GEPF’s 2021 actuarial valuation released

‘The fund was in a sound financial condition’ as at March 31, 2021.
During the valuation period, annual pensions increased by an average of 4% per annum. Image: Moneyweb

The board of the Government Employees Pension Fund (GEPF) has released the fund’s 2021 actuarial valuation, which was carried out by African Origins Actuarial Solutions, and peer-reviewed by Alexander Forbes Financial Services.

The last valuation was carried out as at 2018, and the next valuation date will be 2023.

This report was prepared in accordance with the Government Employees Pension Law, which requires that the fund’s financial condition be investigated and reported upon by a valuator at least once every three years.

Read:
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The practice has been to have statutory actuarial valuations performed biennially; however, the abnormal events related to the Covid-19 pandemic that occurred in March 2020 resulted in the fund deciding to perform only an interim valuation as at March 31, 2020.

The actuarial valuations for 2014, 2016, 2018, and 2021 are available on the GEPF website here.

Funding levels

The funding levels indicate the health of the fund:

  • The minimum funding level of 90% is the primary funding objective of the fund, and is calculated by dividing the fair value of assets (total funds and reserves) by the liabilities (excluding contingency reserves). The minimum funding level increased from 108.3% to 110.1%.
  • The long-term funding level, where the trustees’ targeted minimum is 100%, declined from 75.5% to 74.3%. This means: “The fund does not have sufficient assets to cover the recommended solvency reserve and other contingency reserves in full … An amount of R186 827 million is available to cover these reserves, which implies that 20.9% of the recommended reserves are funded.” The long-term funding level is calculated by dividing the fair value of assets by the total liabilities, including the contingency reserves.

The actuaries confirm that “the fund was in a sound financial condition” as at March 31, 2021.


Actuarial highlights for the four financial years to March 31 (Rm)

2021 2018 2016 2014
Fair value of assets (A) 2 041 346 1 800 068 1 629 923 1 425 719
Total accrued service liabilities (B) 1 854 519 1 662 640 1 407 177 1 173 516
Total value of contingency reserves 892 840 720 893 647 048 541 375
Total long-term liabilities (C) 2 747 359 2 383 533 2 054 225 1 714 891
Minimum funding level (A/Bx100) 110.1% 108.3% 115.8% 121.5%
Long-term funding level (A/Cx100) 74.3% 75.5% 79.3% 83.1%

Rule amendments since the previous valuation date

  • A rule amendment was gazetted in 2018 to allow for the differentiation of the applicable periods and provisions for benefits due to voluntary and compulsory demilitarisation in respect of South African National Defence Force members.
  • A rule amendment was gazetted in 2018 to make provision for the replacement of the orphans’ pensions with children’s pensions, at a higher level of 25% of the main member’s pension.
  • A rule amendment was gazetted in 2019 to make provision to replace the divorce debt approach with a pensionable service reduction approach.
  • A rule amendment was gazetted in 2019 to make provision that a member may elect, on retirement or discharge, to have either the gratuity or the annuity reduced in favour of an increased spouse’s pension.

Pension increases

The pension increases granted to pensioners during the valuation period were as follows:

Date of increase Increase CPI* (for the year ended November 30) Increase as % of CPI as at April 1
April 1, 2018 5.5% 4.6% 119.6%
April 1, 2019 5.2% 5.2% 100%
April 1, 2020 3.6% 3.6% 100%
April 1, 2021 3.2% 3.2% 100%

* Consumer Price Index

The pension increases were taken into account in the valuation of the liabilities of the fund as at March 31, 2021.

Pension increase policy

The “fund aims to grant minimum pension increases, if affordable, of 75% of inflation subject to a minimum pension of the original pension increased with 75% of full inflation”.

The trustees may approve a pension increase recommendation provided that:

  • The fund’s funding level is higher than the minimum funding level after the recommended increase; or
  • The employer has committed to paying such amounts as will increase the funding level to the minimum funding level, after the recommended increase, within the next three years.

An additional reserve has been established to allow the trustees greater discretion in granting pension increases of 100% of CPI.

Members, retirees and dependants

The number of active members has decreased from 1 281 823 to 1 270 444 over the valuation period.

The number of retirees has increased from 286 831 to 315 397, dependants from 153 590 to 162 916, and child pensioners from 1 204 to 7 312.

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“During the valuation period, annual pensions increased by an average of 4.0% per annum. This is lower than the long term average rate of increase in annual pensions assumed at the previous valuation date, i.e. 5.2% per annum,” the report notes.

“We are satisfied with the suitability of the fund’s investment strategy, the nature of the assets of the fund and that the matching of the assets with the liabilities is, in our opinion, adequate,” the valuators confirmed.

Listen: Jaco van Tonder of Ninety One on the GEPF’s 2021 fund audit

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