Information Session for Living Annuitants February 2017
Agenda 1. Your Board of Trustees 2. Understanding Living Annuities 3. Investment Choices 4. Investment Returns 5. Understanding your Benefit Statement 6. Amendments to the Rules 7. Information Sources 8. Disclaimer 9. Questions
Board of Trustees: 7 December 2016 to 31 December 2019.
What is a Living Annuity? A Living Annuity (LA) is an annuity (or pension payment) that should live for the rest of your life time. Your retirement capital was used to set up an account from which annuity or pension payments (usually called drawdowns) are made, fees are deducted and investment returns added (these can be negative). A living annuity allows you to set your income level within the official drawdown limits (currently between 2.5% and 17.5%) and allows you to select a range of investments in respect of the capital that will generate the annuity. Neither the percentage nor the Rand income level selected is guaranteed for life.
Risks As a Living Annuitant, your responsibility increases in that you assume mortality risk over and above the investment risk that you carry. As a living annuitant, there are four important risks, namely: Drawing risk The risk of living too long Investment risk Inflation risk
Managing your UCTRF Living Annuity Drawdown percentage A drawdown is the percentage of capital which a Living Annuitant chooses to receive for the year. You must elect your annuity/pension level annually. The pension can be paid to you monthly, quarterly, biannually or annually. The Administrator of the Fund will send your Annual Income Change form to you for completion within two months of your annuity anniversary date. Please complete and return this form to the Administrator by the due date to ensure the continuous payment of your pension.
EXITS FROM A LIVING ANNUITY Can I transfer my Living Annuity with the UCTRF to another insurer? You may use the balance in your Living Annuity Account to purchase either a Living Annuity or a Life Annuity from another Insurer. This represents a transfer in terms of Section 14 of the Pension Funds Act which requires the approval of the Registrar of Pension Funds this is a routine process but unfortunately tends to delay the transfer. Can I withdraw the capital from my Living Annuity? If the living annuity balance falls below the amount prescribed by the Commissioner, at that time, the pensioner or beneficiary as the case may be, may commute the amount and be paid this in cash. Otherwise, you cannot withdraw the capital.
When is a living annuity inappropriate? In the view of Trustees, living annuities may not be an appropriate vehicle if the following apply: You are NOT willing to tolerate the possibility that your pension from this source may run out at some point before your death, AND You are not happy or able to carry the responsibility of making decisions about your pension (investment and amount) continually until you die (possibly at the age of 90+), Regular review should be prompted by the fact that your circumstances may change in retirement: for example, you may have taken alternative employment after retirement which has now come to an end, or you may be less comfortable with the prospect of continuing to make investment and drawdown decisions late in retirement. You may accordingly wish to consider the possibility of converting your living annuity to a life annuity.
When is a living annuity inappropriate? In the view of Trustees, living annuities may not be an appropriate vehicle if the following apply: You are NOT willing to tolerate the possibility that your pension from this source may run out at some point before your death, AND You are not happy or able to carry the responsibility of making decisions about your pension (investment and amount) continually until you die (possibly at the age of 90+), Regular review should be prompted by the fact that your circumstances may change in retirement: for example, you may have taken alternative employment after retirement which has now come to an end, or you may be less comfortable with the prospect of continuing to make investment and drawdown decisions late in retirement. You may accordingly wish to consider the possibility of converting your living annuity to a life annuity.
What is a Life Annuity (Pension) Receive a guaranteed income for the rest of your life (life annuity). If you choose the life annuity, you will be provided with a guaranteed income throughout your retirement years as long as you are alive. You will receive the annuity income after the deduction of any required tax throughout your lifetime. On death, the annuity income will end (unless you choose a guaranteed payment term or a joint annuity). Traditional guaranteed annuities, which are bought from life assurance companies, are based on prevailing long-term interest rates, your age and your gender. The older you are, the higher the pension you will be paid, because the life assurance company does not expect that you will live as long as someone who is younger. Women are expected to live longer than men, so they receive a lower monthly pension, but on average over time the same as earlier-dying men.
What happens to my living annuity in the event of my death? Your beneficiary or beneficiaries inherit your capital balance in your living annuity account. The remaining capital can continue to be paid to your beneficiary or beneficiaries as it was paid to you, or it can be taken as any other pension that may be purchased, or your beneficiaries can elect to take a lump sum payment. The allocation is determined by the Trustees in terms of Section 37C of the Pension Funds Act 24 of 1956. Your benefit in the Fund should be distributed to: financial dependants; or financial dependants and nominees; or if there are no financial dependants, to nominees (but any deficit in your estate first has to be settled); or if there are no dependants or nominees, to your estate.
To summarise briefly the key features of the different types of annuities available: Living annuity you make the decisions (around where the money is invested and how much annual pension you take), have the most flexibility and have the least guarantee that your pension will last until your death. You bear the investment risk and the risk of living too long! Inflation linked life annuity this is a pension which is guaranteed for life. The initial pension amount is determined by the insurer and is guaranteed to increase with inflation. The insurer bears both the investment and the longevity risk. With profits life annuity pension which is guaranteed to be paid for life. The initial pension amount is determined by the insurer. The pension increases are determined by the insurer and are linked to investment performance the pension can never be reduced. You bear some of the investment risk, but the insurer bears the longevity risk (i.e. the risk that you will live longer than expected). It may be that your review of your circumstances leads you to the conclusion that your living annuity remains the vehicle best suited to meet your needs in retirement.
Nomination of Beneficiaries You MUST complete the recommendation of beneficiaries under the UCTRF: complete and return form HR151 You MUST complete the nomination of beneficiaries under the separate Group Life Assurance Scheme (if you are under NAR and elected this cover on early retirement): complete and return form HR155
Investments
Investment Policy Statement
Annual Investment Choice Because the fund is a member-investment choice fund, the Trustees believe that it is necessary that all members have the fullest opportunity to make informed decisions about these matters. The UCTRF Investment Guide (available on the UCTRF website) is a first step to help you with regard to investment decisions. The UCTRF Website www.uctrf.co.za has a toolkit which includes a retirement calculator to help you plan for retirement. We encourage you to read this and use the Website. Your switch forms are included with your benefit statement documents. The UCTRF Office will send you confirmation of switch, i.e. a copy of your switch form, confirmation of receipt email and a confirmation of switch letter once the switch has been concluded. If you have exercised a switch but have not received any confirmation, please contact the UCTRF Office.
How do I choose an investment portfolio? As a Living Annuitant you have exactly the same Portfolio options to choose from as you had as an active member/ deferred pensioner of the Fund, i.e. Portfolio A, B, C and D. Living Annuitants have different needs and requirements when it comes to investments and the risks they, as pensioners, can accommodate. In general, as a living annuitant ages, his/her investment horizon shrinks and less volatile investment choices are warranted (e.g. more in Portfolios A and B and less in Portfolio C). Each Portfolio in the UCTRF has its own unique risk profile and you choose the portfolio that is most suitable for you and with a risk profile that closely matches your needs and expectations.
Common mistakes Too conservative an investment strategy When faced with investment choice, members often choose too conservative a channel relative to the risks they face. Trying to "time the market" Experience shows that some members believe that they can "time" the share market. This means they try to get out at the "top of the share market" and buy back in at the bottom of the share market. The evidence shows that Retirement Fund members who try to "time" the market usually get it wrong. The evidence also shows that members chase the share market when it is near its highs (the worst time to do so) and avoid the share market after a sharp fall (often the best time to get back into the share market).
2016 SUMMARY OF INVESTMENT RETURNS The Shari ah Fund, Portfolio D, was introduced on 1 April 2010 and does not yet have a 7-year track record. * inception date is 1 April 2010 for Portfolio D, 1 January 1995 for the other portfolios.
Jan-95 Sep-95 May-96 Jan-97 Sep-97 May-98 Jan-99 Sep-99 May-00 Jan-01 Sep-01 May-02 Jan-03 Sep-03 May-04 Jan-05 Sep-05 May-06 Jan-07 Sep-07 May-08 Jan-09 Sep-09 May-10 Jan-11 Sep-11 May-12 Jan-13 Sep-13 May-14 Jan-15 Sep-15 May-16 Below is an example of the differences between the long-term actual returns over the different asset classes (shares, bonds, cash) achieved over a 21- year period. Cumulative return of R1 invested on 1 January 1995 R 18.00 R 16.00 R 14.00 R 12.00 R 10.00 R 8.00 R 6.00 R 4.00 R 2.00 R 0.00 Portfolio A Portfolio B Portfolio C CPI Note the short-term fluctuations (gains and losses) in the all share index, but also look at the long-term returns.
Apr-10 Dec-10 Aug-11 Apr-12 Dec-12 Aug-13 Apr-14 Dec-14 Aug-15 Apr-16 Dec-16 Below is an example of the differences between the actual returns over the different asset classes (shares, bonds, cash) achieved over a 6-year period. Cumulative return of R1 invested on 1 April 2010 R 2.50 R 2.00 R 1.50 R 1.00 R 0.50 R 0.00 Portfolio A Portfolio B Portfolio C Portfolio D CPI
Monthly Performance Monthly returns for the four portfolios during 2016. These figures are shown after investment manager fees. Note: inception date is 1 April 2010 for Portfolio D, 1 January 1995 for the other portfolios. As you would expect, the Balanced Fund (Portfolio C) shows the largest variation in monthly returns, reflecting the riskier nature of this portfolio, but with the highest returns since inception.
Understanding your portfolio statement
Amendments to the Rules Rule Amendment 6 was registered on 18 October 2016 by the FSB with effect from 1 October 2016. The purpose of this amendment is to provide for the following: Increase the number of Trustees from 12 to 14 persons, of whom 50% will be Memberelected Trustees. Provide that the Employer (UCT) is responsible for the appointment of Trustees to make up the other 50% of the Board (Nominated Trustees), but that the Employer may allow, for this purpose, the appointment of one or more trustees by Employee representative bodies who qualify to make such appointments, as per any agreement between the Principal Employer and the unions. Provide that all Trustees must be members of the Fund. Clarify that Trustees shall only hold office until the end of the Election Term. Remove the option for the Employer to remove a Trustee. Provide that vacancies in the Board of Trustees will be filled will be filled by the alternate Trustees.
Admin price increase
Fund expenses
Fund expenses Expense category Contributing members Noncontributing members Cost per member Fee paid per noncontributing member in 2015 Investment management Administrator (Sanlam) Pays Pays NA NA Pays Partly pays R48 per month R30 per month Life cover Pays Do not pay NA NA Fund costs* Pays Do not pay R87 per month R0 per month * Includes fees payable to investment consultant, benefit consultant, auditors and actuary, levies due to FSB and SARB, fidelity cover premiums, any legal fees incurred by the Fund, costs incurred by the Trustees (for example, trustee training, cost of printing agendas, running elections etc.) costs of running the UCTRF Office and Costs of member communication and the maintaining the UCTRF website.
Information Resources UCTRF website www.uctrf.co.za Information session (held in February) AGM (held in the third quarter)
Disclaimer This presentation is for information purposes only. The information contained herein is not intended to be, and must not be regarded as, financial advice or advice as defined in the Financial Advice and Intermediary Services Act (37 of 2002). The University of Cape Town Retirement Fund (the Fund ), the Fund s Trustees, the Principal Officer and staff of the Fund, together with the Fund s service providers, shall not be liable for any loss or harm or damage which may be suffered by any person as a result of the use or reliance upon the information presented herein, or any discussions between the aforementioned and any person arising from the presentation. In the event of any discrepancy between the presentation and either the Rules of the Fund or the Fund s Insurance Policies, the Rules and Policies will prevail. The Pension Funds Act 25 of 1956 overrides all Rules and Insurance Policies.
Thank you Any Questions?