Regulation 39 requires that a retirement annuity strategy must be established by the Board of Trustees. In terms of Regulation 39, the annuity strategy must be reviewed annually. The Board must take the following into consideration:
- Membership profile;
- Communication of objective, asset class composition and performance of annuity;
- Level of income that will be payable;
- The investment, inflation and other risks inherent in the income received by retiring members;
- The level of income protection granted to beneficiaries in the event of the death of a member who is in receipt of the annuity;
- Fees must be reasonable and competitive;
- All fees must be disclosed;
- Access to retirement benefit counselling;
- Annual review of the product(s) by the Board of the Fund; and
- Out of fund and in fund as well as living annuity products are allowed.
How does it work?
The Fund has appointed a company called “Just” to provide members with an annuity at retirement. Just was selected for their innovation and transparency as far as fees are concerned. Capital is invested in such a manner that annual pension increases targets inflation.
The retirement benefits counsellor will contact a member at the latest 3 months prior to normal retirement age. Information regarding the default annuity strategy will be provided to the member. Should the member be interested in taking up the default annuity option, the retirement benefits counsellor will generate a quote for the member.
The quotations are subject to certain variables, namely:
- Single life (thus no second life / spouse’s pension included) or joint life basis (inclusion of a spouse’s pension); and
- Guaranteed period
- Single life: if the principle member passes away during this time, the balance of the capital is paid to a nominee. If there is no nominee, the balance of the capital will be paid to the annuitant’s estate.
- Joint life: if the principle member passes away during this time, the full pension is paid to the spouse for the balance of the guarantee period. After the expiry of the guarantee period, the elected % spouse’s pension becomes payable.
A single life quote will, for example, result in a greater starting pension, as no provision has to be made for a second life / spouse’s pension.
When purchasing a joint life pension, the retiree will have the option to choose either a 50% spouse’s pension or a 75% spouse’s pension. The Fund has selected a 75% spouse’s pension as the default option.
The retiring member can choose their own guarantee period of either 5 or 10 years. However, the Fund has implemented a default guarantee period of 10 years.
If, after the quote is generated, the individual is interested in taking up the annuity policy, Just will contact the member and ask some basic medical questions. Answering the medical questions will in no way prejudice the individual, it could only be to their advantage, potentially resulting in a greater starting pension, particularly for retirees who are in good health.
The retirement benefits counsellor will be able to provide the retiree with more information on the default annuity option.