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WHAT IS ACTUARIAL INTEREST?

The GEPF is a Defined Benefit fund. The Rules of the Fund stipulate that the benefit payable to a member on retirement is based on his or her pensionable salary and years of membership in the Fund. The benefit payable is not related to the contributions received on behalf of that member. Where a member retires with less than 10 years of service or withdraws from the Fund prior to retirement, the member receives his or her Actuarial Interest in the Fund, which is the estimated value of the benefit that the member has built up in the Fund to the date of exit. Put another way, it is the amount of money the Fund is holding in order to fund the expected future benefit payment to the member. 

The total of the Actuarial Interest values for all members and pensioners is compared to the total assets held by the Fund to determine whether the Fund has sufficient assets to meet its liabilities – this is done formally every two years as part of the Actuarial Valuation of the Fund by a valuator who an independent expert in this field and is approved by the regulator. An extract of the valuation results is also reflected in the Fund’s published Annual Report. 

Actuarial Interest values are calculated by applying a formula based on the following: 

1. The average pensionable (or basic) salary in the last two years prior to exit; 

2. The years of membership with the Fund; 

3. Any purchase of service or money transferred into the Fund from other funds; and 

4. A factor – called an Actuarial Interest Factor – based on the member’s age and whether the member is a “Services” member or an “Other” member. 

In calculating the actuarial interest, the Fund determines, for each member, the potential benefit that would be payable in each future year for each type of exit (that is, resignation, death, retirement, etc.). Since the Fund has no way of knowing when and how each member will exit and what the member’s salary will be at the date of exit, this calculation requires that various assumptions be made about the future economic conditions and the demographics (profile) of the entire membership. 

The demographic and economic assumptions are reviewed as part of each Actuarial Valuation of the Fund to ensure they remain appropriate and in line with the actual experience to give the best possible estimate of each member’s Actuarial Interest value in the Fund. 

• The demographic assumptions relate to the expected number of withdrawals, deaths and retirements of members at each age and how long pensioners are expected to live. These assumptions are specific to the Fund as they are calculated from the actual experience of the Fund- this is the best available indicator of what is likely to take place in the future. 

• The economic assumptions relate to the expected level of future inflation, interest rates and investment returns (which are calculated from investment market information), salary increases (which are calculated relative to inflation) and pension increases (which are based on the pension increase policy of the Fund). 

As the demographic experience of the Fund and economic circumstance change, it has to be reflected in the demographic and economic assumptions. The Actuarial Interest Factors, and therefore Actuarial Interest values, can increase or decrease as a result of any change in the demographic and economic assumptions. This will, in turn, reflect in a change in the current value of each member’s benefits in the Fund. These changes are not the result of a decision by the Board of Trustees, the employer (government) or employee representative (trade unions).

The Government Employees Pension Fund (GEPF) assured its members and pensioners that the new Taxation Laws Amendment Actwill not affect their pensions or benefits. As a defined benefit pension fund, the benefits of the GEPF are already taken as one third lump sum gratuity and the two thirds is taken as a pension. It will however affect the recording and attribution of the employer’s contribution in respect of active members. It will also increase the amount that can be contributed to the Fund tax free for the majority of its members.

The new tax laws were put in place to safeguard the retirement savings of all South Africans who contribute to retirement funds. These changes will mostly affect members of provident funds who will now have to split their retirement benefit between a one third lump sum and two thirds pension on the portion of their benefits accumulated after 1 March 2016 while retaining the right to take all amounts accumulated until this date as a lump sum.

Principal Executive Officer Abel Sithole stressed that the Fund continues to work for the financial security of its members and pensioners. “Members of the GEPF will be able to access their pensions after 1 March 2016 in exactly the same way as they can be accessed currently. None of the calculations and benefits will change due to these changes” says Sithole.

Sithole urged members not to panic and consider leaving the Fund in order to access their full pension benefits. He said the new Act would not take away the right of pension fund members to withdraw their benefits before or at retirement as a lump sum.

He strongly reiterated the benefit for government employees of working until their retirement date in order to continue contributing to their pension as long as possible, which will lead to a bigger pension. Mr Sithole reminds members of the tax implications of an early cash withdrawal benefit.Any member, who is unsure about their pension benefits should seek clarity from their human resource departments or contact the GEPF on 0800 117 669.

PRETORIA -The Government Employees Pension Fund (GEPF) through its investment manager Public Investment Corporation (PIC) has announced an investment commitment of R10.5 billion into SA Home Loans (SAHL) to facilitate housing financing for qualifying government employees and members of the public. 

The investment aims to provide government employees and qualifying members of the public with end-user home finance and development finance for approved affordable housing projects. The investment comprise of the following: 

• R 5 billion for public service employees; 

• R 2 billion for affordable housing end user financing as defined in terms of the Financial Sector Code; 

• R 2 billion to enable SAHL to extend home loans to the rest of qualifying home loan applicants; and 

• R 1.5 billion will be used to fund affordable housing developers. 

The investment in SAHL is part of the developmental investment mandate that the PIC is carrying out on behalf of the GEPF. Specifically, this investment addresses the social infrastructure element which has housing as one of the key components. 

Dr. Claudia Manning, Member of the PIC Board said: “The PIC is intentionally implementing a developmental investment mandate, which primarily seeks to achieve two types of returns, namely: financial and social returns. Financial return means that PIC must generate profit for clients and social return means our investments should positively affect the social conditions of the stakeholders. Our view is that members of the GEPF should benefit during their active working years and during retirement – and this is a social return. Investing in affordable housing finance schemes such as this, provides these members with a real benefit.” 

Lack of access to housing has been identified by the National Development Plan (NDP) as one of the challenges facing South Africa. In its diagnostic report, the NDP notes that: “the growth of property value has led to an overall average house price that has made housing unaffordable to many South Africans, and has further excluded participation in the property market by historically excluded groups. The growth has largely benefitted middle and higher income groups.” 

Abel Sithole, Principal Executive Officer of the GEPF, said: “We believe there are many GEPF members who often do not qualify for bank-issued housing loans and housing subsidies offered by the government. We are, therefore, excited about this investment as it will enable many government employees to own their own houses at a much more affordable rate. Most importantly, we believe home ownership can restore people’s dignity” The Government Employees Housing Scheme (GEHS), an agency of the Department of Public Services and Administration, will assist government employees to access funding from SAHL. 

Mashwahle Diphofa, Director General of the Department of Public Service and Administration, DPSA said: “The DPSA welcomes the participation of the GEPF through the PIC in the Government Employees Housing Scheme. The GEHS housing finance access service seeks to secure and deliver affordable and enabling housing finance for government employees. It is even more pleasing to see the PIC stepping forward as the first investor and participant in the GEHS housing finance service to bring this much needed value-added service to government employees.”Interface systems between GEHS and SAHL have already been developed and are operational. Government employees may also approach SAHL directly to apply for home loans. 

Kevin Penwarden, Chief Executive Officer of SAHL, said: “We are excited about this partnership. More than anything, this investment is an expression of confidence in our service offering. We believe we have the necessary capacity and skills to deliver excellent home financing services to clients that will be coming through the GEHS platform, as we have consistently done with all our clients.” 

GEPF exists to provide and pay benefits when due to public servants who are members as well as retirees. The GEPF would like to assure its members and pensioners that their pension benefits are safe. Members and pensioners are reminded that their benefits are paid in terms on the rules of the Fund and are not directly dependent on contributions by themselves and the employer and its investments. They should therefore not focus inordinately on the ordinary and normal fluctuations of the Fund’s investments, which is of greater interest to the Board of Trustees and the Minister of Finance. 

In making investment decisions, the Fund’s investment manager, PIC is guided by a mandate provided by GEPF that outlines which type of investments can be made, the percentage allocation for each asset class, benchmarks and performance targets, among other guidelines. 

To ensure that the Fund keeps to its objective of paying benefits to members and beneficiaries, a number of mechanisms are in place to ensure that the PIC acts within its mandate. GEPF’s investment policy and strategy is reviewed and updated regularly in line with GEPF’s Asset Liability Model. This review is carried out in consultation with the Minister of Finance in terms of section 6(7) of the GEP Law and Rules. 

In addition, the GEPF has a Responsible Investment policy as well as a Developmental Investment policy. The Responsible Investment (RI) policy is an overarching strategy aimed at integrating environmental, social and governance issues into investment decisions and ownership practices. The RI policy underpins all GEPF investments. The Developmental Investment (DI) policy focuses on targeted investments that contribute to positive economic, social and environmental outcomes for South Africa, while earning good returns for members. The DI policy is the foundation of the GEPF’s investments in economic infrastructure, social infrastructure, environmental infrastructure and priority sectors that generate job creation. 

GEPF is required to invest 90% of its assets in South Africa, and as such remains the single largest investor in the Johannesburg Stock Exchange (JSE). It has an international allocation limit of 5% in the rest of Africa and 5% elsewhere internationally. 

The PIC makes investments in all asset classes guided by the Fund’s investment policies and mandates using robust and rigorous investment analysis based on sound investment philosophy, investment processes executed by qualified and experienced investment professionals. 

With regard to the investments such as Sanral and Eskom bonds, the PIC has a mandate from the GEPF to invest in the bonds included in the Bond Exchange of South Africa’s All Bond Index (ALBI), within specified risk parameters including a minimum rating of BBB. To the extent that these bonds are included in the ALBI, and they meet the minimum rating criteria, they can be included in the GEPF portfolio. 

Total exposure to any single bond issuer is subject to restrictions stipulated in the investment mandate. For example, not more than 5% of the total bond portfolio can be invested in bonds issued by an A-rated issuer, and not more than 2% can be invested in bonds issued by a BBB-rated issuer. 

These are some of the limits in place to mitigate the portfolio’s credit risk. An additional consideration is that investments in Sanral and Eskom are investments in the infrastructure on which the South African economy depends 

All investments that the Fund makes individually only constitute a small percentage of the GEPF’s total investment portfolio. Although the GEPF and PIC do not make any investment expecting to lose money and or not receive a good return, individual investments are therefore not a significant investment. 

The Fund’s risk management policy and framework provides the necessary processes to ensure the sustainability of the Fund. The mandate and responsibility of GEPF’s Board of Trustees is contained in the GEP Law and Rules that set out its fiduciary responsibilities to members, pensioners and beneficiaries, and which calls upon trustees to ensure effective and efficient administration of the Fund. 

GEPF is mandated to protect the members’ benefits as highlighted by the investment performance of the Fund in the past ten years which shows good standing. The assets of the Fund have grown from R416 billion to R1 591 billion from 2005 to 2015. 

The Fund’s ten-year investment performance is evidence that the Board of Trustees, through a good investment strategy with the Public Investment Corporation (PIC) is monitoring and directing the Fund’s assets in a professional manner. 

It is also important to note that in any investment environment, certain investments will achieve above expectation and others will not reach their targets, but the Fund’s overall investment performance over the last few years speaks for itself. While it is the task and responsibility of the PIC to focus on each and every investment to ensure a positive outcome, and for the Board of Trustees to monitor this, members and pensioners need not focus too much on them. 

During the past decade the Board of Trustees has granted pension increases which have kept up with inflation resulting in more than 400 000 pensioners’ buying power being protected. 

These pension increases need to be viewed in the context of the Fund’s Rules, which state that increases only need to be 75% of the change of the Consumer Price Index. Such adjustments, and the inclusion of additional benefits such as the Funeral Benefit, have only been possible because the necessary investment goals have been reached. In addition, GEPF is a defined benefits pension fund and therefore has very strict regulations governing the financial liability to its members and pensioners. The primary role of the GEPF is to protect the wealth of our members and pensioners by safeguarding their retirement benefits through proper administration and prudent investment.

TO: 

(i) ALL CURRENT MEMBERS; 

(ii) BENEFICIARIES AND SPOUSES WHO BECAME ENTITLED TO BENEFITS SINCE 1 APRIL 2015; AND 

(iii) FORMER MEMBERS WHO RESIGNED SINCE 1 APRIL 2015 

NOVEMBER 2016 

1. In August 2016, the Public Servants Association (“PSA”) applied to the North Gauteng High Court in Pretoria for an order directing the Government Employees Pension Fund (“GEPF”) to give written notice of the PSA’s court application to all current members, former members who resigned since 1 April 2015, beneficiaries and spouses who became entitled to benefits since 1 April 2015 (hereinafter “stakeholders”). 

2. The GEPF did not oppose the order that it give written notice of the PSA’s application to the aforementioned stakeholders. This order was granted on 13 September 2016. 

3. The PSA also launched an application for the review and setting aside of the decision of the board of the GEPF, taken in terms of the rules of the GEPF, to amend the actuarial factors used to determine certain benefits payable by the GEPF. The basis for the PSA’s review application is that the GEPF’s board did not consult it before making its decision. 

4. The GEPF is opposing the PSA’s review application and has to that end filed and served a notice of intention to oppose. 

5. The purpose of this notice is simply to inform GEPF stakeholders of the existence of the PSA’s review application and also to inform any stakeholder that the PSA’s review papers will be available at the GEPF’s offices below upon request. 

6. A copy of the PSA’s notice of motion setting out the relief the PSA says it will seek in the review application is attached to this notice. 

Yours sincerely 

Abel Sithole 

Principal Executive Officer

The Government Employees Pension Fund (GEPF) adheres to strict regulations governing its financial liability to members, beneficiaries and pensioners, as well as its financial soundness. There are very strict rules governing how benefits from the GEPF must be paid and distributed. These rules are spelled out in the Government Employees Pension Law. 

The pension industry as a whole is faced with unclaimed benefits and GEPF is no exception. Unclaimed benefits refer to all cases where more than 24 months have lapsed since an identified benefit became legally payable but, due to a lack of information from the beneficiary, employer or the member, the payment cannot be successfully effected. The benefits remain in the fund until claimants come forward. 

Further to GEPF’s Principal Executive Officer, Abel Sithole, appearing at the Commission of Inquiry into Higher Education and Training, GEPF would like to re-iterate the funds in its care are only intended for the benefit of its members, pensioners and beneficiaries only as currently stated in the GEP Law and Rules. 

In terms of the current law of the land, the GEPF Law and rules, these funds will remain in the Fund as unclaimed until the member or beneficiary has been traced and cannot be used for funding higher education or any other initiative.

The Government Employees Pension Fund (GEPF) is proud to announce that the Board of Trustees has granted a 6.6% pension increase to pensioners with effect from 1 April 2017. “The increase is equal to the year-on-year change in the consumer price index (CPI) for the year to 30 November 2016, and this attests to the Fund’s undertaking to ensure that pensioners retain their purchasing power,” says Principal Executive Officer, Abel Sithole. 

“GEPF has been striving towards paying pension increases that are in line with inflation since inception, this confirms that the well-being of our pensioners remain a priority. The Fund is in a relatively good financial standing and, as per the GEPF Rules, the Fund will continue to pay pensions until a pensioner dies as well as spouse’s and an orphan’s pension where applicable, it does not matter how old they live to be”, adds Sithole. /ends

Government Employees Pension Fund (GEPF) and Public Investment Corporation (PIC) reassure its members and pensioners that their benefits and pensions are not at risk. 

The GEPF adheres to strict regulations governing its financial liability to members, beneficiaries and pensioners, as well as its financial soundness. Moreover, the GEPF has confidence in the PIC’s ability to prudently invest funds on its behalf in terms of the agreed investment mandate. The GEPF constantly monitors and evaluates the PIC’s performance in accordance with its investment policy and mandates. 

The GEPF would like to reiterate and to assure its members, pensioners and beneficiaries that their pension benefits are safe. They are also reminded that GEPF is a defined pension benefit fund which means the benefits are defined in terms of the rules of the Fund. The benefits are paid in terms of the rules and are not dependent on the investment returns of the fund or on the level of employer contributions. Members and pensioners should therefore not focus inordinately on the ordinary and normal fluctuations of the Fund’s individual investments, which is of greater interest to the GEPF Board of Trustees and the Minister of Finance. 

In the past financial year 2015–2016, the assets of the Fund grew to over R1, 6 trillion. The GEPF achieved an overall investment performance return of 4% during this time. This enabled the Fund to grant a pension increase of 5, 3% to its pensioners which was above 100% of the Consumer Price Index (CPI) of 4, 8% as at November 2015. This is higher than the 75% increase recommended by the Rules of the Fund. 

The GEPF’s investment strategy also uses a liability-driven approach that takes into consideration expected future benefit payments, the actuarial position, and other long-term objectives, as well as the risk to the overall solvency of the Fund which reflects steady growth and a sustainable long term investments. 

GEPF has a solid track record of safeguarding the value of active members’ retirement savings and protecting its pensioners against inflation and it is currently one of very few large defined benefit pension funds in the world which is 100% funded after the 2008/2009 financial crisis. This reflects the Fund’s robust investment strategy and its ability to adapt to dynamic and turbulent market forces. 

GEPF affirms that the well-being of all of its members and pensioners is the reason why it exists.

The Public Investment Corporation (PIC), on behalf of its clients, does hold a substantial amount of bonds of various State Owned Entities (SOEs). A significant portion of the PIC’s bond-holdings in SOEs is Government-guaranteed. At the outset, it should be stated that SOEs have never defaulted on any of the PIC’s bond investments. It should also be contextualised that bondholders do not have the same rights as shareholders. 

The Government is the sole shareholder in SOEs and therefore has the right to appoint members to the boards of SOEs. The PIC is concerned with governance practices of certain SOEs and has engaged the National Treasury in this regard. The PIC is also currently in discussions with external company law experts to determine what changes can be made to the PIC’s governance policies to enable the PIC to exercise a greater degree of oversight on the governance structures of investee SOEs. 

The PIC has an Environmental, Social and Governance (ESG) Policy, which is based on corporate governance best practice, specifically for SOEs. This policy takes into account, inter alia, documents such as King IV, the Companies Act and the Public Finance Management Act. The PIC also has an ESG Rating Matrix with various metrics on environmental, social and governance best practice with which it rates the ESG scores of SOEs. The PIC actively engages all investee companies, including SOEs, on ESG matters based on PIC ESG policies and the ESG score derived from the ratings matrix. 

As a result of these engagements, Eskom understands what our views are on a number of issues, including governance. The PIC can assure government employees and pensioners that it is not conflicted as an organ of state, as all investment decisions are taken in the best interest of our clients and in line with client mandate requirements and the investment risk parameters stipulated by client mandates. 

In the case of the Government Employees Pension Fund (GEPF), this mandate is approved by the GEPF board of trustees and is based on a detailed asset and liability study. The continued support of SOEs will be underpinned by these mandate requirements. Moreover, all investments are also subject to a robust due diligence process which includes a credit analysis, ESG reports as well as risk and legal reports. The PIC remains fully committed to work with National Treasury and Government to improve governance and public finance management in SOEs.

Government Employees Pension Fund (GEPF) would like to reiterate and to assure its members, pensioners and beneficiaries that their pension savings are safe. 

Last week National Treasury told the National Assembly that it is considering various options to recapitalise South African Airways (SAA) which includes the Public Investment Corporation (PIC) who is our fund manager as a possible equity partner, however Treasury speculation is perceived as confirmation that the GEPF’s assets will be used through the PIC to Fund SAA. 

The GEPF would like to assure its members, pensioners and beneficiaries that the Fund has not received or been approached with such a proposal and no discussions have been held with GEPF on this matter, therefore we urge all our members and pensioners not to panic or read too much into this speculation. The GEPF through the PIC receives many requests all the time and rigorously considers the merits of all investment opportunities and invests prudently in the best interests of its members, pensioner and beneficiaries. 

The GEPF adheres to strict regulations governing its financial liability to members, beneficiaries and pensioners, as well as its financial soundness. Moreover, the GEPF has confidence in the PIC’s ability to prudently invest funds on its behalf in terms of the agreed investment mandate. The GEPF constantly monitors and evaluates the PIC’s performance in accordance with its investment policy and mandates. 

GEPF members, pensioners and beneficiaries are reminded that the primary role of the GEPF is to protect the wealth of its members and pensioners by safeguarding their retirement benefits through proper administration and prudent investment.