What is the difference between an “annuity” and a “pension”
There is no fundamental difference between an annuity and a pension. An annuity payment is typically made to an individual by an insurer and a pension is paid to an individual by a retirement fund. Both are payable for life and are subject to the same tax treatment.
What is an “Inflation Linked Annuity”
An Inflation Linked annuity provides an annuitant (pensioner) an income that aims to increase in line with inflation (CPI) for the duration of the pensioner’s life.
Are there any Solvency Reserves remaining and what is the approximate level of these reserves?
Yes. There is a Solvency Reserve that is currently held by the Murray & Roberts Retirement Fund. These reserves will be distributed to pensioners through an increase in monthly pensions following the transfer across to Old Mutual.
Current estimates are that the monthly pensions for all members will be increased by approximately 7%. This increase will be granted on 1 March 2014. This will be over and above the CPI increase that will be granted in March 2014.
Will the Fund allow Pensioners to receive the Solvency Reserves in cash and leave the current annuity payment with Old Mutual?
Will the Employer get any part of the Solvency Reserve?
Are there any costs involved for the pensioners in purchasing the annuity policy?
The assets that have been transferred to Old Mutual will cover all future expenses in terms of administration costs and policy related costs. The pensioner will still receive his/her full pension payment. There are no costs being levied on pensioners in order to purchase the annuity policy.
The Fund has historically provided increases that are greater than CPI over the long-term? Why would the Fund enter into a policy that only pays 100% of CPI?
The Fund has historically been able to invest a large portion of assets in equities that have delivered returns in excess of the assumptions made by the Fund actuary. Going forward, the Fund will need to invest progressively more conservatively as the term for the payment of pensions decreases. This will result in the Fund investing in less equities and the Fund will move towards investing in bonds to provide security for pension payments. This process had already started in the Fund when the decision to pursue outsourcing was made. This will result in a lower expected long-term return than that achieved historically providing less opportunity to offer increases above CPI.
Will pensioners share in the profits when Old Mutual does well?
The policy purchased has no link to the performance of Old Mutual as a corporate. Therefore any profits/losses made by Old Mutual will have no impact on the CPI increases being granted.
Will Old Mutual have adequate reserves to allow for the longevity of the pensioners?
Old Mutual currently has the highest solvency ratio of all insurers in South Africa. Based on the current future mortality estimates that have been calculated by the Actuaries at Old Mutual there are enough reserves to allow for the longevity of the pensioners. All pensions are guaranteed for life in terms of the policy contract.
What happens if Old Mutual runs out of money?
From a regulatory perspective, South Africa has strict reporting requirements to the Financial Services Board and there are a number of measures that are monitored with regards to insurer’s solvency levels. There will therefore be a number of intervention stages by the regulator should the reserves within Old Mutual decrease over time.
What happens if Government gets involved and takes over the pensioner assets?
We do not expect it to be a likely scenario that Government effectively takes insurer (and therefore policyholder) assets.
Will the capital guarantee upon death stay in place?
Yes. All benefits that you are currently entitled to with the Murray & Roberts Retirement Fund have been allowed for in the outsourcing to Old Mutual.
Will the current death benefits remain after the outsourcing to Old Mutual? Will Old Mutual handle the claim and be responsible for payment on death?
Yes. The death benefits will be assumed by Old Mutual as they existed in the Fund. Old Mutual will be responsible for handling and payment of death claims. An eligible spouses pension will become payable on the same basis as currently exists in the Fund.
Will future mortality profits/losses impact on the pensioners?
No. Any future profits/losses will be allocated to Old Mutual and will not impact on the pensioners. The Fund is comfortable that the mortality basis that was used to price the annuity is reasonable. Based on current mortality experience we do not expect significant profits/losses into the future.