Dear member,

We have important information for you regarding your benefits. 

As an EPPF member, you are entitled to benefits depending on when you exit the Fund. These exit points can be at withdrawal (resignation, retrenchment or dismissal), retirement, ill-health or death. Your benefits accrue over the years. As a defined benefit fund, EPPF uses a formula that is set out in the Fund Rules, along with actuarial factors to calculate your benefits.

EPPF’s Actuary determines the actuarial factors and these are loaded onto our administration system and used whenever a benefit is calculated. The actuarial factors are based on a set of assumptions, called an actuarial basis. The Commutation, Money Purchase Conversion and Actuarial Reserve Factors are reviewed every three years. The Minimum Individual Reserve Factor is reviewed annually. Considerations during the reviews include EPPF’s sustainability, life expectancy of pensioners, and pension increases. 

The last three-year factor review was in 2021 and we have now completed the latest review for the three years up to 2024. 

Here’s what you need to know 

The value of each type of factor depends on what assumptions we make about long-term future investment returns and pensioner life expectancy. Assumptions, in this case, refers to reasonable expectations about future events based on actual experience and statistics. The assumptions also reflect the experience of EPPF’s membership base and EPPF investments. The result is factors that deliver fair value for money for members, while ensuring EPPF remains financially sound and sustainable.

Commutation Factors

Commutation Factors are used to convert the required portion of a pension to a lump sum benefit when a member retires. EPPF factors are single life annuities that allow for long-term future pension increases that are in line with inflation. They are also gender-specific, to reflect different life expectancies for males and females. 

Money Purchase Conversion Factors

Money Purchase Conversion Factors are used to convert the money purchase balance at the date of calculation to an immediate monthly pension for life. They are also used to calculate the cost to the employer of allowing an employee to retire early with no reduction in their pension. In addition, the Money Purchase Conversion Factors are used to calculate the cost to the employer where the employer wants to buy additional years of service for a member. 

Money Purchase Conversion Factors are gender-specific and are single life annuities in the case of members who are single. Joint life annuities are for members who are married at the date of calculation. Joint life annuities take into account the exact age difference between the member and their spouse. EPPF also recognises same-sex partnerships. If you are in a same-sex partnership, please notify EPPF so that any future benefit (which involves the conversion of your money purchase balance into a pension) considers your partner’s gender and in so doing calculates a fair benefit. 

Actuarial Reserve Value Factors

Actuarial Reserve Value or ARV Factors are used to calculate the required capital sum to preserve in the Fund for an exiting member who chooses to defer their benefit and retire (or withdraw) at a later date. This means that if a member chooses to leave the employer but keep their benefit at the Fund, the Fund will calculate the benefit as if the member is retiring and will save that benefit in the deferred scheme until the member reaches retirement age so their pension can be paid accordingly. 

These are complex factors that take into account all possible types of exit from the Fund. These EPPF factors are not gender-specific and are determined according to the latest actuarial valuation.

Minimum Individual Reserve Annuities

The Minimum Individual Reserve or MIR is the lump sum value of what the member has built up in pension benefits up to date of leaving. This benefit is payable as cash, or as a transfer value to another approved fund, when a member resigns, is dismissed or retrenched. The benefit is based on the pension formula in the Fund Rules and the MIR Factor, which converts the pension that the member has built up at the exit date into a lump sum at the expected retirement age of 65 years. Finally, the formula includes a discount rate, based on a rate of interest to calculate the value of the pension lump sum in present day money terms at the date that the member is withdrawing from the Fund. The interest rate is not based on the Fund’s investments but is based on returns from the general stock market as calculated by the Johannesburg Stock Exchange and published by the Financial Sector Conduct Authority (the industry regulatory body). EPPF MIR Annuities are gender-specific.

Effect on Benefits

The latest review of the actuarial factors has the following effect on benefits:

Commutation Factors:  The commutation factors are lower resulting in a lower commutation lump sum than before.  This means that the amount of annual pension that you are giving up is now more for every R1 that you want to take as a lump sum.

Money Purchase Conversion Factors: When using your money purchase balance to buy a pension it will cost you less. You will get a higher pension amount. 

ARV Factors: These factors were unchanged so there is no effect on the ARVs.

MIR Annuities: The lower MIR annuities translate into a lower withdrawal benefit at the date a member chooses to defer their benefit.

There is no action required from you at this stage. 

Kind regards

The EPPF Team