UNIVERSITY OF STELLENBOSCH RETIREMENT FUND GUIDE TO THE RETIREMENT PROCESS by guy26

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									         UNIVERSITY OF STELLENBOSCH RETIREMENT FUND
               GUIDE TO THE RETIREMENT PROCESS



1. INTRODUCTION

  If you retire in the course of the following year or months, you will have to make certain
  important decisions with regard to your financial future, which will influence how you
  spend your retirement years. This guide has been compiled to help you take informed
  decisions about your retirement under the University of Stellenbosch Retirement Fund,
  so that you can enjoy a financially independent retirement.

  Please read the document carefully and consult your financial adviser if you need any
  further help.

2. BACKGROUND: HOW DOES THE FUND WORK?

  The Fund is a “fixed contribution fund”.      This means that contributions are paid
  monthly into the Fund at a fixed percentage of your pensionable income. These funds
  are invested in order to earn investment income. All investment income, including
  interest and capital growth, is allocated to you in the form of monthly interest. Please
  note that the Fund’s assets are invested in balanced investment portfolios, which
  include substantial investment in shares. This kind of asset has volatile market values
  and it is possible that the growth of the investment can be negative during some
  periods.

  The University makes additional monthly contributions to cover the insurance
  premiums for death cover and disability income benefits. The administrative costs of
  the Fund are paid from the Fund assets.

  The accumulated contributions and the investment growth on them represent your
  Fund Credit. Additional to the Fund Credit, an additional amount for the Retirement
  Reserve Fund (RRF) is kept in the Fund, which was transferred to the Fund for some
  members on 1 November 1994 from the Pension Fund for Associated Institutions
  (PFAI) or the Pension Fund for Temporary Employees (PFTE).
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     This RRF amount was calculated at the time in an attempt to make up for the
     underfunding of the PFAI and PFTE on retirement, based on certain actuarial
     assumptions.

     The RRF is accumulated at the same investment growth as that allocated for normal
     contributions.

     In terms of the agreement concluded with members when the Fund was established,
     the RRF amount is not paid out on resignation or dismissal.            A portion of the
     accumulated RRF is indeed paid out in cases of retrenchment or early retirement. The

      latter is discussed in the next section.

3. RETIREMENT AGE

     The normal retirement age is 60 years or as specified in the member’s service contract
     with the Employer and notified by the Employer in writing to the Trustees. After the
     age of 60, and on the basis of continuous satisfactory performance, employment may
     be continued until a maximum age of 65.

     The choice of retirement age is important. You must ensure that your pension benefit,
     and any other retirement savings you have made, are together sufficient to maintain
     you during your retirement years. The later you retire, the greater your pension benefit
     will be. With careful planning it may be possible for you to reduce your tax burden on
     retirement.

4. RETIREMENT BENEFIT

     Members have the choice on retirement of either taking the full credit in cash or of
     using the full or part of the credit to buy an post-retirement income (pension). If you
     choose to use a portion of your retirement benefit for the purchase of a pension, the
     purchase of the pension must be made through a registered insurer. According to the
     Rules of the Fund, the Trustees have the right to refuse that a member takes his/her
     full benefit in cash. In this case, the member may take one third in cash and must
     purchase an annuity with the remaining two thirds.

     The Administrators of the Fund, Alexander Forbes Financial Services, will calculate
     the value of your retirement benefit.            In order to make this calculation, the
     administrators must have full knowledge of your intention to retire on a specific date.



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     The administrators will also need to know what portion of your benefit you wish to take
     in cash, and in which post-retirement product you wish to invest the balance of your
     retirement benefit (if any).

     The amount you take in cash is taxable as single a single cash amount, although there
     are some tax rebates. The balance of the retirement benefit (if any) will then be
     transferred to the insurer of your choice, where the pension you have decided on will
     be purchased for you.                Thereafter you will receive a monthly income from that
     insurance company, for the rest of your life, in terms of the annuity bought there. The
     capital amount used for the purchase of the pension is not taxable. Your monthly
     pension will, however, be taxed as income, in the same way that your salary is taxed
     at present.

     If you transferred money previously from the PFAI or PFTE, the transfer value is also
     tax-free.

     It is also possible to provide in your annuity for your spouse or other dependants by
     making provision for your pension to continue after your death, for as long as your
     spouse or another nominated person shall live. Your initial pension will necessarily be
     less in this case (see also 6.2 below).

     The calculation of your retirement benefit is discussed in greater detail below.

     4.1 Early Retirement

            If you retire before your Normal Retirement Date, your retirement benefit will be
            calculated as the sum of your Fund Credit plus a portion of your accumulated
            RRF amount. This portion will be calculated as the ratio between your completed
            years of service at the University and your potential service up to and including
            the normal retirement age (60 years). The following example demonstrates how
            this calculation is made:

            Assume a member with 7 years of completed service, at the age of 56 years.
            The member has thus 4 years of potential service before normal retirement age
            that is 60 minus 56 years. The member’s total years of service are thus 11 years
            (7 years completed service plus 4 years future service).




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            On early retirement the member will thus receive 7/11 ths (that is 63.6%) of his/her
            accumulated RRF amount.

     4.2 Normal Retirement

             If you retire on your Normal Retirement Date or thereafter, you will receive your
             full Fund Credit plus your RRF as retirement benefit.

             The most important decision that you must make when you leave the Fund is
             whether you wish to receive your retirement benefit as a single cash amount or
             to use it to purchase a monthly income from an insurer.

             Your various options with regard to the payment of your benefits are discussed
             below.

5. SINGLE CASH AMOUNT

     You may request to receive any portion of the value of your retirement benefit as cash.
     You may thus choose to receive less than the full benefit as a single amount. You can
     even request that you receive no single amount benefit, and use the full retirement
     benefit to purchase a post-retirement pension. In this case you will without doubt
     receive a greater monthly pension.

     If you decide to receive any portion of the benefit as a single cash amount, you must
     remember that it will be partly taxable, depending on your personal circumstances.
     Based on a formula a tax-free portion will be allowed. Your financial adviser will be in
     a position to give you more details of this formula and how much tax you will have to
     pay. Before your adviser can provide you with this information, he or she will need
     information on all your other retirement provisions.

     The tax that is payable on the single amount will be determined by your local tax
     office. The administrators of the Fund are obliged to recover this tax from your single
     amount and to pay you only the net amount. They will be able to make this payment
     only after the Receiver of Revenue has provided them with a tax instruction.




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     If your tax matters are in arrears, as for instance if your tax returns are not up to date,
     the Receiver of Revenue may withhold this tax instruction, which will lead to a delay in
     the payment of your retirement benefit. After you have decided on what portion of your
     benefit you wish to take in cash, you must decide what kind of pension you wish to
     purchase with the balance of your retirement benefit (if any). You must also decide
     which registered insurer you wish to purchase this pension from.

6. MONTHLY PENSION – IMMEDIATE ANNUITY

     One possible kind of pension that can be used is an immediate annuity. This is a
     contract between you and the insurance company according to which the insurance
     company undertakes to pay you a regular monthly pension for the rest of your life in
     return for the payment of a certain amount. The insurance company will continue to
     pay your pension for the rest of your life. The insurer thus carries the risk that you will
     live long after your retirement.                 This kind of annuity thus protects you against a
     situation where you might outlive your retirement capital.

     The Fund does not guarantee how much this monthly income will be. The monthly
     income is determined by the size of your retirement benefit under the Fund, how much
     of it you use for the purchase of a pension and the benefits offered by your insurance
     company. Insurers take various factors into account when they calculate the monthly
     pension that can be paid to you. Some of these factors are mentioned below and
     briefly discussed. You are, however, advised to discuss these factors in greater detail
     with your financial adviser.

     6.1 Your age

            The insurer will need a greater amount to provide a pension at a particular level
            for a younger person. This is because they will expect a younger person to live
            longer after retirement and that they consequently will have to make more
            pension payments. As a consequence, an older person will be able to purchase
            a larger monthly income with the same capital amount.




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     6.2 Provision for your spouse

            You can arrange to receive a monthly pension that will be paid only for as long as
            you live. Alternatively, you can arrange for the pension to continue after your
            death, and be paid to your spouse or other nominated person.

            The insurer will inevitably ask more for a pension that makes provision for a
            spouse pension, as they will again expect to have to pay the pension for longer.
            If you thus wish to make provision for a spouse pension, you can expect to be
            able to buy a somewhat lower pension for the same amount. You will, however,
            have the assurance that you have made financial provision for your spouse or
            dependants after your death.

     6.3 Inclusion of a guaranteed period

            If you are unmarried or do not wish to make provision for a spouse pension, your
            pension will cease or decrease if you die shortly after your retirement. A possible
            option you can consider is to make provision for a guaranteed period in your
            pension contract. The most common guaranteed periods are 5 or 10 years.

            If, for example, your pension is guaranteed for 5 years, should you die after, let
            us say, 2 years after your retirement, your full pension will be paid for the balance
            of the 5 year period. This payment can be made to your spouse or to your
            estate. A pension that makes provision for a guaranteed period will again cost
            somewhat more than a pension without a guaranteed period. You must thus
            decide if a guaranteed period is indeed necessary.

            If you are married and wish to make provision for your spouse or dependants
            after your death, it will probably be more appropriate to make provision for a
            spouse pension than for a guaranteed period.




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     6.4 Provision for Pension increases

            The buying power of a pension that does not increase annually will very quickly
            be decreased by inflation. If, for example, prices increase annually by 10% and
            your pension remains unchanged, the buying power of your pension will be
            halved in approximately 7 years and halved again after 14 years. Most
            pensioners can expect to live at least as long after retirement. It is thus of utmost
            importance that you make provision for pension increases.

            Inevitably the insurer will ask more for a pension that increases annually than for
            a pension that remains at a fixed level. This means that if you make provision for
            future increases in your pension, the initial pension you will receive will be less
            than you would receive if you did not make provision for any increases. After a
            few years, and a few increases, the two pensions will, however, reach the same
            level and thereafter the pension that makes provision for growth will be on a
            higher level than the initial no-growth pension.

            This situation is explained graphically in the example below.                                                    The example
            assumes that the same capital amount is used to purchase the two pensions, the
            one at fixed level and the other that increases at 8% per year.


                                   R2 565
                                   R2 500
                                   R2 435
                                   R2 370
                                   R2 305
                                   R2 240
                                   R2 175
                                   R2 110
                                   R2 045
                                   R1 980
                    Pension p.m.




                                   R1 915
                                   R1 850
                                   R1 785
                                   R1 720
                                   R1 655
                                   R1 590                                                                    Pension w ith grow th
                                   R1 525                                                                    Fixed Pen sion
                                   R1 460
                                   R1 395
                                   R1 330
                                   R1 265
                                   R1 200
                                   R1 135
                                   R1 070
                                   R1 005
                                    R940
                                    R875
                                    R810
                                    R745
                                    R680
                                    R615
                                    R550
                                            60 61 62 63 64 65 66 67 68 69 70 71 72 73 74 75 76 77 78 79 80



                                                                             Age




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            A pension that does not make adequate provision for future increases will indeed
            give you a higher income in the early years, but your standard of living will fall
            dramatically as you grow older.

            Various kinds of pension increases may be provided for. Your financial adviser
            will be able to assist you in this regard.

7. MONTHLY PENSION – LIVING ANNUITIES

     A relatively new kind of annuity product offered by insurers is the so-called living
     annuity. This annuity works on the following basis.

     i.   Your single amount is invested in an investment of your choice, linked to the living
          annuity.

     ii. You decide annually on the level of income you will withdraw from the investment
          portfolio. This income must be between 5% en 20% of the market value of the
          investment.

     iii. The difference between the percentage withdrawal that you make from the
          investment portfolio and the investment income is re-invested in order to allow the
          investment portfolio to grow. Thus, the less you withdraw from on a yearly basis,
          the greater your investment portfolio will become.

     Living annuities are sophisticated products, but do carry additional risks:

     i.   If your withdrawals are initially too high, the buying power of your portfolio will
          decrease with inflation.

     ii. It is possible that you will outlive your pension before you die.

     iii. You carry the full investment risk on the investment portfolio.

     Living annuities should be considered only by members who fully understand the risks
     and workings of this kind of product.

     You will need expert advice to decide on the appropriate living annuity, the level of
     annual withdrawals and the investment strategy that must be followed. Please contact
     a financial adviser with the necessary experience if you are interested in making use of
     this product.




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8. YOUR FINANCIAL ADVISER

     It may be valuable for you to talk to a financial adviser before you decide on which
     annuity or on which format your retirement benefit will take. The question, however, is
     how one chooses a financial adviser.

     Financial advisers usually fall into two categories:

     i.   Agents (also called representatives) are those who are linked to a specific
          insurance company and usually sell only the products of that company; or

     ii. Independent brokers who can advise you on the products of various insurance
          companies

     Many people choose their financial advisers on the recommendations of their friends
     or family members. Your financial adviser must, however, be qualified, knowledgeable
     and reliable.            Your financial adviser must also understand your personal
     circumstances and needs.

     Please note that the Trustees are not is a position to recommend any adviser or group
     of advisers. You must make your own choice of adviser. If, however, you are unable
     to decide, you can contact the local office of any of the larger insurance companies.
     Ask to speak with an agent of that company.

     Alternatively you can make use of the services of an independent broker. Independent
     brokers can be self-employed or belong to one of the larger co-operative financial
     services companies, who employ a large number of brokers.

     Financial advisers are remunerated by means of a commission, as laid down in the
     insurance act. This remuneration is with respect to the work they do for you and the
     expertise they offer.          You are thus advised to gather comprehensive advice from your
     adviser.

     You may ask that your adviser what level of commission he or she earns.




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9. ADDITIONAL INFORMATION

     9.1 How must I inform the administrators of the Fund that I intend retiring
            under the University of Stellenbosch Retirement Fund?

            To ensure that your retirement benefits and instructions are in place by the date
            of your retirement, you need to give at least 3 months notice of your intention to
            retire. At that stage you will be asked to fill in a retirement claim form. After you
            have completed the form, the Human Resources Division will send document to
            the Fund’s administrators,                Alexander Forbes Financial Services.   You must
            indicate clearly on your retirement form what portion of your retirement benefit
            you wish to take as a cash benefit. You must also provide details of the annuity
            product you wish to purchase with the balance of your benefit (if any).
            Furthermore, you must also provide information on your financial adviser and
            include a copy of the application form for your pension contract.

     9.2 May I purchase a pension from more than one insurance company?

            Yes, you may purchase as many as four different annuities. There are, however,
            some restrictions in this regard, which your financial adviser will be able to
            explain to you.

     9.3 If my retirement benefits are not paid in time will I receive any interest on
            them?

            Yes, the Trustees decide from time to time what interest will be paid on late
            payment of benefits. This rate is linked to 32-day fixed deposit rates available at
            the larger commercial banks.

     9.4 When can I expect my retirement benefits to be paid out to me?

            The administrators will attempt to pay your retirement benefits between six tot
            eight weeks from your last day of service, but after the following procedures have
            been completed:

            i.    Your retirement claim form has been completed;

            ii.   You have indicated the annuity product you wish your funds to be paid to (if
                  you have chosen buy an annuity);




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            iii. Your claim form has been checked by the Human Resources Division;

            iv. The administrators have calculated your benefit, including the investment
                  income you have earned; and

             v. A tax instruction has been issued by your local tax office.

            Generally the reasons for delays in the payment of benefits are that the claim
            form has not been filled in completely or the Receiver of Revenue will not issue a
            tax instruction because of difficulties with the member’s tax returns.

     9.5 Tax on Unclaimed Benefits

            The South African Revenue Service recently instructed all fund administrators to
            provide it with details of all unclaimed retirement fund benefits. According to
            SARS’s draft GN35 in connection with unclaimed benefits, a benefit not claimed
            for six months after the member’s retirement will be regarded as unclaimed and
            application must be made to the Receiver for an assessment.

            The SARS presently levies tax on these unclaimed benefits at a rate of 40%.
            Please note that this is not a final tax assessment, and that 40% is thus also not
            necessarily the final rate for the individual.

            As you know, withdrawals from a retirement fund are taxable unless they are
            transferred to another approved pension, provident or retirement annuity fund
            (subject to the requirements of the Income tax act). Thus, if a member plans to
            transfer his benefit tax-free to another fund, but takes longer than six months to
            give the instruction to the administrator of the fund, the administrator is obliged to
            advise the Receiver that the benefit has “not been claimed”, and the Receiver will
            tax the benefit at a rate of 40%.

            The member will himself/herself have to negotiate with the Receiver to claim the
            tax back, so that it can be transferred to the new fund. A member in this position
            will only succeed in reclaiming this tax if the member’s decision to transfer his/her
            withdrawal benefit tax-free to another approved fund takes place in the same tax
            year as that in which the benefit accrued.




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            The SARS has, however, made a concession to members who leave a fund
            within three months of the end of the tax year, namely that a member must take
            the decision to transfer his/her benefit to another fund within the tax year in which
            the benefit accrued or within three months after the withdrawal date, whichever is
            the longer. (Thus if a member withdraws on 28 February, he/she will still be able
            to transfer his/her benefit tax-free to another fund provided that he/she does so
            within the first three months of the following tax year.)

            If a member’s unclaimed benefit has been taxed at 40% and the member later
            comes forward to claim his benefit in cash, a tax assessment will again be
            issued. If the member’s average tax rate was more than 40%, the administrator
            will be obliged to deduct the tax due from the member’s benefit before the
            remainder can be paid out to the member. The opposite is also true: where the
            member has paid too much tax, the member must contact SARS to reclaim the
            tax owed.

10. CONCLUSION

     When you plan your retirement, it is important to consider how much money you will
     need on a monthly basis to cover your living expenses. You will thus have to make
     sure that your pension is at least sufficient to cover these expenses.            It is also
     important that you ensure that your pension will grow so that you are protected against
     inflation.     You must also make sure that your pension continues at least for the
     balance of your life, as well as that of your spouse if he or she is financially dependent
     on you.

NOTE

This guide is not a complete and comprehensive document. Rather it is compiled to point
out some important aspects concerning your retirement under the University of
Stellenbosch Retirement Fund.

The guide will be updated from time to time, but may not, at certain stages, be fully up to
date.     Your financial adviser will be available to inform you of the latest changes in
legislation.




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The guide describes various benefits offered under the University of Stellenbosch
Retirement Fund. The benefits enjoyed by members under the Fund are described in the
registered Rules of the Fund. Although everything possible is done to ensure that this
guide is accurate the Rules of the Fund are decisive in the event of any dispute.

This guide does not cover the independent Group Life Insurance Scheme of the University
of Stellenbosch.


August 2008




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