UNIVERSITY OF KWAZULU-NATAL RETIREMENT FUND

Transcription

1 UNIVERSITY OF KWAZULU-NATAL RETIREMENT FUND Registration Number: 12/8/31608 Registered Address: 10 Torsvale Crescent, Torsvale Park, La Lucia Ridge Office Estate, La Lucia. Office Address: 314 Admin Building, Westville Campus, University of KwaZulu-Natal, Member Booklet Prepared by: Alexander Forbes Financial Services August 2012 NOTE This booklet is not a legal document. It is for information purposes only and does not override the relevant rules and policies governing the Fund, or your conditions of service as an employee.

2 INTRODUCTION The University of KwaZulu-Natal Retirement Fund was established on 1st January 1995 to help provide you with income after retirement. It is a defined contribution provident fund. In South Africa, you are unlikely to receive a state pension that will provide enough money for you to live comfortably throughout your retirement. It takes a large amount of capital to see you through your retirement years, and building up these resources requires many years of saving. It is far easier and generally more efficient to save for your retirement through a retirement fund, which receives favorable tax treatment, than to save on your own. This booklet sets out details of the benefits provided in terms of the rules of the Fund, as well as the death, disability and funeral benefits that are provided by a separate Benefit Arrangement outside of the Fund. It is important for you to read this booklet, so as to understand the benefits that you and your family can expect to receive. You can access a copy of the most up to date booklet on the Fund s website by going to This booklet is not a legal document and it is provided for information purposes only. In the event of a conflict, the relevant rules and policies governing the Fund and your conditions of service as an employee will apply. How the Fund works Every month your employer contributes a percentage of your Fund Salary to the Fund. The total contribution is forwarded to the Administrator (currently Alexander Forbes Financial Services), which credits the portion allocated to retirement funding to your Fund Credit. The Fund appointed investment managers then invest these contributions with the intention of increasing their value over time. While you are a member of the Fund, each month the returns earned from investing your contributions are adjusted on your Fund Credit, which represents the accumulation of any transfers in to the Fund, the contributions made towards retirement funding and investment returns. The benefit you receive when you leave service depends on how much was contributed towards your Fund Credit, and how well the Fund s investments have performed. Your Fund is a provident fund When you retire your benefit can be paid as an annuity, which means that you could enter into an agreement with a Registered Insurer which would provide you with monthly income based on the capital amount you have available and the type of annuity you decide to purchase.

3 But, because the Fund is a provident fund, you also have the option to take your entire Fund Credit as a transfer to your banking account or another investment account that you have set up. However, when you take the benefit as a cash payment you will first have to pay tax on your Fund Credit value, less any tax free portions that may be allowed. Therefore it is important that you get advice and consider all the possible alternatives before taking your benefit as a cash payment.

4 1. JOINING THE FUND 1.1 MEMBERSHIP The following employees are "eligible" for membership and are required to join the Fund a. All new employees appointed to University of KwaZulu-Natal funded permanent posts on conditions of service specifying membership of the Fund; b. All new employees appointed to University of KwaZulu-Natal funded posts on fixed term contracts specifying membership of the Fund; c. All permanent staff employees appointed to posts funded by a body or organisation other than the University of KwaZulu-Natal on conditions of service specifying membership of the Fund; d. Employees employed on fixed term contracts by the University of KwaZulu-Natal appointed to posts funded by a body or organisation other than the University of KwaZulu-Natal on conditions of service designated for this purpose by the University of KwaZulu-Natal which specify membership of the Fund; e. Employees of a recognised "associated employer" other than the University of KwaZulu-Natal and who, if employed by the University of KwaZulu-Natal would have been eligible in terms of (a), (b), (c) or (d) above or whose conditions of service fall into a category agreed to by the Council of the University and the employer concerned. 1.2 DATE OF JOINING THE FUND If your employment starts on the first day of the month, that is your Fund joining date. Otherwise, it starts on the first day of the following month. 1.3 COMPULSORY MEMBERSHIP OF THE FUND All employees who in terms of their conditions of employment are eligible have to join the Fund. 1.4 WITHDRAWAL FROM THE FUND WHILE EMPLOYED BY THE EMPLOYER In terms of Income Tax regulations, you are obliged to remain a Fund member as long as you continue to be employed by the University of KwaZulu-Natal, or such other employer as may be applicable.

5 2. MANAGEMENT AND GOVERNANCE 2.1 MANAGEMENT The Retirement Fund is managed by a Board of Trustees. The Trustees meet regularly to discuss the business of the Fund and are required to act in the interests of the membership. They attend to important matters such as: - ensuring that benefits due to members are properly paid in accordance with the Rules; - ensuring that the assets of the Fund are appropriately invested. Where the expertise of the Trustees is inadequate, they are obliged to appoint and consult with appropriate professional advisers. The Fund s assets are invested by professional investment managers appointed by the Trustees. You will be sent an Annual Benefit Statement each year, which allows you to monitor your Fund Credit. It is important to review this Benefit Statement when you receive it and raise any queries you may have on it timeously. 2.2 GOVERNANCE OF THE RETIREMENT FUND The Retirement Fund is a privately administered Fund, controlled by a Board of Trustees. The Fund is administrated according to Rules that have been registered with the Registrar of Pension Funds and approved by the South African Revenue Services This booklet is issued for information purposes only. The legal position regarding all matters relating to the Fund will be determined in accordance with the registered Rules.

6 3. CONTRIBUTIONS TO THE FUND Your Employer contributes 22.5% of your Fund Salary each month towards funding your retirement benefit and to meet the cost of risk benefits and administration expenses. A maximum of 5% of your Fund Salary may be used to pay for the death, funeral and disability cover and fund s expenses. After these costs have been deducted, the balance of the contribution (at least 17.5% of your Fund Salary) is credited to your Fund Credit. 3.1 FUND SALARY This is the amount based on your salary, as agreed with your employer and adjusted from time to time, on which contributions are paid to the Fund. Currently, this is normally equal to approximately 108% of your Cash Salary shown on your salary slips. If your employment is based on Total Remuneration Package (TRP), your Fund Salary will be the percentage of TRP on which your contributions are being based. 3.2 FUND CREDIT Your Fund Credit at any particular date is the sum equal to: (a) Contributions paid, on your behalf, into the Fund and any transfer in values; Plus (b) the net investment returns earned on the portfolio in which you Fund Credit is invested.

7 4. RETIREMENT BENEFITS 4.1 NORMAL RETIREMENT DATE Your Fund s Normal Retirement Date is the last day of the year in which you reach age 60 years, unless a later date is specified in your contract of appointment. If you remain in service after this date and your revised terms of employment include your continued Fund membership, you may stay on as a member of the Fund until latest age 70, when you will have to retire from the Fund. 4.2 BENEFIT AT NORMAL RETIREMENT DATE At normal retirement date, you will be entitled to receive your Fund Credit, paid as an annuity or as a cash transfer. You may choose to buy an annuity in your name from a registered insurer using your Fund Credit or to take all or a portion of your Fund Credit as a cash lump sum. If you buy an annuity with any portion of your Fund Credit, you will not pay lump sum tax on that portion of your retirement benefit. You will have to pay tax on any amount that you take as cash if it is more than the tax free portion (R in 2012 but updated from time to time refer to Section 9). If you buy an annuity you will be paid a monthly income during your retirement, which will be taxed in the same way your salary was taxed before retirement. 4.3 RETIREMENT BEFORE NORMAL RETIREMENT AGE Provided your application for early retirement is approved by the University of KwaZulu-Natal, you may retire at any time after reaching age 55. It is important to remember that if you retire early, you will have less money saved than if you retired on your normal retirement date, and your Fund Credit will have to last for a longer period of time. It is in your interests to consult a financial advisor before making this decision. If at a younger age than 55 you become too sick to carry on working, as verified by the outside party contracted to conduct these assessments, you may be allowed to retire due to ill-health and become entitled to receive your Fund Credit as an early retirement benefit. 4.4 PAYMENT OF FUND CREDIT Your Fund Credit may be used to purchase an annuity, or alternatively, you may elect to be paid your Fund Credit, or any part thereof, as a lump sum. Please note that your retirement benefit will be subject to taxation (Refer to Section 9 for these details)

8 5. DEATH BENEFITS 5.1 DEATH IN SERVICE BEFORE RETIREMENT The following death benefits are payable to your dependants and/or nominees upon your death in service before retirement: a) An amount equal to your Fund Credit is payable from the Fund and is taxable in the same way as a retirement benefit. b) A sum equal to 5 x your annual Fund Salary is payable from a group life policy in the name of the University and managed as part of the Benefit Arrangement, and is referred to as the insured benefit. This benefit will be paid without deduction of taxation, as you are paying monthly fringe benefit taxation on the premiums paid. The insured benefit is subject to the conditions laid down by the insurer. If your insured benefit is higher than the medical free limit advised from time-to-time, you may be required to submit a medical report before the insurer accepts the additional liability. If this is the case, the Administrator will let you know of the insurer s requirements. It is then your responsibility to arrange for the medical testing to be carried out, and if you fail to do so your death benefit will be lower. The insured benefit is subject to the terms and conditions of the policy 5.2 DISTRIBUTION OF DEATH BENEFITS The death benefits will be paid to your dependants and nominated beneficiaries in such shares as is decided upon by the Trustees of the Fund. Firstly, the Trustees have to decide who qualifies for the benefit and then they have to decide what proportion of the benefit each person will be paid and how that payment will be made. In the event of your death while in service, the Trustees are required to conduct a thorough investigation to identify and to trace all dependants and nominated beneficiaries. The Trustees have to distribute the benefits according to each dependant s level of dependency. If nomination forms have not been handed in, or where family members are difficult to find, the process may be considerably delayed. In order to assist the Trustees, you are urged to keep your Nomination of Beneficiary forms in respect of both portions of the benefit up to date. These forms are used as guides only. If you have dependants the Trustees are not compelled to distribute the death benefits according to your wishes and nor are the trustees bound to follow any provisions in your will. If you feel that one of your dependants is sufficiently supported you should show the name of the person and make a nil allocation, giving your reasons as a guide for the Trustees. You should review your nomination forms each time your circumstances change, for example, due to marriage, divorce, or the birth of a child. You can obtain these forms from the website of the Fund or from the University s Human Resources Division. Your death benefit payable from the Fund will be subject to tax. (Refer to Section 9. for more details)

9 6. LEAVING SERVICE 6.1 LEAVING SERVICE BEFORE NORMAL RETIREMENT DATE RESIGNATION, DISMISSAL OR RETRENCHMENT If you resign, are dismissed or retrenched, you will receive a benefit equal to your Fund Credit at that date. Research has shown that only 10% of members of retirement funds receive an adequate income after retirement. The main reason for this is that members do not preserve their retirement fund benefits when they change jobs. If you leave the employment of the University of KwaZulu-Natal prior to your Normal Retirement Date, you may choose to become a Deferred Beneficiary of the Fund. This means that following your withdrawal your Fund Credit will be transferred to another category and will remain invested in the Fund, but you will pay no further contributions. If you become a deferred beneficiary, you will not be able to withdraw your benefit before attaining the minimum retirement age of 55. You will no longer be covered for risk benefits (death, disability and funeral benefits). You will remain invested in the portfolios selected by the trustees until age 53, and thereafter will be given the option to switch to one of the pre-retirement portfolios offered by the Fund. A fee may be charged by the Fund to administer your Fund Credit. Alternatively, you can transfer your retirement savings to: A preservation fund A retirement annuity fund Your new employer's pension or provident fund OR You can take your retirement savings in cash, after payment of taxation. PRESERVATION FUNDS A preservation fund is a registered retirement fund designed to preserve and invest your fund benefits when you leave service until the date you choose to retire. When you transfer your Fund Credit to a preservation fund you do not have to pay any tax at the time of transfer. Advantages Your retirement savings are preserved for retirement and normally you would be allowed one withdrawal (before retirement) from the preservation fund, which can be the full amount. No tax is paid on transfer You have full control of your retirement savings transferred to the preservation fund, and can switch investment portfolios from time to time. Disadvantages You will reduce your retirement benefit if you use the once-off withdrawal facility No extra contributions can be paid into the preservation fund.

10 RETIREMENT ANNUITY FUNDS If you choose this option, your retirement savings in the Fund will be transferred tax-free at the time of transfer to a retirement annuity fund of your choice. Advantages You preserve your savings until retirement You transfer your retirement savings tax-free You can make further contributions, which may be tax-deductible up to certain limits. Disadvantages You cannot withdraw any money from the annuity fund until age 55 You may take only up to one-third of your retirement savings as cash at retirement. The balance must be used to buy an annuity from a registered insurer. NEW EMPLOYER S FUND If the rules of your new employer s Fund allow for the transfer and you choose this option, your retirement savings in the Fund will be transferred tax-free to your new employer s fund. Advantages You preserve your retirement savings until retirement You transfer your retirement savings to your new employer s fund tax-free at the time of transfer There are no costs involved. Disadvantages You might not have any control over the future management of your retirement savings If you leave your new employer before retirement, you might have to transfer your retirement savings, once again, from this employer's fund You will not have access to your retirement savings until you leave the new employer or retire. TAKING YOUR BENEFIT AS CASH This is an option but it is NOT recommended. You should at all times try to preserve your retirement savings for their real purpose, which is to provide you with a retirement benefit. Taxation is payable if you elect the cash option. Note: The above benefit is subject to tax. (Refer to Section 9. for more details) 6.2 DEATH BENEFIT COVER AFTER LEAVING SERVICE The 5 x annual Fund Salary insured death benefit will cease when you leave service. However, there is an option available to you to continue cover under an individual insurance policy, subject to any conditions imposed by the insurer. You will not have to provide evidence of health (other than an HIV test) for an amount up to your death benefit cover at your date of withdrawal. Your application for continuation will have to be made within 30 days of your leaving service. Details of how to apply for this option are set out in an exit document that will be supplied to you at the time.

11 7. DISABILITY BENEFIT DISABILITY WHILE IN SERVICE BEFORE RETIREMENT (i) Income Disability Benefit Should you become totally disabled, either temporarily or permanently, because of illness or accident before reaching your Normal Retirement Date and thus become unable to perform the work of your own occupation, you will, after a 3 month waiting period, receive a monthly disability benefit as follows: 50% of your monthly Fund Salary for the next 3 months, 100% of your monthly Fund Salary for a maximum period of 21 months thereafter. During this two-year period, you will continue to be a member of the Retirement Fund and contributions will continue to be paid to the Fund. If you die during the two year period during which you are receiving a disability benefit, the lump sums described in Section 5 and Section 9 will become payable. (ii) Lump Sum Disability Benefit If after two years you are assessed by the insurer as being totally and permanently disabled so that you are unable to perform the work of your own or any other occupation, your monthly income will cease and a lump sum benefit will be paid, equal to: 3 x annual Fund Salary at the date of your disablement, PLUS Your Fund Credit at that date. Should you become disabled between ages 55 and 60, the 3 x Annual Salary benefit will be reduced by 20% for each year or part thereof that the onset of your disability precedes age 60. No benefit is payable after age 60. After payment of the lump sum disability benefit, your membership of the Fund will cease. This benefit will be subject to tax. (Refer to Section 9. for more details)

12 8. FUNERAL BENEFIT If you die, or your spouse or dependent child dies while you are in employment, a lump sum benefit will be paid to help with funeral costs. R 15,000 is paid if you or your spouse dies If a dependent child dies, the amount paid depends on the child's age at the time of death: R 15,000 R 15,000 R 7,500 R 5,000 R 2,500 is paid for children years provided proof of registration of such children in full time education is provided is paid for children years is paid for children 6-13 years is paid for children 1-5 years Is paid for children under 1 year (including stillborn babies) On attainment of age 22 or their marriage, whichever is the earlier, a child no longer qualifies as a dependant.

13 9. TAXATION OF BENEFITS (PLEASE NOTE THAT THE FOLLOWING IS BASED ON TAX LEGISLATION AT THE DATE OF THIS BOOKLET AND IS SUBJECT TO CHANGE) The benefits payable on retirement, withdrawal, death and disability are subject to tax, as follows: 9.1 RETIREMENT BENEFITS Your original transfer value (if any) from the AIPF will be tax-free. The sum of: (a) the investment earnings on the transfer value (if any), PLUS (b) the balance of your Fund Credit, will be taxed as follows: Taxable amount Rate of tax The first R315,000 0% Amount exceeding R315,000 but not exceeding R630,000 Amount exceeding R630,000 but not exceeding R945,000 Amount exceeding R945,000 18% of the taxable amount exceeding R315,000 R56,700 plus 27% of the taxable amount exceeding R630,000 R plus 36% of the taxable amount exceeding R945,000 For purposes of calculating the tax-free amount, benefits arising from all pension, provident or retirement annuity funds of which you may be or have been a member are taken into account. 9.2 WITHDRAWAL Your original transfer value (if any) from the AIPF will be refunded tax-free.

14 The balance of your withdrawal benefit will be taxed as follows: Taxable amount Rate of tax Up to R22,500 0% Amount exceeding R22,500 but not exceeding R600,000 Amount exceeding R600,000 but not exceeding R900,000 Amount exceeding R900,000 18% of the taxable amount exceeding R22,500 R103,950 plus 27% of the taxable amount exceeding R600,000 R184,950 plus 36% of the taxable amount exceeding R900, DEATH BENEFITS The death benefit has two components: 1) The Insured Lump Sum Benefit is not taxable at time of payment. 2) The Fund Credit from the Retirement Fund is subject to tax, which is calculated using the same formula as for retirement as set out below. (Refer to Tax on Retirement Benefits). Taxable amount Rate of tax Up to R315,000 0% Amount exceeding R315,001 but not exceeding R630,000 Amount exceeding R630,001 but not exceeding R945,000 Amount exceeding R945,001 18% of the taxable amount exceeding R315,001 R56,700 plus 27% of the taxable amount exceeding R630,001 R plus 36% of the taxable amount exceeding R945, DISABILITY BENEFITS (i) INCOME DISABILITY BENEFIT The monthly disability income benefit paid for a period of 21 months and is taxed as income in the same way as your salary. (ii) LUMP SUM DISABILITY BENEFIT The lump sum disability benefit is paid out tax free. The Fund Credit payable from the Fund in the event of total and permanent disability is paid as an ill-health retirement benefit and the same scale as is set out in 9.1 will apply.

15 10. THE FUND S INVESTMENTS If you have a normal career progression over thirty years and at least 17.5% of your Fund Salary has been contributed towards retirement funding during that time, the Fund aims to provide you with a Net Replacement Ratio (NRR) of at least 65% of your Final Fund Salary. Your NRR is worked out by dividing your income at retirement date by your Fund Salary immediately before you retire, and expressing it as a percentage. A NRR of 65% indicates an initial retirement income of about two thirds of your Fund Salary prior to retirement. This is not guaranteed and is largely dependent on the returns that can be earned on the Fund s assets PORTFOLIO STRUCTURE Contributions for members who are under 53 years of age are automatically invested in the Fund s Main Portfolio. Once you are within seven years of normal retirement you are given a choice about how you would like your Fund Credit to be invested, and you have the option of transferring from the Main Portfolio to one of the Alexander Forbes Lifestage Range portfolios. Main Portfolio The Main Portfolio is invested with two asset managers with investment styles that complement one other. In terms of mandates given by the Fund they are allowed to vary the proportions invested locally and offshore, and within asset classes within defined limits and subject to the limitations of Regulation 28, which governs the investments of all retirement funds. The asset managers are expected to select and change the weightings they hold in the various asset classes to optimise the returns in changing economic and market conditions. In terms of their mandates the asset managers are permitted to adopt fairly aggressive positions if they see value in doing so, so short-term losses are possible. If you are within seven years of retirement, you have the option of transferring to portfolios where short term losses are less likely. The Alexander Forbes Lifestage Range When you are within seven years of your retirement age you may choose to transfer your Fund Credit to one or more of the Alexander Forbes Lifestage portfolios. These portfolios are managed by Investment Solutions. You can either select your own portfolios or may opt to follow the Alexander Forbes Lifestage Model (AFLM), which will automatically adjust your investment portfolios depending on the number of years you have remaining to your Normal Retirement Date. The next table shows the portfolios that will be used over the last seven years before Normal Retirement Age (NRA), as the assets are transitioned from the High Growth to increasingly more conservative portfolios if you elect to follow the Fund s default model. Number of Years Portfolio your funds will be invested in to retirement 7 years to NRD High Growth 50% plus Medium/High Growth 50% 6 years to NRD Medium/High Growth 100% 5 years to NRD Medium/High Growth 50% plus Medium Growth 50% 4 years to NRD Medium Growth 100% 3 years to NRD Medium Growth 50% plus Medium/Conservative Growth 50% 2 years to NRD Medium/Conservative Growth 50% plus Conservative Growth 50% 1 years to NRD Conservative Growth 100%

16 If you are over 53 instead of leaving your Fund Credit in the Main Portfolio you may choose to invest in any of the following portfolios. Pre-Retirement Options available to members aged 53 and older: Alexander Forbes High Growth Alexander Forbes High/Medium Growth Alexander Forbes Medium Growth Alexander Forbes Medium/Conservative Growth Alexander Forbes Conservative Growth Inflation Linked Bond Channel Purchasing Power Channel It is important to obtain financial advice before selecting an alternative portfolio, as the timing of your decision and the portfolio chosen can have a large impact on your eventual retirement income. Capital Preservation Portfolio Prior to 2011, members who were within five years of Normal Retirement Age could transfer (part of) their assets to the Fullvest Guaranteed portfolio. This option is no longer available, but the Fund Credits of members already invested will remain in this portfolio until they retire. Money Market Portfolio Prior to 2011, members who were within two years of Normal Retirement Age could transfer part of their assets to the Money Market portfolio. This option is no longer available, but the portions of the Fund Credits of members who so elected will remain in this portfolio until they retire PORTFOLIO AND MANAGER SELECTION The Fund s asset managers are: Main Portfolio Pre-Retirement Options available to members aged 53 and older: Capital Preservation- Closed to new money Money Market- Closed to new money Foord Asset Management Allan Gray Asset Management Investment Solutions Investment Solutions Investec Asset Managers The trustees consider the following when selecting the asset managers: Investment process adopted People employed Reputation, including past performance and management skills Total value of assets under management Fees and other costs

17 11. THE PENSION FUNDS ADJUDICATOR AND COMPLAINTS The Pension Funds Adjudicator deals with complaints relating to the administration of funds, the investment of assets or the interpretation and application of a fund s rules. If you have a complaint relating to the administration of the Fund, before you approach the Adjudicator you must first lodge the complaint in writing at the Fund s Office, Room 314 Administration Building, Westville Campus; or lodge it with your Employer. The Fund or your Employer must reply to you within 30 days. If you are then satisfied, that is the end of the matter. If the Fund or Employer does not reply, or if you are not satisfied with the reply, you may refer your complaint to the Adjudicator. After hearing both parties cases (either in writing or via a hearing), the Adjudicator will make a determination and advise the parties accordingly.

18 12. THE RULES Every retirement fund must, by law, be run according to a set of rules registered by the Registrar of Pension Funds and the Financial Services Board. The operations of the Fund are described in detail in these rules and the Fund is run in strict accordance with them. In a simple booklet such as this, it is not possible to give all the details but we have tried to make this guide as accurate and understandable as possible. In case of any differences between this guide and the rules, the rules will apply. If there is a dispute, the dispute resolution mechanism detailed in the rules of the Fund will apply. If you want to see copies of the rules, the financial statements or the most recent enhanced financial assessment they are either available on the Fund s website or can be obtained from the Fund Office: 314 Administration Building, Westville Campus, Westville, Fund s Name: University of KwaZulu-Natal Retirement Fund Reference Number: 12/8/31608 MISCELLANEOUS Enquiries It is very important for you, as a member of the Fund, to understand the benefits that are available to you. We have tried to make this guide as understandable as possible. If, after reading through this guide, there are matters that require further explanation, or if you have any questions about the Fund, you may ask your Human Resources Division or send your enquiry to lessing@ukzn.ac.za, or call extension 1007.