Information for ex eThekwini municipality staff members

The purpose of this circular is to convey to Pensioners the Fund’s Pension Increase Policy.

In terms of section 14B(3)(a) of the Pension Funds Act (the Act), the Board of Trustees shall establish and implement a policy with regard to increases to be granted to Pensioners and deferred pensioners, which policy must:-

• aim to award a percentage of the consumer price index, or some other measure of price inflation which is deemed suitable by the Board  of Trustees; and
• set the frequency with which increases will be considered in line with the policy, provided that increases should be considered each year, with comparison to minimum pension increase at least once every three years.

The Fund’s Pension Increase Policy, which conforms to the requirements of the Act, is to target an increase of between 60% and 100% of CPIX (ie consumer price index excluding interest on mortgage bonds) subject to an affordability criteria. The CPIX index utilized is the average annual increase in the CPIX for the 12 months ended January of each year. Pensions are increased annually on the 1st July. The minimum increase of 60% of CPIX is guaranteed by eThekwini Municipality.

The increase with effect from 01/07/2005 was 4.28% which equates to 100% of the average CPIX for the 12 month period ended January 2005. It was possible to increase pensions by the full 100% of CPIX as the financial status of the Fund was such that the full CPIX increase was affordable.

The three year review referred to in paragraph (ii) above will take place early in 2007 and every three years thereafter, based on the Fund’s statutory valuation as at 31 December of the preceding year.

The Fund’s policy read in conjunction with this Section of the Act means that, subject to affordability the Fund must grant increases of between 60% and 100% of inflation for that three year period.  For the purposes of the review the Fund’s statutory valuation and advice of its Actuary will inform decision making.

This means that if 100% of inflation is granted in each year of the first two years of any three year review period only 100% of inflation may be expected in the third period. If however pensions are increased by less than 100% of inflation in any of the first two years of the review period an increase of more than 100% of inflation for the third year must be granted, if affordable.

The purpose of this section of the Pension Funds Act is to ensure that an equitable share of the Fund’s assets are set aside for the payment and augmentation of pensions and that these assets are utilized for this purpose.

The aforementioned equitable share of assets has in conjunction with the Fund’s Actuary, been set aside as required.  Furthermore, an appropriate investment policy has been instituted to fulfill the needs of the pension enhancement policy.

Pensioners are re-assured that the Board of Trustees are committed to the purpose of the Fund which has as its objective:-

• the processing of retirement and other benefits for its members, in terms of its Rules and within the confines of legislative requirements; and
• to seek to maximize the value of retirement and other benefits of members within defined risk parameters over the long term.

Kind regards

Yours faithfully

PRINCIPAL OFFICER
R TURNER
2005-10-11