Hosted Technical Analysis courses to various stock
broking firms. Johannesburg agency for the Indexia Research Market Analyser.
• 1987. Shareholder/Director National Trust Portfolio Managers.
• 1990. Left National Trust and gained licenses for the First Financial Group. (Financial
Services Board).
•Co- Founding member of the First Financial Group. Incorporating First Financial Equities,
First Financial Futures and First Financial Technologies under the Stock Exchange Control Act
and the Financial Markets Control Act.
•2000. New Republic Bank approach. Executive management contract.
•Managing Director - New Republic Bank Asset Management division. Built client book to R
900 Million.
•NRB de-listing. Bought back investment management division and reverse sold to listed PSG
group.
•Warwick Private Wealth, Senior Investment Manager – Johannesburg for two years.
•November 2011. Senior Investment/ Wealth advisor Vunani Private Clients Wealth
Management Division.

4. VUNANI WEALTH MANAGEMENT - Principle Focus
•Estate planning, Retirement and Investment planning, Savings, Assurance and Insurance risk
products.
•Personal solutions engineered in conjunction with the spectrum of expertise and security
offered within Vunani Ltd our parent, Public Company listed on the Johannesburg Stock
Exchange.
We have an experienced team consisting of :
•Administration and Management.
•Investment Training Specialists
•Portfolio Investment Managers
•Traders Equity and Derivatives
•Market Research Analysts and leading technology
•Public commentators
•Economists
•Financial planners
•Associate tax experts, legal and trust advisory services - to the full spectrum of Insurance risk
products optimising retirement solutions.

5. The State of the Retirement Industry
The secret to living well is to die without a cent in your pocket however I miscalculated, and
the money ran out too early!
A comfortable retirement eludes most South Africans.
Start planning for your retirement when you receive your first pay cheque.
Planning for your retirement should be seen as an on-going process, not a once-off event.

6. Why All The Problems ?
Excepts of research based on +- 700 000 retirement fund members in 2011.
•81 percent of retirement fund members will retire with a pension that will not be sufficient
for them to sustain their pre-retirement lifestyle.
•12 percent of retirement fund members enter retirement reasonably financially secure. The
overall number is even lower once account is taken of people, both employed and never
employed, who contribute nothing to a retirement-funding vehicle.
•most retirement fund members start off well when they begin working, but, as they get
older, they increasingly fall off the retirement bus.
•low contribution rates, inappropriate investment portfolios, inappropriate switching of
investments, high costs, and the significant difference between actual total income and
deemed pensionable salary. (Net Replacement Ratio)
•Pensioners often withdraw large lump sums at retirement and use them for non-pension-
funding purposes;
•Pensioners often withdraw excessive amounts as a monthly pension in their initial years of
retirement, resulting in a shortfall later.
•If you change jobs and cash in your retirement savings, you can dramatically reduce your
chances of retiring financially secure, and you stand to lose money to tax and inappropriate
investments like spending withdrawal benefits on a holiday or a new car.

7. • Insufficient consideration is given to the effects of inflation in retirement; and in some cases
insufficient allowance is made for a spouse’s pension. In many cases, they only realise this many
years into retirement, when the problem is difficult to rectify.
• Changing jobs and paying large outstanding debts such as your housing bond after retirement.
• Unexpected retrenchments.
• Poor choice of Advisors and Fund managers.
• Pensioners need to have a degree of certainty about the income they will receive as a pension.
Critical drivers = the production of a reliable, stable and real (after-inflation) income flow avoiding
capital erosion and an investment which achieves above average market related returns.
• A million rand invested in the All Share Index in the ten years to 2011 would be worth an additional
R 1 million (over and above) the +- 12% annualised growth rate the JSE All Share Index has delivered
- if the dividends were re-invested. The average dividend yield over the period is +- 3%.
• See Chart JSE ALL SHARE INDEX
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9. • It’s not just a dividend story. Financial advisors fees, administrative fees, performance fees all result
in a reduction of yield. Add this to inflation and the pensioner has no choice but to look for a higher
return on investment with associated higher risk inappropriate for that time in their lives.
• Quick explanation of trying to understand a fund fact sheet.
• Nine out of every 100 South Africans retiring at age 65 have made adequate provision for their
retirement.
• Research excludes millions of people who are not members of retirement funds and will rely on the
state’s old-age grant of R1 200 a month to sustain them after the age of 60 and extended family
support groups.
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10. The Consequences and the Facts
•Effects on the Net Replacement Ratio (NRR) on surveyed fund members.
•Slashing standards of living at some point in retirement; and/or
•Having to stay employed, either in the current job or facing difficult prospects of finding a
post-retirement job.
•12 percent of fund members reach retirement with an NRR of more than 75 present of their
final pay cheque;
•7 percent of fund members have an NRR of between 60 and 75 percent;
•10 percent of fund members have an NRR of between 45 and 60 percent;
•14 percent have an NRR of between 30 and 45 percent; and
•57 percent of retirement fund members have an NRR of less than 30 percent of their final
pay cheque.
•What actual figure of the South African population end up having to be supported or
supplemented by family, friends and charitable organisations?

11. What You Need To Know
• A more hands on approach to managing your retirement investments.
• If you are heading for an expected shortfall in your projected income plan, make plans and
adjust your strategy to either save more or gear to higher returns.
• If relative to a reasonable benchmark, you are expected to have a shortfall in your death,
disability or other benefits, you will need to make up any shortfall by buying additional risk
assurance.
• Your financial security in retirement will be affected if you do not preserve your retirement
savings if you leave the fund before retirement without maintaining the investment.
• Before your date of retirement, what pension you can expect based on actual investment
options and market projections.
• If your investment option is inappropriate. For example, you may have chosen a cash
portfolio while you are relatively young or have switched to a high-risk investment in the
hope of earning better returns, particularly when you are close or well into retirement.
• The threat posed by investment risk and return once you retire is an important factor but
less serious than capital erosion caused by excessive drawdowns of the investment to
maintain pre-retirement life styles.

12. • Invest your retirement savings into a growth orientated portfolio that provides a consistent, realistic
income, and don’t withdraw more money than your investments earn or appreciate by.
• A drawdown from an investment-linked living annuity that exceeds five percent of the annual
residual capital will result in an unsustainable income flow particularly if the growth (Real Rate of
return) on the investment is poor (below 12%)
• Retirement investment rates of return can be very poor, aggravated by misplaced asset allocations
at the onset of the investment.
• Fees above 2,0% per annum with inflation at 6.0% indicates required rates of return in excess of 8%
to counter this erosion, before you factor in the % drawdown for income/living expenses in excess
of 5%.
• The JSE All Share index returned +- 11.8 % annualized R.O.R. over the past decade to 31st March
2012. Pensioners have the liberty of 2.5% to 17.5% income drawings, in order to maintain lifestyle’s
but will not preserve their capital in this scenario.
• Most draw well in excess of 5% and watch their capital deplete year on year until it becomes too
late. This is called Capital Erosion and is one of the most significant contributors to disastrous
retirements.
• The truth is pensioners only pay attention to their investments when it is simply too late!
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13. How Do You Plan For Retirement?
• A good plan caters for the unexpected life events and helps protect the investor from
financial misfortunes.
• At retirement, you would like to have all your debt paid off and also have no one dependent
on you.
• Remember that unforeseen events can have a devastating impact on your finances and your
income and expenses can change.
• The budget must be designed to be flexible at times and also be able to change investment
strategies - this can be due to emergency medical costs, taxes, lifestyle adjustments, inflation
or living longer than expected.
• This also means that we need to have a suitable investment that can achieve returns above
inflation and or adjust our income to accommodate ever increasing costs of living.
• When making provision for retirement we must calculate what the value of the desired
income should be and what the capital value of existing capital will be in the future – inflation
adjusted.
• When we quantify how much we need and set a date for when we need it, it becomes clear
what the goals are for retirement and we can start with the first steps of a plan.
• Important: There are different types of escalation we have to keep in mind. The amount of
how much your contribution escalates each year. At least matching inflation and the forecast
anticipated inflation rate.

14. • We need to forward project the interest earned and rates of return anticipated on your investments
going forward.
• Depending on where we invest. Past performance does not give us the security or guarantee that
the investment or markets will always perform as well, so conservative estimates and predictions
must be used.
• Look at what you are currently providing towards your retirement savings. Determine the additional
amount of capital you will need at retirement: This can be used to set aside something we call 24/7
money. When you need it, you can access the capita. When it’s not needed, it grows with interest
which can also later be used to draw income from.
• Time, inflation, capital erosion and personal health are your biggest threats when planning for your
retirement.
• Choose an investment plan that will suit your Risk profile and Investment needs suitably.
• Request a financial needs analysis (FNA) to determine what lump sum is required at retirement to
provide this income, and what monthly contribution is required to provide this lump sum prior to
retirement.
• Select the most appropriate vehicle(s) to achieve your retirement goals.
• Continually monitor your investments to ensure that you will meet your retirement goals.

15. • Engage in a comprehensive Risk Analysis process.
• Wills, including what makes a will valid and nominating an executor;
• Which of your assets are included in your will and which are dealt with by way of beneficiary
nominations;
• Estate duty and other costs;
• Estate duty roll-over;
• How trusts are used in estate planning, including testamentary trusts and inter vivos trusts; and
• How retirement savings are dealt with on your death.
• Do something dramatic if the model is not achieving these goals!
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16. RETIREMENT ANNUITIES
• A retirement annuity is a tax effective retirement investment vehicle for individuals. The
primary target market is individuals who do not participate in a pension or provident fund.
Retirement annuities are appropriate for:
• Self-employed people. Employees in organisations that do not provide a pension or
provident fund. Employees who earn a significant amount of non-pensionable income and
wish to increase their savings towards retirement
• Retirement annuities can also be used to house the proceeds of your pension or provident
fund when terminating your employment by way of lump sum contributions.
Important benefits:
• R.A. Creditor Protection. RAs offer protection from creditors. Only a limited number of
institutions or people may claim money invested in your RAs. Those that can do so include
the South African Revenue Service (in the case of unpaid taxes) and a previous spouse (in
terms of a court-approved divorce settlement).

17. • The only time a creditor may lay claim to the money in an RA - or any other retirement savings
vehicle - is when you retire, and then only from any lump sum amount you are paid. A creditor may
also not claim money that is paid to you as an annuity bought with the benefits of an RA i.e. your
income stream once the policy is converted to a living annuity.
• For this reason, you cannot borrow against an RA or use it as security for a loan. A retirement
annuity is therefore an important asset for business persons, who are often required to sign
personal surety with banks and other creditors.
• Within the most modern retirement funds options you will have a large selection of specialised,
professionally managed, risk profiled funds, including property funds, local and offshore shares,
government and corporate bonds, money market instruments and unlisted preference shares which
can be managed in a bespoke personal portfolio.
• We will cover these briefly within the Vunani Private Wealth environment later on.

18. RA Tax Benefits
• There are three tax benefits:
Contributions are tax deductible – up to a maximum of 15% of non-pensionable
taxable income. If you contribute more, you may claim excess amounts in future tax
years. You may also add your excess contributions to the tax-free portion of any lump
sum you receive.
Investment returns are tax free – there is no dividend withholding tax, income tax or
capital gains taxed on the investment return earned in an RA
Benefits are taxed on a favourable basis – lump sum benefits are taxed on a sliding
scale with a portion of the benefit tax free.
For Example:
•Your non - pensionable income is R300, 000 per year. You contribute a maximum TAX-
DEDUCTIBLE contribution of 15% of this income or R45, 000 per year or R3, 750 per month.
•Your marginal tax rate on this contribution is 35%. That is R 1,313 per month.
This is the amount that SARS is giving you back (by way of a tax-deduction) for saving into an
RA.
•Look at it another way, for every R1 you invest SARS is contributing 35 cents for you on each
contribution. You are actually contributing only R 2,437 from your pocket (R 3,750 less R
1,313).
•The R 2,437 invested by you, YOU IMMEDIATELY GET R 3,750 invested into your RA.
•An immediate return of 50% against each contribution?

19. When Can You Access Your Annuity ?
•In general you can only access your RA at retirement. However, you can withdraw your full
RA investment in cash if you emigrate or if your RA investment is less than R7, 000.
•You may retire and claim your benefit from the age of 55 onwards (unless you are in ill
health, in which case you may claim earlier). You can take a maximum of 1/3rd of your
investment as cash (plus any amounts invested not deducted for tax); with the balance you
must purchase an approved compulsory annuity, which will pay you a pension for life.
•If your benefit is R75, 000 or less at retirement, you can elect to receive the full benefit as
cash.

20. Can You Stop Contributing To Your RA ?
•You can make your RA ‘paid-up’. This means you no longer pay monthly contributions;
however you will stay invested until you retire. You may retire from age 55 onwards.
•Be aware that if you make your current RA paid up, your service provider may claw back any
unrecovered broker commissions (plus accrued interest) from your investment balance.
•This should not, however, be a factor in your decision to make your current RA paid up or
not, as your service provider will deduct the outstanding broker commissions anyway (either
now or in the future). Consider this particularly if your returns have been poor. It is better to
transfer your investment into a performance orientated vehicle than to leave it for years
achieving minimal growth.

21. Should I Cash My RA In?
•Many people get anxious when their RA matures. But the pay-out date is very flexible and
most insurance companies will enable you to keep your savings in the RA.
•Legislation has recently changed and there isn't a maximum retirement age any more. This
means that you can leave your savings in your RA as long as you want, and that you could still
contribute each month to the investment.
•The benefit is obviously that contributions are tax free. In addition, all the costs on the
investments will already have been discounted, which makes it a cheaper option in terms of
fees – any new investment will involve new costs, including commission and administration
fees.
•Your savings will also be immediately available if you need them – a third can be taken in
cash and the rest to secure a monthly income for the rest of your life.
•It is also possible to use the full amount for a monthly income if the two-thirds are not
enough.
•The advantages therefore include tax-free growth and access to the investment.

22. Growth Investment Portfolio objectives
To provide investors with long-term positive returns
Benchmark
JSE All Share Index, or related comparable Index depending on the Investment model.
Investment process - Qualitative and Quantitative Analysis.
As a base, we consider the sector allocations of our group economist.
We then adjust these according to our views.
At a more granular, stock-specific level, we focus on companies with favourable growth
prospects as well as high dividend yields – in essence, total return. The following, non-
exhaustive list of factors is also considered when picking stocks:

23. Investment process (cont.)
Focus is on future potential earnings, dividends and price/Capital appreciation potential of
stocks.
Stock selection is not based soley on momentum; however, we view share price momentum
as a factor that also assists us in our stock selection process. Momentum can provide an
indication as to which companies, whether it is through good management or sustained
demand for their products/services, tend to be continuous outperformers.
Past performance is not a guarantee of future results. We do endeavour, however, to
consistently outperform our benchmarks through rigorous analysis and skillful execution.

24. Definition of 'Qualitative Analysis'
Securities analysis that uses subjective judgment based on non-quantifiable information, such as;
Local and Global investor sentiment, Global macroeconomic conditions, equities historical rates of
return analysis, tracking market momentum, management expertise and consistency, industry economic
cycles, strength of market positioning, company research focusing on growth development, industry
comparable labour relations analysis and consensus forecasting overviews.
This analysis technique is different to quantitative analysis, which focuses on numbers. The two
techniques, however, are used effectively together.
Investors and analysts rely largely on both Quantitative measures;
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25. Definition of 'Quantitative Analysis'
A business or financial analysis technique that seeks to understand behaviour by using complex
mathematical and statistical modelling, measurement and research.
By assigning a numerical value to variables, quantitative analysts try to replicate reality mathematically.
Quantitative analysis can be done for a number of reasons such as;
Measurement, performance evaluation or valuation of a financial instrument.
It can also be used to predict real world events such as changes in a share price.
Metrics such as the debt-to-equity and price-to-equity/earnings ratios, supplementing the analysis with
qualitative analysis increases the insight into the company and its projected performance. Qualitative
factors give us an edge since key factors, such as management, investor sentiment and sector trends do
not show up in quantitative analysis.
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26. Thank you