For making sure you retire comfortably?
MEMBER NEWSLETTER
JULY
Update from the Principal Officer
Dear members
By now you would all have received your very first electronic benefit statements! We hope you enjoyed the transition, as we also plan to convert our other member statements to electronic versions over time.
In this edition of The NestEgg we discuss who you think is responsible for making sure that you retire comfortably. In so doing, we explore whether the fact that you belong to a retirement fund means that you are set for retirement. We also share some tips for a comfortable retirement with you.
In the Industry Update slot we confirm what happened at T-Day: 1 March 2016 following the Revenue Laws Amendment Act of 2016, which was signed into law on 17 May this year.
We invite you to have a look at the investment performance for Q2 2016, as well as the managers' views for the remainder of the year in the quarterly investment performance report.
Fund regards
Lynn van der Merwe
Who is responsible for making sure you retire comfortably?
All of us want to retire with enough money one day when we stop working. In many cases your retirement savings are not only important for yourself, but also have a significant impact on your family, whom you may need to support after retirement. The question is: Who is responsible for making sure that you retire comfortably? We explore whether the fact that you belong to a retirement fund means that you are set for retirement.
The results of the 2016 Sanlam Benchmark? Survey indicated that 87% of employee respondents believe that it is the employer's responsibility to ensure that their employees retire comfortably. However, quite a scary statistic was that only 35% of pensioners believe that their retirement savings will last for the rest of their lives.
The survey also showed that 58% of pensioners have adult dependants such as a spouse, children, parents or other adults who are (still) financially dependent on them after retirement.
PAGE 1
So, is Government responsible for your retirement?
Government pays a state old-age grant, commonly known as the government pension, of R1 500 per month to those aged 60 and older, subject to a means test, as the intention is to help the poor.
The means test is a way of Government checking whether you qualify for a government pension and if you have the (financial) means to support yourself, and what amount of help, if any, you may qualify for.
The means test is based on both one's income and one's assets (e.g. investments, owning a home). If you have income and/or assets greater than the following limits, you will not qualify for the government pension:
Single Person Married Person
Income R 69 000 p.a. (R 5 750 p.m.) R 138 000 p.a. (R 11 500 p.m.)
Assets R 990 000 R 1 980 000
Note: If you have income of between R 2 250 and R 5 750 per month, a sliding scale will apply.
As a result, if you receive an income of R 5 750 p.m. or more, Government will not provide you with a pension after age 60. It is therefore best if you make sufficient provision for your retirement to ensure that you are able to maintain your current lifestyle.
Is the employer responsible?
In the nineties, most retirement funds changed from defined benefit to defined contribution funds. In the old defined benefit structure a member's retirement benefit was guaranteed by the fund and the employer carried all the investment risk to ensure that the guaranteed benefit could be paid when you retire. Thus, there were far less retirement planning decisions to be made by members, and members relied heavily on the employer.
However, things have changed. In the current defined contribution structure, like that of the Media24 Retirement Fund, the benefit you will receive at retirement is no longer guaranteed and is subject to many factors. Most importantly, as the member you carry the investment risk. Over the years, further developments such as member individual choice came into effect with regard to contributions and investments. Members needed to start making choices about how much they wanted or needed to save towards retirement and how these contributions had to be invested in order to retire comfortably.
Research has shown that members are often unable to take the tough decisions required to ensure a good retirement outcome. Yet, in most cases the retirement fund is their only savings vehicle they have for retirement. We therefore realise that employees are still heavily reliant on their employers to provide a suitable retirement funding mechanism, as well as to provide guidance with respect to financial matters.
Did you know ...
that a retirement fund is the most cost- and tax-efficient vehicle to use for your retirement planning!
Is it a shared responsibility?
There are three key decision-making parties involved in ensuring good retirement outcomes for members, namely: the retirement fund, the member and the employer.
The fund has to provide the necessary structures, The member has to make good decisions with regard to contributions and investments, and The employer has to facilitate the process between the member and the fund.
National Treasury (Government) and the Financial Services Board (the body that regulates retirement funds in South Africa) also play a role by providing a strong regulatory framework which retirement funds must adhere to, to ensure that members obtain good retirement outcomes.
HOW DO ALL OF THESE PARTIES WORK TOGETHER TO ENSURE GOOD RETIREMENT OUTCOMES FOR MEMBERS?
PAGE 2
SSaavviinngg ffoorr rreettiirreemmeenntt iiss lliikkee ppllaannnniinngg aa rrooaadd ttrriipp..
You must have a destination in mind, else you won't know where you'll end up
Few members are able to project how much money they will need at retirement to buy a pension that will provide them with a comfortable income for the rest of their lives.
A useful way to determine how much money you will need, is to aim to replace a percentage of your salary to maintain your current standard of living in retirement. This percentage of salary is called your replacement ratio (RR). A good guide is to try and aim for a RR of 70% of your salary just before you retire.
According to the Sanlam Benchmark? Survey one in five retirees only found out about the value of their accumulated savings three years before retirement!
You must have a reliable car and a roadmap to get you to your destination
Your retirement fund could be seen as the reliable car that can get you to your destination. However, without a roadmap, you could end up getting lost.
Likewise, your retirement fund has to provide you with a suitable structure to help you reach your retirement goal. For this reason, the Fund has implemented various default choices to assist members to steer their way through the various Fund choices in respect of contribution rates and investment portfolios. By choosing the Fund's default options, you don't have to make the difficult decisions yourself.
The Sanlam Benchmark? Survey showed that 84% of members are invested in default investment options.
You must fuel up to reach your destination.
As the driver of the car, you must ensure that you fill up with enough petrol and that your car's engine has enough oil in it, to make sure that you reach your destination.
There are two main factors which will ensure that you reach your retirement goal:
One is the contributions you make to your retirement fund, i.e. the total contribution percentage that you contribute towards retirement savings each month. The more you contribute, the better your chance of reaching your retirement goal.
The other is the investment portfolio(s) that you invest your contributions in. The investment(s) portfolio you choose should be appropriate for your needs; for example, young members should consider the high growth (and riskier) investment options with a view to growing their money while they still have a long-term horizon to retirement, whereas older members, being closer to retirement, would be focusing on protecting their accumulated savings.
Did you know ... if you
contribute in terms of the default lifecycle contribution option, invest in the default investment option called the Lifestage Portfolio,
for a period of 40 years, you should be able to achieve an RR of 70%?
You must maintain and service your car
While on your way to retirement, you should stop and check whether you are still on track. Your Fund provides you with a Retirement Projection Statement each year to show you what your replacement ratio (RR) is. Should your RR be lower than expected or required to maintain your current lifestyle at retirement, you would need to consider taking action.
PAGE 3
Did you know ...
the average RR of members in the Media24 Retirement Fund was 42% in 2015, the main reason being that members did not preserve or transfer their benefits from the previous employer into the Fund.
Since your employer provides you with an opportunity to review your contribution rate each year, you should do so and if you are able to, switch to a higher contribution rate if necessary. If you are not invested in the Lifestage default option, you may wish to consider switching to Lifestage ? which you may do at any time by completing a switch form. Click here to read more about the Media24 Retirement Fund Lifestage Portfolio.
The 2016 Sanlam Benchmark? Survey revealed that only 20% of pensioners have sufficient savings to maintain their current standard of living in retirement.
Keep driving to your goal
When you change jobs, you should avoid cashing in your retirement benefit and spending it at that point. When leaving a company your retirement savings should be preserved as it forms part of your personal retirement plan. Using your retirement savings to settle short-term debt, pay for living expenses between jobs, or to finance home improvements, means that you will have to start saving for retirement from scratch, sometimes at a very late age, which will not get you to your retirement goal.
The 2016 Sanlam Benchmark? Survey shows that more than two-thirds of pensioners indicated that they did not preserve their savings when changing jobs. 48% of those who withdrew their retirement savings said that later in life they regretted doing so!
Reaching your goal
Reaching your retirement age and your retirement goal will mean that you can continue with your current standard of living in retirement. However, if you are nearing retirement and it does not look like you will reach your retirement goal you still have some options available to you. Since 1 March 2015, you have the option of leaving your money in the Media24 Retirement Fund to grow some more while you get a second job to cover your living expenses, until such time that you have saved enough money to finally retire. You will be a `deferred retiree'. The conditions that apply to deferred retirees are available on the Fund's website ? click here to view the conditions that apply.
Having said that, although a driver is responsible for ensuring their car is serviced and maintained, this does not imply that they need to know every detail involved. Drivers cannot be expected to have the same level of understanding of their car as a mechanic does. Similarly, in the retirement planning journey, members cannot be expected to know everything about retirement funds and the choices on offer to them ? it is therefore important that the fund and the employer have good default options in place. This is where the retirement funds, employers and their consultants still play an essential and a collaborative role in ensuring good retirement outcomes for their retirement fund members.
Members still have the final responsibility for their overall retirement outcomes
Employers and funds have a role in educating members to achieve their retirement goals. Given their unique position, they can facilitate a good savings structure and the education process between the members and the fund. Fortunately, the great majority of employers do feel they have a responsibility to enable good retirement outcomes for members.
However, members still carry the final responsibility for their overall retirement outcomes.
Here are some tips on what you can do to retire comfortably:
Click here to use the Retirement Provision Calculator on the Fund's website to calculate your replacement ratio and see if you're on track towards a comfortable retirement. Increase your contributions at the annual option date, or make an additional voluntary contribution (AVC) at any time, if necessary. Ensure that your money is invested in a suitable investment portfolio - the default Lifestage Portfolio has been designed to suit the needs of the majority of Fund members. Preserve your retirement benefit when changing jobs. Avoid retiring early. If you are able to work after you have retired, consider the deferred retirement option when you retire from service with your existing employer. Click here to read more about deferred retirement.
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INDUSTRY UPDATE
ON RETIREMENT REFORM
Taxation Laws amendment Act,2015
In the previous edition of the NestEgg, we informed you of the Taxation Laws Amendment Act of 2015 (TLAA, 2015) which set T-Day as 1 March 2016.
However, on 18 February 2016, the Minister of Finance announced the postponement of the annuitisation requirements in respect of provident fund retirement benefits, which were supposed to be implemented on 1 March 2016, until 1 March 2018.
This postponement has since been incorporated into the Revenue Laws Amendment Act of 2016 (RLAA, 2016), which was signed into law by the President on 17 May 2016, retrospective to 1 March 2016.
So what was introduced on T-Day: 1 March 2016?
The following changes were introduced with regard to retirement funds:
Employees will receive a tax deduction on the total contributions made to pension, provident and retirement annuity funds they belong to, up to 27.5% of the greater of remuneration or taxable income, subject to an overall maximum of R350 000 per tax year. Employer contributions to pension, provident and retirement annuity funds are taxed as fringe benefits in the hands of employees. These contributions will be deemed to have been made by employees for purposes of claiming the tax deduction. If the contributions exceed R350 000 in a tax year, employees may be able to claim a tax deduction on the balance that they could not claim in the current year, in future years, when their contributions are below the maximum limit, up to retirement. Pension fund members must use at least two-thirds of their retirement benefits to buy a pension, except if their total retirement benefits are less than R247 500, in which case they may take their full balance in cash. (Note that the Media24 Retirement Fund is a pension fund.)
How does this affect you as a member of the Media24 Retirement Fund?
Tax deductibility
Members now have the opportunity to save up to 27.5% of total remuneration (in most cases this would be your total-cost-to-company package ? TCTC) in a low-cost, tax-efficient manner. The Media24 Retirement Fund also allows for additional voluntary contributions (AVCs) to be made to the Fund at any time, whether monthly or as a lump sum.
Currently, contributions are based on pensionable salary, so even if you are contributing 27.5% of your pensionable salary you can make AVCs up to 27.5% of your TCTC subject to the overall maximum. Making use of this option can help you to take advantage of the additional tax deduction most members did not previously have.
The `de minimis' exception
As a member of a pension fund, you have to buy a pension using at least two-thirds of your retirement benefit while only being allowed to take up to one-third of it as a cash lump sum. Previously, however, if your retirement benefit was lower than R75 000 (the `de minimis' amount) you did not need to buy a pension and you were exempt from the rule.
With effect from 1 March 2016, the `de minimis' amount increased from R75 000 to R247 500, which means that only if your retirement benefit is greater than R247 500, you will need to buy a pension with two-thirds of your retirement benefit.
Postponement of compulsory annuitisation (pension) for provident funds
As mentioned above, the RLAA, 2016 provides for the postponement of the annuitisation requirements in respect of provident fund retirement benefits until 1 March 2018.
This is to allow for further consultations with the National Economic Development and Labour Council (NEDLAC) and other stakeholders. The Minister of Finance must deliberate and constructively engage with all interested parties about the implementation of the requirement for provident fund members to buy a pension at retirement with a portion of their retirement benefits, and table a report in the National Assembly by no later than 31 August 2017 in respect of the results of such deliberations. These discussions will be facilitated by publishing the paper on Comprehensive Social Security during 2016.
PAGE 5
INVESTMENT PERFORMANCE REPORT
QUARTER 2 OF 2016
PERFORMANCE SUMMARY AS AT 30 JUNE 2016 (Net of fees)
PORTFOLIO / INDEX Growth Balanced Stable
QUARTER 1 YEAR
3 YEARS
5 YEARS
DECEMBER 2000
0.83% 6.26% 13.23% 13.24% 14.56%
1.30% 6.06% 11.38% 11.59% 11.95%
2.36% 6.46% 8.71% 9.23% 9.05%
Money Market
1.95% 7.30% 6.46% 6.09% 7.55%
OM Shari'ah Balanced* n/a
n/a
n/a n/a
n/a
CPI
1.58% 6.27% 5.87% 5.73% 5.84%
HISTORICAL PERFORMANCE OF THE FUND
800% 700% 600% 500% 400% 300% 200% 100%
0%
Growth Balanced Stable Money Market CPI OM Shari'ah Balanced*
* This portfolio received its first contributions during June 2016 and will therefore be reported on in the next quarter
MARKET OVERVIEW
Dec - 00 Jun - 01 Dec - 01 Jun - 02 Dec - 02 Jun - 03 Dec - 03 Jun - 04 Dec - 04 Jun - 05 Dec - 05 Jun - 06 Dec - 06 Jun - 07 Dec - 07 Jun - 08 Dec - 08 Jun - 09 Dec - 09 Jun - 10 Dec - 10 Jun - 11 Dec - 11 Jun - 12 Dec - 12 Jun - 13 Dec - 13 Jun - 14 Dec - 14 Jun - 15 Dec - 15 Jun - 16
International
While journalists are focused on financial market volatility and political uncertainty, the key financial market implications of Britain's decision to leave the European Union (Brexit) are the underperformance of European banks and the possibility of the US dollar strengthening. The European banking index fell to its lowest levels since 2012 after the Brexit vote, which highlights that Eurozone political instability was mispriced.
The British pound weakened to the lowest level since 1985 against the US dollar after the Brexit vote. This has also contributed towards the US dollar bull market, which began in earnest in 2015. Investors will be very cautious if the strengthening US dollar trend increases rapidly, as this will put pressure on commodity and emerging markets.
In the US the Federal Reserve left interest rates unchanged for the fourth time, at its June 2016 meeting. Growth in the major economies of the world ? such as China (+6.7%), Europe (+1.7%), India (+7.9%), Japan (+0.1%) and the USA (+2%) ? remains positive, but commodity-driven economies such as Brazil (-5.4%), Russia (-1.2%), South Africa (-0.25%) and Venezuela (-7.1%) continue to struggle.
Local
Although commodity prices have increased since 2015, it is unclear if volumes exported have also improved, but the price trend is promising for South Africa. Less promising for South Africa is the 28% increase in the price of oil in the first half of 2016. Oil imports account for roughly a quarter of South Africa's imports and the higher oil price will have a dampening effect on domestic economic growth.
Domestic markets experienced inflows of approximately R26 billion from April to June 2016, with most of the inflows occurring in June 2016. The inflows were largely invested in the share market.
Until the Brexit surprise, the exchange rate of the rand reflected the significant inflows to the domestic share market. The rand briefly touched pre-`Nenegate' levels at R14.32 and the FTSE/JSE All Share Index approached 54 500 index points.
The best performing investment for the quarter and the year to 30 June 2016 was a rand-denominated investment in gold, e.g. Krugerrands, as it increased by 7.6% for the quarter and over 36% for the year. The resources sector was the best performer of the large equity (shares) sectors, as it achieved 6.4% growth. The industrial sector achieved 5.0% for the quarter. The financial sector was most affected by the Brexit scare recording -4.3% for the quarter.
Click on the links below to access the following additional information:
Investment Managers' Outlook and Strategy Update Website Investment Page Old Mutual Shari'ah Balanced Portfolio Factsheet
ASSET ALLOCATION PER PORTFOLIO
Growth
21%
5%
52%
22%
Stable
9% 15%
35%
41%
Balanced
17%
9%
43%
5%
26%
Money Market
100%
Local Shares Local Bonds Local Property Local Cash International
TOP TEN DOMESTIC SHAREHOLDINGS
1 Naspers Limited 2 British American Tobacco PLC 3 Steinhoff International Holdings 4 Sasol Limited 5 Standard Bank Group Limited 6 Old Mutual PLC 7 SAB Miller PLC 8 Remgro 9 Northam Platinum Limited 10 Compagnie Financiere Richmont SA
9.30% 8.38% 5.38% 5.24% 5.01% 3.89% 3.26% 2.69% 2.36% 2.29%
MANAGEMENT PERFORMANCE (GROSS RETURNS) AS AT 30 JUNE 2016
ASSET CLASS
MANAGER
Shares (Equity)
Allan Gray Coronation Foord
FTSE/JSE Free Float Index (ALSI)
Bonds
Old Mutual Coronation
BEASSA all Bond Index (ALBI)
DATE OF APPOINTMENT
Oct 02 Feb 07 Jul 13
Dec 00 Aug 10
QUARTER
0.97% 0.80% -0.21% 0.44%
4.31% 4.35% 4.40%
1 YEAR
12.92% 0.14% 1.56% 3.83%
5.99% 6.96% 5.24%
3 YEARS
15.71% 12.79% 14.48% 13.03%
6.62% 7.45% 6.30%
5 YEARS
16.04% 15.63%
n/a 13.81%
8.64% 9.48% 7.90%
SINCE INCEPTION
21.61% 13.58% 14.48% 16.49%
11.00% 9.38% 10.39%
Property
Sesfikile
FTSE/JSE SA Listed property Index (SAPY)
Aug 14
0.09% -0.44%
14.63% 11.04%
n/a 14.32%
n/a 18.54%
22.95% 21.88%
Cash
STeFI Composite Index
Investec Sanlam
International
Allan Gray Investec Foord BlackRock
Morgan Stanley Capital International All country World Share index (MSCI)
Dec 00 Dec 00
Oct 02 Feb 07 Jul 13 Feb 16
2.05% 2.05% 1.78%
2.13% -0.84% -3.21% 0.58%
0.75%
7.69% 7.62% 6.85%
23.19% 7.91% 8.90% n/a
16.81%
6.78% 6.80% 6.19%
16.52% 17.97% 14.24%
n/a
21.34%
6.40% 6.48% 5.90%
21.61% 19.96%
n/a n/a
23.59%
8.63% 8.55% 8.12%
10.88% 10.72% 14.24% -6.58%
8.89%
Shari'ah Balanced
Old Mutual
Apr 16
1.77%
13.10%
13.20%
12.04%
n/a
Although the Old Mutual Shari'ah Balanced Portfolio was only implemented as a Fund option this year, the portfolio was already established in December 2010.
FUND CONTACT DETAILS
T +27 21 406 3326 F +27 86 721 3447 E retfund@ W
This report is produced by Simeka Consultants & Actuaries
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