4.6 Pensionable Service
This item used to establish the tax-free portion of any gratuities paid at retirement (in accordance with the Second Schedule of the Income Tax Act) and is still used to work out the benefits on defined benefit schemes. While pensionable service is, more often than not, the same as the period of employment, this is […]
4.5 Actuarial Valuation
An actuarial valuation is a type of appraisal of a pension fund’s assets versus liabilities, using investment, economic and demographic assumptions for the model to determine the funded status of the retirement fund.
4.4 Accrual Rate
An accrual rate is a very important part of determining the benefit in terms of a retirement fund. The accrual rate is the rate at which the member built up pension benefits whilst being an active member of a defined benefit scheme. It is most commonly expressed as a fraction, such as 1/30 or 1/60 […]
4.3 Umbrella fund
An umbrella fund is an arrangement where an overall fund is set up with the main structures outlined in a set of general rules. Participating employers’ fund arrangements are then registered under the umbrella fund, each with their own particular benefit structure outlined in a set of special rules. The participating employer fund does not […]
4.2 Membership Requirement
In terms of the definitions of pension fund and provident fund in Section 1 of the Income Tax Act, when providing an employee with a pension or provident fund, the Income Tax Act requires that an employee/employer relationship exist between the business entity and its employees. Partners in a partnership are also regarded as employees […]
4.1 Introduction
In its most basic form, a pension fund benefit arrangement can only be provided as an approved arrangement. The term approved refers to any entity that has been approved by South African Revenue Service (SARS) as meeting the requirements of one of the following definitions: A benefit fund, which includes a friendly society registered in […]
3.7 Asset-Liability Modelling
Asset-liability modelling (ALM) is one of the tools for setting investment strategy. ALM is based on the idea that investment returns are unpredictable from year to year, but that they have a certain probability distribution (e.g. a normal distribution). Combining the assumption of some statistical property for investment returns with modern computing power, it is […]
3.6 Attitude to Risk
As the trustees are ultimately responsible for determining investment strategy, their attitude towards risk will affect the fund’s investment strategy. For example, if the trustees are quite risk averse, they will generally discourage the investment managers from investing heavily in equities. Similarly, in defined contribution schemes the members might have choices in respect of the […]
3.5 Statutory Restrictions
A retirement fund investment strategy is legislated by the prudential investment guidelines contained in regulation 28 of the Pension Funds Act. Thus, the share exposure of any retirement fund cannot exceed 75%, even though the fund’s liability profile and solvency position would make a higher exposure optimal.
3.4 Solvency Position
The solvency of a fund is measured by the difference between its assets and liabilities. In South Africa, a retirement fund needs to have assets equal to or in excess of its liabilities. A fund that has a very strong solvency position is not at risk of insolvency due to changes in market values and […]