UCT Retirement Fund - Information Session for Living Annuitants · 2017-11-30 · Agenda 1. WHAT is...

Information Session for Living Annuitants

29 November 2017

Agenda1. WHAT is a living annuity

2. RISKS

1. INVESTMENTS

2. DRAWDOWNS

3. EXITING the living annuity

1. UCRTRF vs COMMERCIAL living annuity

2. LIFE vs LIVING ANNUITY

4. What happens when I DIE

5. Admin fee increase March 2018

6. Information Resources

7. Disclaimer

What is a Living Annuity?

LIVING ANNUITY ACCOUNT

RETIREMENT CAPITAL

Positive investment

returns

Negative investment

returnsDrawdown =

pension Fees



RETIREMENT CAPITAL

Positive investment

returns

Negative investment

returnsDrawdown =

pension Fees

BASICALLY like a BANK account

You control how much goes in (initially)

You control where invested

You control how much you take out

NO GUARANTEES If it runs out it runs out



RETIREMENT CAPITAL

Positive investment

returns

Negative investment

returnsDrawdown =

pension Fees

LET’S TALK ABOUT RISK


LIVING ANNUITY CAPITAL

RETIREMENT CAPITAL

Positive investment

returns

Negative investment

returnsDrawdown =

pension Fees

INVESTMENTRISK

DRAWDOWN RISK



RETIREMENT CAPITAL

Positive investment

returns

Negative investment

returnsDrawdown =

pension Fees

INVESTMENTRISK



RETIREMENT CAPITAL

Positive investment

returns

Negative investment

returnsPension paid Fees

YOU CHOOSE the investment portfolio

RISK (volatility) vs REWARD (return)Income

Market linkedSmooth Bonus

Shari’ah

so you have controland the risk

INVESTMENTRISK

Investment options

9

A

B

C

D

Income Fund: Inflation + 1% target, Low Risk

(0-2 year time horizon)

Smooth Bonus Fund: Inflation + 3% target, Medium Risk

(3-5 year time horizon)

Balanced Fund: Inflation + 5% target, Higher Risk

(7 year time horizon)

Shari’ah Fund: Inflation + 4% target, Medium-High Risk

(5-7 year horizon)

2017 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.

Below is an example of the differences between the long-term actual returns overthe different portfolios achieved over a 22- year period.

Note the short-term fluctuations (gains and losses) in the all share index, but also look at the long-term returns.

Below is an example of the differences between the actual returns over the different portfolios achieved over a 6-year period.

Monthly Performance

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.

• 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.

Investment Choice

YOUR CHOICECan switch portfolios

ANYTIME

Switch forms with benefit statement documents

Switches will be confirmed with you

Within 2 days

ONLINE switching

Processed within 5 days

MMI MVA adjustment process

Switch Turnaround Times

Normal switches including switches to MMI· Acknowledge receipt of switch instruction to member within 2 days.· Switch will be processed within 5 days and certificate send to the member

Full disinvestments from MMI· Obtain MVA quote from MMI within 2 days· If no MVA proceed with disinvestment request to MMI· Acknowledge receipt to member and confirm that we will proceed with switch.· If MVA applicable, acknowledge receipt and inform member of MVA (process included in the 2 days SLA)· Also request confirmation from member to proceed with switch. (Member to confirm within 2 days)· As soon as member confirms we send disinvestment request to MMI· Payment to be received within 3 working days· Switch to be processed on the day that money is received in bank account and certificate send to the member

Members with partial fund values invested in MMI· Internal investment portfolio’s to be switched within 5 days· Switch certificate and confirmation regarding MVA to the member.· For MMI disinvestments, the same process as above will apply

Investment Choice

INFORMED DECISION

UCTRF websitewww.uctrf.co.za

UCTRF investment guideToolkit – pension purchase

RISK vs VOLATILITYAbility to absorb shocks VS need

for real growth

COMMON ERROR 1Choosing too

conservative a strategy

COMMON ERROR 2Trying to time the market

http://www.uctrf.co.za/



RETIREMENT CAPITAL

Positive investment

returns

Negative investment

returnsDrawdown =

pension Fees

DRAWDOWN RISK



RETIREMENT CAPITAL

Positive investment

returns

Negative investment

returnsDrawdown =

pension Fees

YOU CHOOSEthe drawdown

AnnuallyWithin limits

(min 2.5% and 17.5%)

So again, you have controland the risk

DRAWDOWN INFLATION LONGEVITY

RISK



RETIREMENT CAPITAL

Positive investment

returns

Negative investment

returnsDrawdown =

pension Fees



(min 2.5% and 17.5%)

So again, you have control


RISK

Drawdown = % of capital you want to draw

as a pension for the year. Can be paid

monthly / quarterly / biannually / annually

EG Living annuity capital = R1 mil

5% drawdown = pension of R50,000 per year

i.e. R4,167 per month



RETIREMENT CAPITAL

Positive investment

returns

Negative investment

returnsDrawdown =

pension Fees



(min 2.5% and 17.5%)



RISK







ANNUAL INCOME CHANGE FORM

2 months from election

If you do NOT return this form, stay on the same % as previously

THIS IS A RISK



RETIREMENT CAPITAL

Positive investment

returns

Negative investment

returnsDrawdown =

pension Fees



(min 2.5% and 17.5%)



RISK







MUST MANAGE DRAWDOWN IN RELATION TO CAPITAL AVAILABLE

If markets run, keep pension increase to inflation to bank the good performance for the bad years

If markets fall, will need to adjust income (same proportion of a lower capital value at best case)



RETIREMENT CAPITAL

Positive investment

returns

Negative investment

returnsDrawdown =

pension Fees



(min 2.5% and 17.5%)



RISK









If markets fall, will need to adjust income (same proportion of a lower capital value)

TRUSTEES TRY TO ASSIST in ANNUAL INCOME CHANGE FORMSR1 million = pmMinimum (2.5%) = R2 083Maximum (17.5%)= R14 583

Max Recommended (Single) = expect for life CPI linkedMax Recommended (Dependants) = expect for life CPI linked with provision for spouse pension of 75% on deathActuary’s Maximum = expect for life no increases no spouse pension



RETIREMENT CAPITAL

Positive investment

returns

Negative investment

returnsDrawdown =

pension Fees



(min 2.5% and 17.5%)



RISK









If markets fall, will need to adjust income (same proportion of a lower capital value)

TRUSTEES TRY TO ASSIST in ANNUAL INCOME CHANGE FORMSR1 million = pmMinimum (2.5%) = R2 083Maximum (17.5%)= R14 583

Max Recommended (Single) = expect for life CPI linkedMax Recommended (Dependants) = expect for life CPI linked with provision for spouse pension of 75% on deathActuary’s Maximum = expect for life no increases no spouse pension

Based on insurer rates

Ie the insurer’s mortality and investment

expectation

UNDERSTANDING YOUR DRAWDOWN FORMANNUAL UNIVERSITY OF CAPE TOWN RETIREMENT FUND (UCTRF) LIVING

ANNUITY DRAWDOWN FORM

As you are aware, a living annuitant must elect his or her pension level annually. Your living annuity

anniversary date is July of each year. You now have the opportunity to revise the income you draw for the

period 1 January 2018 to 31 December 2018.

The purpose of an annuity is to provide you with an income for life. This of course is dependent on

variables that we are unable to predict, e.g. earnings on the underlying investment and longevity, but

clearly the amount you draw from your annuity is one of the primary factors which is under your control

and will determine how long your UCTRF living annuity will last. The less you draw down, given the

investment return achieved, the more likely it is that your living annuity will be able to provide for a

sustainable retirement income.

The table here gives a range of drawdown rates which are explained

Your personal details

Name: Dr XX Membership No: 0000000

Date of Birth: Date of Purchasing Living Annuity: 01/01/2017

Fund value on 01/10/2017:

Summary of drawdown rates

SARS Your Trustee’s max

Minimum Current recommended

(single)

8.59 %

Trustee’s max

recommended

(dependants)

7.61%

Actuary’s

maximum

SARS

Maximum

2.50% 3.50% 12.43% 17.50%

UNDERSTANDING YOUR DRAWDOWN FORMThe table here gives a range of drawdown rates which are explained below.

With respect to each of the draw down rates in the table above:

SARS legislated limits

The percentage annual level of drawdown may not be less than the minimum or more than the maximum

percentage prescribed by the Commissioner for the South African Revenue Service in this regard, which

are currently between 2.5% and 17.5%.

Current drawdown rate

You are currently drawing income at a drawdown rate of 2.50%

Trustee’s maximum recommended drawdown rate is determined to be no more than 8.59% (or, if your

living annuity is intended to provide an income to a spouse, partner or other surviving dependants in the

event of your death, no more than 7.61%). Note that this is not a recommended drawdown rate, and

as long as you are able to do so, you should aim to draw less than this; the Trustees strongly

recommend that the applicable one of these two rates (depending on whether your living annuity should

make provision for a spouse or other dependants as well as for you) should be used as an upper limit to

your drawdown choice.

Summary of drawdown rates

SARS Your Trustee’s max

Minimum Current recommended

(single)

8.59 %

Trustee’s max

recommended

(dependants)

7.61%

Actuary’s

maximum

SARS

Maximum

2.50% 3.50% 12.43% 17.50%

UNDERSTANDING YOUR DRAWDOWN FORMActuary’s maximum rate is calculated to be the absolute maximum you should draw in order to maintain a sustainable retirement income under set assumptions (which include the assumption that your living

annuity does not have to provide for a spouse or other dependants). The Rules of the Fund1

require the

Actuary to stipulate a maximum drawdown rate for each living annuitant, beyond which there is a serious risk of depletion of funds in the short- to medium-term. In your case the Actuary’s maximum drawdown

percentage is 12.43% per annum.

To guide you in your decision we have provided you with the two limits within the legislated

limits: the Trustee’s maximum recommended drawdowns (one for a single person, and one

inclusive of dependants), and

The Actuary’s maximum.

If you feel it is necessary to draw more than the Trustee’s maximum recommended drawdown to meet

your current income needs, bearing in mind that we recommend you draw less than this, we recommend

that you take financial advice to help you understand the implications of your choices and, if necessary,

make changes to your lifestyle to ensure the sustainability of your living annuity.

However, you should only under exceptional circumstances be considering drawing more than the

Actuary’s maximum rate. As indicated in the section above, the UCTRF Trustees strongly recommend

that you draw down considerably less than this maximum: the less you draw, the more retirement capital

will be left. If you decide to do so, you will, in terms of the Rules of the Fund, be required to declare that you

have taken financial advice on this matter and understand the implications of your choice.

If you wish to draw down at a greater rate than the Actuary’s maximum, you MUST complete section 3 of

the attached declaration form, certifying that you acknowledge the risks of this strategy, have taken financial

advice on this issue and take responsibility for the likely consequences. If you are in this position, we

strongly recommend that before committing to a higher drawdown rate, you contact the UCTRF Office

(email: uctrf- [email protected] or call 021 650 2934) who will help you to understand the potential

consequences of an excessively high drawdown rate, and/or discuss the matter with your financial advisor.

Please note that it is not “safe” to draw at a rate that is close to but lower than the

Actuary’s maximum. It is not even necessarily “safe” to draw close to the Trustees’

maximum rate applicable to you (i.e. depending on whether your living annuity must also

provide for dependants or not). Even if you choose a lower drawdown rate, your

retirement capital could still be insufficient for your lifetime needs (and those of your

spouse and dependants, if applicable) if you or your dependants live too long or if the

investment returns are poor.

UNDERSTANDING YOUR DRAWDOWN FORM

EXITING THE LIVING ANNUITY

CAN I TRANSFER to another living annuity?

YES (S14 process – approval by FSB)Full amount

Split transfer allowed

CAN I TRANSFER to a life annuity?



CAN I ENCASH my benefit

NOUnless the capital value falls below the amount prescribed by SARS (currently

R50,000 if any part was previously commuted, or R75,000 otherwise)


CAN I TRANSFER to another living annuity?



LIVING Annuity

Commercial provider UCTRF

Cost Commercial Provider* UCTRF

Initial fee 1% of assets R508

Ongoing

administration

0.75% first R250k

0.5% next R500k

0.25% above R750k

R71 pm

First-year comparison

based on R1m

R15,000 R1,184

Stay invested in the UCTRF

Lower fees

Reg 28 compliant

S37C distribution

Cannot mix

Can transfer to external later

Wide choice

Higher fees

Not Reg 28 compliant

No S37C distribution

Can mix

Cannot transfer back to UCTRF later

* Best-case scenario example


CAN I TRANSFER to a life annuity?



WHAT IS A LIFE ANNUITY?

LIFE AnnuityExternal

LIVING AnnuityExternal or in UCTRF

• Insurance Policy• Income as long as you live• No decision making after purchase• No inheritability• BUT guarantee period and• Spouse pension options• Can’t change mind

• “Bank Account”• Withdraw money each month

until it’s gone• Must decide on portfolio and pension• Inheritability• Investment risk and • Risk of outliving your capital• Can change later

WHAT IS A LIFE ANNUITY?

LIFE AnnuityExternal

LIVING AnnuityExternal or in UCTRF

• Insurance Policy• Income as long as you live• No decision making after purchase• No inheritability• BUT guarantee period and• Spouse pension options• Can’t change mind

• “Bank Account”• Withdraw money each month

until it’s gone• Must decide on portfolio and pension• Inheritability• Investment risk and • Risk of outliving your capital• Can change later

DON’T be surprised

For the same capital:Older person will get a higher pension amountMales will get a higher

pension amount

They are expected to live shorter

LIFE Annuity

Increases:

None Fixed % pa Inflation linked With-Profit

The lower the increases, the

higher the starting pension…

but inflation catches up!

https://www.uctrf.co.za/40/E/Monthly-Pension-Indicator

R1 million = pmLevel = R10 604Fixed 5% = R7 370With profit = R 6 424 Infl linked = R6 100

(Single Male age 65)

https://www.uctrf.co.za/40/E/Monthly-Pension-Indicator

LIFE Annuity Guarantee period: typically 5 years

How many years after retirement the pension gets paid for regardless of when you die.

Spouse’s pension: typically 75%

You can choose for your spouse to geta % of your pension after you die.

The LONGER, the lower the pension overall.

• Do you have a spouse?• Do they have any pension?• How much extra would they need if you were gone?

The more spouse’s pension, the lower the pension overall.

When is a living annuity inappropriate?

You want your pension to be guaranteed to last you for

life (without decreasing ever)

You don’t want to make the investment and drawdown

decisions anymore

To summarise briefly the key features of the different types of annuities available:

MUST REVIEW PERIODICALLYIt 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.

LIVING ANNUITY

You make decisions- where to invest

- how much pension to takeMost flexibilityInheritability

Least guaranteeInvestment risk

Risk of outliving capital

Inflation linkedLIFE ANNUITY

Insurer determines pension upfront

Pension guaranteed for life and to increase with inflation

No flexibilityNo inheritability

Most guaranteeNo investment risk

No risk of outliving capital

With profitsLIFE ANNUITY

Insurer determines pension upfront

Pension guaranteed for life and to increase depending on

investment performanceNo flexibility

No inheritability

Most guaranteeLittle investment risk

No risk of outliving capital

What happens to my living annuity in the event of my death?

Inherit balance

Continued pension payment

Purchase another annuity

Cash

Section 37 C allocation – Trustees decide allocation of

capital to beneficiaries

Financial dependants

Nominees

Estate

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 NRA and elected this cover on early retirement):

complete and return form HR155

Admin price increase

The current administration fee is R71.00 per month and the payment fee for eachpayment made to you is R12.76. The next review date for the payment fee is 1 July2018.

As previously advised, in order to reduce the level of cross subsidisation ofadministration fees between contributing members and Living Annuitants, theBoard of the UCTRF have agreed that the monthly administration fee for livingannuitants (excluding the payment fee) will be increased to R112.00 per month inMarch 2018. Thereafter the Board expects the administration fees to increase inline with the Administrator’s annual increase in fees.

R71 per month R112 per month

Information Resources

• UCTRF website www.uctrf.co.za

• AGM (held in the third quarter)

• Information session (held in the fourth quarter)

• Drawdown forms (fourth quarter)

• Benefit statements (first quarter)

http://www.uctrf.co.za/

DisclaimerThis 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?

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