Fact File. Retirement Plan

Transcription

1 Retirement Plan Fact File The Retirement Plan is built on the best thinking, the most tax efficient structures and the best investment strategies. These aspects ensure that you save for a more comfortable and rewarding retirement. This Fact File will allow you to understand your Retirement Plan and how you can make it work better for you.

2 Welcome Discovery Invest s Retirement Plan Discovery Invest s Retirement Plan will help ensure that you can save for a more comfortable and rewarding retirement. This Fact File is designed for your easy reference. Contents 1. Discovery Invest Retirement Plan Page 1 2. Lump sum contributions to your Retirement Plan 1 3. Recurring contributions to your Retirement Plan 3 4. Retirement age 4 5. Choosing the underlying funds for your Retirement Plan 4 6. Benefits to enhance and protect your Classic Retirement Plan 6 7. Switching between investment options 7 8. Taxation 7 9. Death or ill-health before your selected retirement date Contribution Waivers Invest Aware Business practices 8

3 1 The Discovery Invest Retirement Plan Discovery Invest offers two Retirement Plans: The Core Retirement Plan. This plan offers a wide range of investment options that you can choose to invest in. The Classic Retirement Plan. In addition to the same range of investment options as the Core Retirement Plan, the Classic Retirement Plan offers a range of unique benefits to enhance and protect your investments. These benefits are detailed in section 6 of this Fact File. Both of Discovery Invest s Retirement Plans are underpinned by a retirement annuity (RA). A retirement annuity is an investment that you make specifically to fund your retirement, and the way it works is regulated by South African legislation. There are two significant features of a retirement annuity in South Africa: Your contributions into a retirement annuity are tax deductible up to certain limits When you retire you must use at least two-thirds of the proceeds from your retirement annuity to buy an annuity that will provide you with regular income in your retirement. 1.1 The Discovery Invest Retirement Plans are a tax efficient way to save for your retirement Contributing to a retirement annuity is tax deductible up to certain limits. The limits are determined by your income and other retirement investments you might have. This makes the Discovery Invest Retirement Plans very tax efficient investments. In addition to your contributions being tax deductible, the growth and income earned on your investment in your Retirement Plan is tax free under current tax practice (April 2012). In terms of South African law (in particular the Pension Funds Act) you cannot, except under exceptional circumstance such as disability, access the funds in your retirement annuity before the age of The Retirement Annuity Funds If you choose to contribute to either of the Discovery Retirement Plans, you will apply to become a member of the Discovery Retirement Annuity Fund (registration number: 37469) and/or the Discovery Investment Retirement Annuity Fund (DIRAF) (registration number: 37787). On acceptance, you will be bound by the rules of the Discovery Retirement Annuity and/or the Discovery Investment Retirement Annuity Fund. The fund you are a member of will be shown on your member certificate. Your benefit in the retirement annuity funds cannot be ceded, transferred, assigned, reduced, hypothecated or pledged and is subject to the provisions of the Pension Funds Act No. 24 of You are therefore not allowed to use the benefit or right to the benefit as security or transfer it to someone else or make it over to a third party. Also, your creditors cannot attach the benefit or right to the benefit. Membership of the retirement annuity fund will only be confirmed if Discovery, acting as the fund s appointed administrator, has confirmed to you in writing that your application for membership has been accepted, and that your first contribution has been received. The fund rules state that, at your selected retirement age, your investment amount in the retirement annuity fund accrues to you. This consists of your contributions plus/minus any investment returns and minus all fees and premiums that have been levied. The fund rules and the Income Tax Act provide that you may currently take up to a third of your investment as a cash lump sum at retirement, and that the balance must be used to purchase an annuity from a registered insurer. Tax in accordance with the applicable tax rules and rates, as determined by the South African Revenue Service, will be applied on any lump sum and annuity payments. The income received from the annuities will be taxable as gross income in terms of the Income Tax Act. Your contributions will be administered in terms of the provisions of the Pension Funds Act and the fund rules. 1.3 Contributions to the Retirement Plans If you have chosen the Core Retirement Plan, you may make a once-off lump sum contribution or recurring monthly contributions. You are also entitled to make occasional ad-hoc contributions into your Core Retirement Plan. If you have chosen the Classic Retirement Plan, you may make a once-off lump-sum contribution. Any additional ad-hoc contributions that you make will be invested in new Classic Retirement Plans. 2 Lump sum contributions to your Retirement Plans 2.1 Phasing in your lump sum contribution Lump sum contributions may be phased in monthly through a money market account. If you want to phase in your investment, the full contribution amount will be invested into the Discovery Money Market Fund. The contribution amount (plus interest) will be divided by the number of periods you chose and the amount derived will be withdrawn in the first month from the Discovery Money Market Fund and invested proportionately in the investment options selected. In the second month, the remaining amount will be divided by the number of phase-in periods remaining and invested. This will continue until all the money is phased in. You can choose to phase your investment in over a period of 3, 6, 9, 12, 15, 18, 21 or 24 months. Your selected phase-in period (if applicable) is reflected on your member certificate. 1

4 2.2 Fees applicable to your Retirement Plan There are certain fees on both the Core and Classic Retirement Plans. The fees are categorised into initial fees and annual fees and must be paid to: Discovery Invest for administering your policy Your financial adviser for performing financial planning on your behalf The investment managers of the underlying investment choices you have selected. If you have chosen the Classic Retirement Plan, an additional Protector Premium of 1.2% per year is payable to Discovery Life for providing the unique protections and enhancements detailed in section 6. This premium is a percentage of your investment fund and is deducted monthly as 1/12th of the annual Protector Premium Initial fees Discovery Invest Initial Fee If you are making an initial lump sum contribution into your Core or Classic Retirement Plan, your initial fee is based on the size of your contribution. If you invest more than R there will be no initial fees. If you invest less than R , you will pay fees on a tiered structure as follows: Contribution Amount Initial fee as a percentage of contribution amount First R % Next R % Next R % Please note that these figures will be increased by VAT. Financial Adviser Initial Advice Fee On a lump sum contribution, your financial adviser may charge an initial advice fee as a percentage of your contribution amount, which Discovery Life will pay over to your financial adviser from your contributed amount on behalf of Discovery Invest. 100% allocation or upfront payment You have an important choice to make in terms of the initial fees payable to Discovery Invest and your financial adviser: do you want to pay these fees upfront, or pay it off over the first five years of your policy? If you choose to pay these fees over five years called 100% allocation the amount is calculated upfront and you then pay it off over five years. In effect, Discovery pays the initial advice fee to your financial adviser, and then recoups this and any Discovery Invest Initial Fees from your Retirement Plan over five years. The amount that you will have to pay over the five years is the Discovery Invest Initial Fee (including VAT) plus the Financial Adviser Initial Advice Fee (including VAT if applicable) multiplied by This is divided over 60 months and paid in equal monthly instalments. Example of how the fee calculation works: Lump sum contribution On a lump sum contribution of R75 000, based on the Discovery Invest Initial Fee scale, of 1.75%, the Discovery Invest Initial Fee amounts to R Assuming that you and your financial adviser agreed to a 2% Financial Adviser Initial Advice Fee on your initial R contribution, that works out to an additional cost of R1 710 (including VAT). If you paid your Discovery Invest Initial Fee and Financial Adviser Initial Advice Fee in one go, you would pay the following: Discovery Invest Initial Fee R Financial Adviser Initial Advice Fee R Total initial fees R Therefore, with your initial contribution of R minus the applicable fees an amount of R would be invested into your underlying fund choices. What if you chose 100% allocation? If you want to rather pay the Discovery Invest Initial Fee and Financial Adviser Initial Advice Fee over five years, so that the total contribution of R is invested into the underlying fund choices, you will pay the total initial fee of R multiplied by 1.262, over five years. R x = R So instead of paying R immediately, you will pay R67.44 per month for a period of 60 months. Please note: this fee will not change and will remain R67.44 for the entire 60 months. Investment Manager Initial Fees Please remember that certain investment management companies may charge initial fees on their funds that you may choose Annual Fees Discovery Invest Annual Administration Fee You also pay an annual administration fee. This is not calculated based on the size of your initial contribution, but rather on the size of your investment fund. The percentage charged on an annual basis decreases as your fund value increases, as shown in the following table. Investment fund size Discovery Invest Annual Administration Fee First R % Next R % Next R % Next R % Over R1 million 0.30% Please note: these percentages will be increased by VAT. Units in your investment fund are redeemed on a monthly basis as 1/12th of this fee. If you choose this option, 100% of your initial contribution amount is allocated to the underlying investment options at inception of your contract. If you decide to transfer your investment to another insurer, Discovery will deduct any unpaid monthly fees resulting from the 100% allocation. If you did not choose 100% allocation, you will be able to transfer your full investment value. 2

5 Financial Adviser Annual Advice Fees Your financial adviser may also charge an annual advice fee as a percentage of your investment fund value for managing your investment fund. Units will be redeemed on a monthly basis for this as 1/12th of the advice fee selected, increased by VAT. Discovery Life will deduct these from your investment on behalf of Discovery Invest and pay these over to your financial adviser. Investment Manager Annual Fee The investment managers to your underlying investment choices will normally charge an annual management fee as a percentage of your investment in their fund. This fee is divided by 365 and deducted daily in the unit prices provided by the investment manager to Discovery Invest. 3 (only available on the Core Retirement Plan) 3.1 Annual contribution increases If you ve chosen recurring contributions, you can also choose to have an annual automatic contribution increase (ACI) added to your investment. This means that your contributions will increase annually at policy anniversary by the ACI option selected. You can choose an ACI of 0%, CPI, 10%, 15% or 20% per year. 3.2 Definition of CPI CPI is defined as the latest available CPI Index at the time of producing the policy anniversary letters. Core CPI is determined by the South African Department of Statistics and capped at 15% per year. Remember that you stop paying contributions when you reach your selected retirement age. 3.3 Discovery Invest fees and financial adviser fees The way fees are charged for recurring contributions (monthly or annually), is different to that of lump sum contribution fees. There are two fee structures: Option 1 Discovery Invest Initial Fee Under this option, you will receive 100% allocation. That means that no initial fees will be deducted by Discovery, although certain investment management companies may charge initial fees on certain funds that you may choose. Discovery Invest Policy Fee Recurring contributions to your Retirement Plan You will pay a monthly policy fee of R25 regardless of how large your monthly contribution is. This R25 policy fee will increase by CPI each year. Discovery Invest Annual Administration Fee You pay an annual administration fee of 3.5% of the size of your investment fund. This will be increased by 14% to offset VAT expenses. Fee PayBack You also qualify for Fee PayBack, which provides a refund of 55% of all Discovery Invest Annual administration Fees at the end of 10 years and every five years thereafter. You will also benefit from any investment growth you would have achieved on the fees that are paid back. All subsequent Fee Paybacks will be based on the cumulative administration fees paid since inception plus investment growth less any previous Fee PayBack refunds. If your retirement date does not coincide with a Fee Payback date (as described above), you will also receive an additional Fee PayBack at your retirement date. This will also be based on the cumulative Discovery Invest Annual administration Fees paid since inception plus investment growth less any previous Fee PayBack refunds. If retirement occurs within the first 10 years, the Fee PayBack percentage is as follows: Actual policy duration months 30% months 35% months 40% months 45% months 50% Percentage If retirement occurs after 10 years, the Fee PayBack percentage is as follows: (Number of completed months since the last Fee PayBack refund) / 60 x 55% You will only receive this additional Fee PayBack on your actual retirement date. If you retire after your initial selected retirement age, the Fee PayBack percentage paid will be based on this longer duration, according to the formulae above. Should you retire more than 12 months prior to your final policy anniversary as initially selected, the Fee PayBack at retirement will not be paid. Reducing or stopping your contributions or transferring your Retirement Plan to another insurer If you reduce or stop your contributions before your selected retirement age, or transfer your Retirement Plan to another insurer, Discovery Invest may charge an early exit fee. If you transfer your Retirement Plan to another insurer or stop paying your contributions (make your policy paid-up), this fee will be a maximum of 15% of your investment value in the first month, reducing linearly to zero over half the term of your Retirement Plan. The minimum term over which it will reduce to zero is five years and the maximum is 10 years. If you reduce your monthly contribution, you will be charged the early exit fee on your fund value as detailed above multiplied by the percentage reduction in your contribution. If you reduce your contributions, the cumulative balance of the Discovery Invest Annual Administration Fees that qualify for the Fee PayBack (if applicable) will be proportionately reduced. If you stop your contributions you will not receive any future Fee PayBack refunds. This is an annual fee, so the amount is divided by 12 and charged monthly. 3

6 3.3.2 Option 2 Discovery Invest Initial Fee 4 Retirement age You will pay an initial fee which is deducted from your contribution before it is invested into your chosen underlying fund. The calculation of the initial fee percentage to Discovery Invest is based on a formula as follows: ( %*Monthly contribution)/100 + VAT (Subject to a minimum of zero) If you choose to pay your contributions annually, the initial fee in the formula above will be based on the annual contribution divided by 12 and deducted from your annual contribution. Your financial adviser may also receive Financial Adviser Initial Advice Fees as a percentage of your contribution, as-and-when you pay your contribution. This will also be deducted from the contribution you pay. If you only pay a contribution once a year, your financial adviser will only receive the financial adviser s fee once a year. Discovery Invest Policy Fee There is no policy fee under Option 2. Discovery Invest Annual Administration Fees In addition to the initial fee, you ll also pay an annual administration fee based on your investment fund size. Investment fund size First R % Next R % Next R % Next R % Over R1 million 0.30% Annual administration fee These are annual fees, so the fee is divided by 12 and charged monthly. Please note that VAT must also be added to these fees each month. Your financial adviser may charge an annual advice fee as a percentage of your investment value. This will be deducted in addition to the annual fees above. Discovery Life will deduct these fees from your investment on behalf of Discovery Invest and pay these over to your financial adviser. Reducing or stopping your contributions or transferring your Retirement Plan to another insurer You will not pay any early exit fees or paid-up penalties if you stop or reduce your contributions or move your Retirement Plan to another insurer. Fees payable to the investment manager (Option 1 and Option 2) Fees payable to investment managers differ from investment manager to investment manager, and between individual funds. Depending on the investment manager, an initial fee (usually between 0% to 0.57%) will be levied. The investment manager annual fee is deducted daily within the unit price so you don t need to pay any further fees. The fees applicable to your fund choice are reflected on your member certificate. Fee and premium reviews for lump sum and recurring Retirement Plans Fees and Protector Premiums quoted at inception are not fixed and may be reviewed during the investment contract term. Before any increases, Discovery Invest will inform you in writing about the changes as well as the options available to you. Any fee changes on the Retirement Annuity Fund must be approved by the Board of Trustees. Irrespective of the retirement age you selected at inception, you may decide to change your actual retirement date. The actual retirement age must be age 55 or above. If you choose to retire earlier than your initially selected date, your retirement benefits may be reduced. This reduction will be on the same basis as if you stopped your contributions at your earlier retirement date. Should you choose to retire later than your initially selected retirement date, your investment as well as future contributions will continue until the new retirement date. Any changes to your retirement date could affect your Classic Retirement Plan benefits and should be done in consultation with your financial adviser Investment choices that are available Your contributions to the Core or Classic Retirement Plan will be invested in the underlying investment options that you have selected. The investment options selected and the allocation of the contributions between these investment options will be reflected on your member certificate. Should any of the underlying investment options be capped or cease to exist, Discovery Invest will request an instruction for a new selection from you. 5.2 Discovery s range of investment options Discovery Invest Funds Discovery s range of funds cater for a full range of risk profiles. There are single manager unit trust funds which offer flexibility and control for clients with specific investment objectives, while the multimanager funds offer solutions for clients who want an additional layer of investment manager diversification. Discovery Invest has partnered with Investec Asset Management, one of South Africa s leading asset managers, to manage the range of single manager Discovery Invest Funds. Discovery has partnered with Investment Solutions to provide the multi-manager offering Alpha Indices Choosing the underlying funds for your Retirement Plan Through Discovery s association with Deutsche Bank, Discovery Invest is able to provide investors with access to new generation investment methodologies. Deutsche Bank has, through its proprietary models and investment research, constructed a range of investment indices. This is done by weighting various shares according to predefined criteria to construct the relevant indices. Through Discovery Invest, you are able to invest in these indices. Depending on the index chosen, you are able to get exposure to local as well as global returns. Because these are not unit trusts, they are not regulated by the Collective Investment Schemes Act. 4

7 5.2.3 Target Retirement Date Funds If you are looking for a simple, yet scientific approach to saving for a planned retirement date, the Discovery Target Retirement Date Funds provide an effective solution. The process is simple select your planned retirement date and the fund does the rest. Based on the selected target retirement date of the fund, professional investment managers adjust the fund s mix of asset classes over time as the target retirement date approaches. Typically, the investment managers would move funds from an initial more aggressive approach, which has the potential for higher returns to one which is more conservative. This approach is designed to enhance the potential for long-term returns and helps to limit the investment risk. Once the fund reaches its target date, it will still be actively managed placing increasing emphasis on generating income and reducing risk into your retirement. The Target Retirement Date Funds are unit trusts and are managed by Investec Asset Management Dynamic Asset Optimiser The Dynamic Asset Optimiser model is based on the findings of Harry Markowitz, a Nobel Prize winner in Economics. The Dynamic Asset Optimiser is built on the premise that correct asset allocation is the main driver behind the matching of risk and return, as market conditions change. There are four steps that the investor follows to make the investment: 1. Identify your investment risk profile as aggressive, moderate or low risk. 2. Through the Dynamic Asset Optimiser, you will be provided with a split of asset classes that matches your risk profile at inception of your contract. 3. You select your funds within each of the asset classes. You may choose between: Discovery Funds a range of Discovery Invest unit trusts selected by Discovery Invest Client choice you can select from a range of external unit trusts or Discovery Invest unit trusts. 4. Discovery will rebalance your chosen funds from time to time based on the optimal asset class mix. This rebalancing is designed to ensure that the split between the various asset classes matches your selected risk profile on an ongoing basis Escalator Funds The Escalator Funds are designed to provide unlimited upside potential in bull markets, while offering downside protection in bear markets. You are protected at a level of at least 80% of the highest value the Escalator Fund has ever reached. This ensures that if markets are down when you want to realise your investment, you have the guarantee that you will be always be able to realise at least 80% of the highest value of your Escalator Fund. The fund is calculated with reference to a mix of assets that dynamically rebalances between an underlying riskier asset and a cash component on an ongoing basis. This rebalancing is done according to a defined algorithm. As the performance of the riskier asset improves, the allocation to the riskier asset increases. If the performance of the riskier asset falls, the allocation to the riskier asset decreases. Discovery Invest provides a range of Escalator Funds with various unit trusts and indices as the underlying riskier asset that you may choose from. Geared Escalator Funds You can choose the Geared Escalator Funds that give you the same downside protection of at least 80% of the highest level that the fund has ever reached. The Geared Escalator Funds are calculated with reference to the rebalancing between the riskier asset and the cash component in a similar way to the Escalator Funds described above, except, that when the riskier asset is performing well, the Geared Escalator Fund is based on using gearing (borrowing money, internally within the fund at a rate of SAFEX + 0.8%) to give up to 120% exposure to the riskier assets. You will earn any excess returns on the borrowed money that the riskier asset earns over SAFEX + 0.8%. Because of this borrowing, the Geared Escalator Funds are for a more aggressive investor than the Escalator Funds. Additional information regarding the provider of the guarantees and any credit risk associated with a particular Escalator or Geared Escalator Fund can be found on the relevant fund fact sheet at External funds Discovery also offers access to a wide range of external investment managers to provide flexibility in your investment choice. The annual fee charged for administering the Dynamic Asset Optimiser is 0.25% if you selected the Discovery Funds and 0.50% if you selected Client choice. These are annual fees, so the fee is divided by 12 and charged monthly. The fee is levied proportionately across the selected investment options within the Dynamic Asset Optimiser. These fees will be increased by 14% to offset VAT expenses. These fees may be reviewed in the future. Before any fee increases, Discovery Invest will inform you in writing about the changes. 5

8 6 Benefits to enhance and protect your Classic Retirement Plan If you have chosen the Classic Retirement Plan, you have automatic access to a range of benefits designed to enhance and protect your investment fund. There are six benefits: 1. Retirement Tax Funder 2. Quartile Performance Protector 3. Target Retirement Date Inflation Protector % Escalator Retirement Guarantee 5. Early Retirement Disability Protector % Escalator Death Guarantee These six benefits are explained below. 6.1 Retirement Tax Funder The Retirement Tax Funder will assist you in funding the tax liability that results from the lump-sum withdrawal you make from your Classic Retirement Plan at retirement. At retirement, the Retirement Tax Funder will provide a boost to help pay for any tax on your lump-sum withdrawal. This boost will effectively make your withdrawal tax-free up to certain limits, depending on how many years you remain invested in the Classic Retirement Plan as per the table below: Years invested in the Classic Retirement Plan up to retirement 20 or more ( 240 months) R to 20 ( months) R to 15 ( months) R to 10 (0 119 months) R Effective maximum tax-free lumpsum withdrawal at retirement due to Retirement Tax Funder and applicable tax tables The table above will be changed at Discovery s discretion from time to time in line with changes to taxation. Discovery will boost your fund through the Retirement Tax Funder in line with your maximum permissible lump sum withdrawal of one third of your retirement fund at retirement and the tax tables at the time. Any boost you qualify for through the Retirement Tax Funder will be paid into your Classic Retirement Plan at retirement, before any cash lump-sum withdrawal. Discovery will increase the boost amount to allow for any additional tax on the boost itself. 6.2 Quartile Performance Protector The Quartile Performance Protector is designed to help ensure that the performance of a range of Discovery Funds you have chosen for your Classic Retirement Plan is favourable relative to the other funds in their respective sectors. If your chosen Discovery Fund s performance is not in the top 25% of all funds in its sector over each five year period from your commencement date, you will receive a boost of up to 20% to your fund s five year growth based on the fund s relative performance in its sector. The boost will be payable at the end of each five year period. The percentage boost depends on the performance quartile that the fund is in over the five year measurement period in its sector and applies only to certain Discovery Funds. The largest boost will be received if your fund is in the fourth quartile with lower boosts in the third and second quartiles. The funds included in each sector will be updated at Discovery s discretion from time to time. The full details of the boosts your selected funds qualify for under the Quartile Performance Protector can be found on your investment certificate. The boosts shown on your investment certificate are expressed as a percentage of the amount in the relevant Discovery Fund at the start of the five year period. Discovery may update the list of qualifying funds from time to time. Should you own a Discovery LIFE PLAN with a monthly premium above the minimum qualifying LIFE PLAN premium at the time for the full five year period, you will qualify for an additional 10% boost that is paid over and above the percentages shown on the investment certificate if your chosen fund is not in the top quartile. You will receive this additional 10% boost, subject to Discovery maximums, as long as your LIFE PLAN remains in force for the full five years preceding the payout. This qualifying LIFE PLAN premium will be increased each year in line with the average increase in Discovery LIFE PLAN premiums for all new Classic Retirement Plans. You must be invested in the applicable Discovery Fund for the full five years in order to receive the boost at the end of the five year period. If you transfer out of your Classic Retirement Plan or switch out of qualifying funds, your Quartile Performance Protector will be proportionately reduced. Should you switch into a qualifying Discovery Fund after the start of any five year period, your boost will be reduced by 20% if the switch is in the first year and by an additional 20% in each year thereafter within the five year period. If you are invested in the Dynamic Asset Optimiser and have chosen the Discovery Funds option, the Quartile Performance Protector will be based on the starting allocation of Discovery Funds to the various asset classes over the five year period. The Quartile Performance Protector boost will not be affected by the Dynamic Asset Optimiser rebalancing done by Discovery. 6.3 Target Retirement Date Inflation Protector The Target Retirement Date Inflation Protector will assist you in achieving a growth rate on your selected Target Retirement Date Fund(s) in line with or in excess of inflation. At the end of every five years that you remain invested in a Target Retirement Date Fund, Discovery will boost the amount in that fund if it has underperformed the inflation target over the previous five year period. The size of the boost is intended to bring the growth on the Target Retirement Date Fund in line with your relevant inflation target. The boost will be limited to 10% of the amount in the relevant Target Retirement Date Fund at the start of the five-year period. Your inflation target will depend on your age at the end of the five-year period as per the table below: Age next (years) Inflation target Up to 50 CPI + 3% 51 to 60 CPI + 2% More than 60 CPI + 1% You must remain invested in the relevant Target Retirement Date Fund for the full five years continuously in order to receive any boost to your fund. Money switched into a Target Retirement Date Fund within the first six months of a five-year period will qualify for the full five year Target Retirement Date Inflation Protector, after which any money switched into a Target Retirement Date Fund will not qualify for the benefit at the end of the five-year period. 6

9 % Escalator Retirement Guarantee The Discovery Escalator and Geared Escalator Funds provide an 80% guarantee of the highest unit price ever reached by the fund. The 100% Escalator Retirement Guarantee increases this guarantee at your originally chosen retirement date to 100% of the highest unit price reached while you were invested in the relevant Escalator Fund. In order to receive this added protection, you must be invested in the same Escalator Fund for at least five years continuously prior to the retirement date. The amount payable under this benefit is the number of Escalator Fund units you own at your originally chosen retirement date and that you have owned continuously for at least five years prior to retirement, multiplied by the difference between the highest unit price achieved by the particular Escalator Fund while you were invested and the unit price of the Escalator Fund at your retirement. Any money switched or contributed into an Escalator Fund within five years before your retirement date will not qualify for the benefit. The 100% Escalator Retirement Guarantee will be proportionately reduced by any transfers out of your Classic Retirement Plan. 6.5 Early Retirement Disability Protector The Early Retirement Disability Protector boosts the value of your Classic Retirement Plan to help compensate you for potential lost future investment returns if you become disabled. The boost will be an amount which is payable into your Classic Retirement Plan if you qualify for a claim under category A or B of the Capital Disability Benefit as defined in the Discovery Individual LIFE PLAN Guide applicable at the time of your claim. A copy of the current Guide is available at The disability must result in early retirement from the Classic Retirement Plan in order to receive the Early Retirement Disability Protector. The amount payable depends on how many years you have left before you reach the age of 65 (shown in the table below) from the date of a valid disability claim. Years to age 65 Boost to your fund value for a Category A Disability Claim 15 or more ( 180 months) 20% 10% 10 to 15 ( months) 15% 7.5% 5 to 10 ( months) 10% 5% 0 to 5 (< 60 months) 5% 2.5% Boost to your fund value for a Category B Disability Claim Please note that any contributions paid into your Classic Retirement Plan within three months of a disability claim will not qualify for the Early Retirement Disability Protector. Only one claim will be admitted per Classic Retirement Plan. This benefit will not pay out on your initial contribution for self inflicted injuries or if your claim arose directly or indirectly from any condition, illness, disability or impairment that existed prior to inception of this benefit and of which you knew about and sought medical treatment or medical advice for from a recognised medical practitioner. This benefit expires on reaching age % Escalator Death Guarantee The 100% Escalator Death Guarantee pays a boost into your Classic Retirement Plan if you die while invested in any of the Escalator or Geared Escalator Funds. The amount payable under this benefit is the number of Escalator Fund units you own at the time of your death, multiplied by the difference between the highest unit price achieved by the particular Escalator Fund and the unit price of the Escalator Fund at the time of your death. This allows you to lock in 100% of the highest value your Escalator fund has ever reached, protecting your assets against a possible untimely death. If you switch out of Escalator Funds or withdraw from your Classic Retirement Plan prior to Discovery s acceptance of a valid claim, the 100% Escalator Death Guarantee will not be paid. The benefit will not pay out if your death is caused directly or indirectly by a condition, illness, disability or impairment that existed prior to investing in or switching into the Escalator or Geared Escalator Fund and of which you knew about and sought medical treatment or medical advice for from a recognised medical practitioner. This benefit will also not pay out if you commit suicide. 7 You may switch between investment options at any time, subject to Discovery Invest s practice at the time. The current practice (April 2012) is to allow four free switches per year. Additional switches will attract a fee of 0.25% of the value switched. This fee will be increased by 14% to offset VAT expenses and is capped at a maximum of R500 per transaction. A switch will be subject to any initial fees levied by the investment managers to which the funds are switched. 8 There is currently no income or capital gains tax payable in the Retirement Annuity Fund (April 2012). Discovery Invest will implement any changes to tax practice as appropriate. 9 Switching between investment options Taxation Death or ill-health before your selected retirement date Section 37C of the Pension Funds Act applies, which requires the Board of Trustees of the Fund to distribute your benefits equitably between your dependants (whether nominated as beneficiaries or not) and/or nominated beneficiaries. You may change your beneficiary nomination at any time by notifying Discovery Invest in writing. Notification must reach Discovery Invest before your death, failing which the Trustees of the Fund will not consider the notification. 7

10 9.1 The death benefit amount On death, the retirement benefits will be transferred to the deceased investor s dependants, stated beneficiaries or to the deceased investor s estate in line with legislative requirements and the rules of the Fund. Once Discovery Invest has been notified that an investor is deceased, Discovery Invest will prevent any income (if applicable) or retirement fund being paid to the deceased investor s bank accounts as well as any expenses being deducted from the investment. Discovery Invest will provide the deceased investor s executor of the estate with the relevant documents to be completed. Once these have been returned to Discovery Invest, a resolution will be drafted and presented to the Trustees of the Fund for approval. Once approval is received from the Trustees, and any tax amounts have been paid, the benefit will be paid as per the resolution. 9.2 Ill-health Should you retire due to ill-health, as defined in the Pension Funds Act, even if this is before the selected retirement date, your retirement benefits that have accrued will be payable as described in section Contribution Waivers You can purchase Contribution Waivers for serious illness or disability on your Discovery recurring contribution Core Retirement Plan. This ensures that your contributions continue in the event of ill-health or disability. This benefit waives all contributions and automatic contribution increases until the end of the contract term or age 65 next if earlier in the case of a claim. The premium for the Contribution Waiver as well as the cover for the Contribution Waiver will expire at the policy anniversary preceding age 65. For the Contribution Waivers to apply, the investor must satisfy the Category A criteria of the Capital Disability Benefit or Severity A criteria of the Severe Illness Benefit (as defined in the Discovery Individual LIFE PLAN Guide). The premiums for the Contribution Waiver benefits are a percentage of the Core Retirement Plan contributions and will be deducted before the remaining amount is invested Medical exclusions for which you are not covered Claims will not be admitted for conditions, physical defects, illnesses, bodily injuries or diseases that you have suffered from, were aware of, or have received medical treatment or advice for during three years before the commencement of the Contribution Waiver benefit What you should know about Escalator Funds They are based on a riskier asset and a cash component. The riskier asset may be a Discovery unit trust, an external unit trust, an index or set of indices (the list of funds is available from Discovery Invest). The value of the fund at any point in time is based on the market value of both the underlying riskier asset and the cash component. The 80% dynamic market value guarantee level is based on the overall value of each Escalator Fund and not on the value of the riskier asset only. The guarantee applies at all times and not only at the end of a specified time. For Geared Escalator Funds, the exposure to the riskier asset may exceed 100%. This additional exposure is achieved by effectively borrowing money. If the additional growth on the additional exposure is less than the interest rate on the borrowed component, the overall fund value may decrease. The allocation between the riskier asset and the cash component is determined through an algorithm which enables the guarantee at any time The cost of Escalator Protection The cost of making an investment in an Escalator Fund is an initial Protector Premium of 0.25% 0.50% of your contribution, plus an annual Protector Premium of 1.00% of the Escalator Fund value. This is deducted daily and is embedded in the unit price of the applicable Escalator Fund. These costs are not fixed and may be subject to change in the future. In addition, as with all funds, there are asset management fees which are built into the prevailing unit prices. Discovery will inform you in writing before any changes are made to the Protector Premiums. 12 Invest Aware Business Practices 12.1 How should I issue instructions to Discovery Invest? Instructions must be given in writing on the relevant forms. These instructions must be sent to Discovery Invest either by fax on or ed to invest_support@discovery.co.za The forms are available from us when calling Will I receive regular statements on my investment? Discovery Invest will provide a quarterly statement reflecting your investment values and all transactions during a specified period (or previous quarter). Discovery Invest will provide all investors in the Retirement Annuity Fund with an income tax certificate indicating the Retirement Annuity Fund contributions for the relevant tax year. 8

11 12.3 What happens if an investment choice that I selected is unavailable? It may happen that Discovery Invest is unable to continue offering a certain investment option as an investment choice. In the event of this happening, Discovery Invest will inform investors accordingly and will request an instruction to select a new investment choice Misrepresentation The information given to Discovery Invest in your application form, or any other documents that you provide in support of your application, forms the basis upon which your contract is issued. If you fail to disclose any information, or provide false information or distort information when applying for your contract, Discovery Invest will be entitled to suspend your cover from the inception date of your contract. In addition to this, Discovery Invest will also be entitled to: Refuse to pay out any current or future claims that are related to the misrepresentation or non-disclosure Adjust your premium or contribution from the date of the misrepresentation or non-disclosure Recover monies already paid to you for claims that relate to the misrepresentation or non-disclosure Cancel certain benefits or your entire contract with immediate effect, and retain any premiums or contributions paid to Discovery Invest or Discovery Life as a penalty Fraud Your contract and all its benefits will be cancelled should you: Submit a fraudulent claim Use any fraudulent means or devices to make your claims Provide false information in order to obtain a benefit Knowingly allow anyone acting on your behalf to provide false information in order to obtain a benefit Deliberately and wilfully conspire to cause the illness or disability that gives rise to a claim Consent to disclosure You are required to consent to the exchange of information, including medical information, between Discovery Invest, Discovery Life, any medical practitioner you have consulted or any other life office, Discovery Health and Discovery Health Medical Scheme Contact details Please remember that in addition to talking with your financial adviser, if you have any Discovery Invest questions or service needs, you can call us on You can also visit for additional resources and a downloadable version of this Fact File (as a PDF file). 9

12 The Fact File is part of Discovery Invest s commitment to fairness and full compliance with legal requirements for financial service providers to provide detailed easy-to-understand information about how each product works. Each investor must consult their own financial adviser who must be an authorised financial services provider to advise the investor as to the suitability of the products and funds for the investor s personal investment needs. Discovery Life is a registered long-term insurer and an authorised financial services provider. Discovery Invest is an authorised financial services provider. Copyright Discovery Invest All rights reserved Physical address: 155 West Street Sandton Postal address: PO Box Benmore 2010 Contact centre number: Fax number: GM_15878DI_25/05/2012 IRFFE 04/12