GEPF is a cash cow no longer

Actuarial valuation indicates a downward trend.
A concerted effort must be made to halt the erosion of GEPF funds and reverse the negative trend in its long-term funding level. Picture: Shutterstock

The statutory actuarial valuation of the Government Employees Pension Fund (GEPF) is carried out every two years. The March 31, 2018 valuation was carried out by Alexander Forbes Financial Services for the first time.

The actuarial valuations to date show declining short and long-term funding levels.

Nevertheless, Alexander Forbes confirms that the fund was in a sound financial condition as at March 31, 2018.

Funding levels

The funding levels provide an indication of the health of the fund.

  • The minimum funding level is calculated by dividing the fair value of assets by liabilities (excluding contingency reserves). The fair value of assets equates to the total funds and reserves in the GEPF annual financial statements.
  • The long-term funding level is calculated by dividing the fair value of assets by the total liabilities, which include the contingency reserves.


  March 31, 2018 March 31, 2016 March 31, 2014
  Rm Rm Rm
Fair value of assets (A) 1 800 068 1 629 923 1 425 719
Total accrued service liabilities (B) 1 662 640 1 407 177 1 173 516
Total value of contingency reserves 720 893 647 048 541 375
Total long-term liabilities (C) 2 383 533 2 054 225 1 714 891
Minimum funding level (A/Bx100) 108.3% 115.8% 121.5%
Long-term funding level (A/Cx100) 75.5% 79.3% 83.1%


The minimum funding level as at March 31, 2018 of 108.3% comes in at 18.3% above the minimum funding level target of 90%, but the long-term funding level of 75.5% falls far below the minimum funding level target level of 100%.

In other words, only 75.5% of the full solvency reserve and other contingency reserves amounting to R2.4 trillion could be covered as at March 31, 2018. However, only R137.4 billion is available to cover the contingency reserves of R720.9 billion as of March 31, 2018.

Recommendations made by Alexander Forbes

The recommendations include:

  • That the employer contribution rate be increased as follows:


Employer contribution rates
  March 31, 2018 March 31, 2016
  Services Other Services Other
Current rate 16% 13% 16% 13%
Recommended rate 18.9% 14.4% 19.6% 14.8%


  • That the employer use a 3% equity risk premium over the long-term bond yield, instead of 5%, in testing the appropriateness of the current level of contributions.

Should GEPF members have any concerns?

  1. Before government comes up with its plan to offer civil servants an additional early retirement option, it should request an actuarial assessment of the impact on the GEPF funds should all those retirees elect to move their funds out of the GEPF fund to another fund.
  2. A 60-year-old pensioner who has to live off the GEPF pension would be more concerned with the long-term funding levels than the short-term funding levels calculated as at March 31, 2018. It is most worrying that the downward trajectory of both the short-term and long-term funding levels is continuing. If this trend continues, when will the fund run out of money? This would be an interesting number to extrapolate from the downward trend. GEPF pensioners should be given assurance that positive steps will be taken to reverse this negative trend.
  3. Alexander Forbes used a 5% equity risk premium over the long-term bond yield assumption, to the extent that “equities earn a risk premium of 5% over bonds”. As the Public Investment Corporation (PIC) invests according to a specific mandate which is not necessarily driven by high investment returns, a 5% equity premium may be somewhat optimistic.
  4. The fair value of assets, which is the total funds and reserves of the GEPF, includes the net investment income. To the extent that the GEPF may not have properly accounted for impairments on loans and investments, there is the risk that the net investment income for 2018 has been overstated.

To negate such fears, the PIC should disclose a detailed schedule of all unlisted investments and all loans plus the interest rate payable on the loans, as well as details of all unpaid loan payments, unpaid interest, and unpaid dividends.

To add to any fears, the GEPF accounts receivable as at March 2018 includes investment debtors of R2.2 billion (2017: R2.7 billion). Presumably, this reflects unpaid interest and unpaid dividends on the unlisted investments? The GEPF should provide greater clarity in the financial statements.

The GEPF is no longer the cash cow it once was. A concerted effort must be made to halt the erosion of its funds and reverse the negative trend in its long-term funding level. A thorough investigation should be carried out by an independent party on all the investments and loans.

* Moneyweb approached the GEPF and Alexander Forbes for comment, but none has been forthcoming.



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Another State fund managed to extinction.

Problem is the many cadrès who never contributed to the Fund who are living off the benefits now…

What is the IRR for the last 5 and 10 years? Let’s see if it is market related.

Recommendation to all state employees – as soon as you retire take your money from this fund and buy your RA from a reputable financial institution.

Pity the GEPF has gone silent now. Their blueprint is proving to be a bit of a red flag now. Would love to see the actuary project what the excess assets will be in 2021. By my simple calc it should be close to zero. Come on Alexander Forbes, earn your substantial fees, answer Barbara’s questions…

Quote from Fourth Edition GEPF “fundnews” The GEPF will continue evaluating its investment allocations with utmost care in order to achieve the most growth for its members,pensioners and beneficiaries.

Definitely not in line with press reports

End of comments.



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