INFORMATION FOR MEMBERS OF THE UNIVERSITY OF KWAZULU-NATAL RETIREMENT FUND WHO
ARE AGED 53 YEARS OR OLDER AND WISH TO CONSIDER OTHER INVESTMENT OPTIONS
INTRODUCTION
This note explains the range of investment choices that since January 2011 have been made available to
members who are aged 53 years or older.
ALIGNING YOUR PRE- AND POST-RETIREMENT INVESTMENT STRATEGIES
Your investments in your closing years as a member of the Fund should, as far as possible, be aligned with
the decisions you intend to make to fund your retirement. As you approach your retirement age, and,
indeed, afterwards, as your retirement progresses, you will become better able to judge the income you will
require during the various stages of your retirement. To assist you, Alexander Forbes has developed a
calculator, and, with the assistance of their financial planning consultants, will help you to decide which
investment strategy you should follow immediately before you retire.
The calculator is available on www.afactive.co.za, but you must register on AFOnline in order to gain access.
The fund website will provide you with details of how to do this.
What pre-retirement investment options are available?
A. THE ALEXANDER FORBES LIFESTAGE MODEL
The Alexander Forbes Lifestage Model (AFLM) will automatically change your investment portfolios
depending on the number of years you have to retirement thus allowing you the opportunity to match the
investment strategies before and after retirement.
The Alexander Forbes LifeStage model can accommodate members who want to purchase a with-profit
annuity or who are not sure of the retirement-funding investment they will purchase. A with-profit annuity is
an investment that pays you a monthly pension for life, where the pension increases every year depending
on the investment returns earned by the insurer providing the pension. Generally, this type of pension has a
conservative investment strategy.
The diagram below shows the seamless change from the High Growth to the Conservative Growth portfolio
over the last seven years before normal retirement age (NRA) before buying a with-profit annuity:
Number of Years to retirement
7 years to NRD
6 years to NRD
5 years to NRD
4 years to NRD
3 years to NRD
2 years to NRD
1 years to NRD
Normal Retirement Age
Portfolio your funds will be invested in
High Growth – 50% plus Medium/High Growth – 50%
Medium/High Growth – 100%
Medium/High Growth – 50% plus Medium Growth – 50%
Medium Growth – 100%
Medium Growth – 50% plus Medium/Conservative Growth – 50%
Medium/Conservative Growth – 50% plus Conservative Growth – 50%
Conservative Growth – 100%
With Profit Annuity
As you approach your normal retirement age, your fund credit will automatically move from the High Growth
to the Conservative Growth portfolio, as shown in the diagram above, until your normal retirement age.
The portfolios are managed by Investment Solutions and therefore also have the benefits of the multimanager.
The total asset allocation of the Alexander Forbes Lifestages portfolios is contained in Annexure 1.
B. THE INFLATION-LINKED BOND OPTION
The inflation-linked bond option (ILB) matches your investment strategy before retirement with an investment
into an inflation-linked annuity (pension) at normal retirement date. An inflation-linked annuity is an
investment that pays you a pension for life where the increases every year are equal to the inflation rate for
that year. Generally, this is an expensive pension and would be appropriate only if you have a high level of
retirement savings.
The cost of the inflation-linked annuity depends on inflation linked bond yields, so by investing in the
inflation-linked bond option before retirement, you reduce the risk of the pension becoming more expensive
at retirement without a corresponding increase in your fund credit value.
The timing of the investment in this portfolio is very important. Because it would be affordable only for
members with a sufficient amount of retirement savings, it is strongly recommended that you obtain sound
financial advice before investing in this portfolio. The timing of the switch into the inflation-linked bond
portfolio will be at your discretion. Unlike the LifeStage model portfolios, it does not automatically happen on
a fixed date.
The inflation-linked bond portfolio would aim at an investment of at least 95% of total assets in South African
government inflation-linked bonds, with the balance invested in local cash.
An example of this option is as follows:
Number of Years to retirement
7 years to NRD
6 years to NRD
5 years to NRD
4 years to NRD
3 years to NRD
2 years to NRD
1 years to NRD
Normal Retirement Age
Portfolio your funds will be invested in
High Growth – 50% plus Medium/High Growth – 50%
Medium/High Growth – 100%
Medium/High Growth – 50% plus Medium Growth – 50%
Medium Growth – 100%
Medium Growth – 50% plus 50% Inflation Linked Bond
100% Inflation Linked Bond
100% Inflation Linked Bond
Inflation Linked Annuity
The inflation-linked bond portfolio is managed by Investment Solutions. The monies in this portfolio are
invested mainly in inflation-linked bonds issued by the South African government. The interest payments on
the inflation-linked bond move in line with inflation over time.
The portfolio is classified as "conservative low risk".
The portfolio is aimed at investors needing interest income and a hedge against inflation.
This portfolio is expected to have:
- A low chance of capital loss over the medium term (where the portfolio provides protection of income
against inflation, but there could be short-term loss of capital value of the portfolio if the inflation rate
becomes negative, the inflation index is downwards adjusted by Statistics SA or the government, or
real yields on inflation-linked bonds increase);
- Investment returns linked to inflation over the medium term and above inflation over the longer term.
The fee for the inflation-linked bond portfolio is contained in Annexure 2.
C. THE PURCHASING POWER LIFESTAGE OPTION
The Purchasing Power LifeStage model matches the investment strategy before retirement with an
TM
investment into the Alexander Forbes LifeStage Annuity or another living annuity at normal retirement
date.
TM
The Alexander Forbes LifeStage Annuity is an investment that provides a living annuity with the option
later to convert that living annuity into an annuity that pays for life. It is therefore a flexible living annuity.
The Purchasing Power LifeStage option is available to you only if you have five years or less until your
retirement. The model then automatically moves your fund credit through the Purchasing Power portfolios
each year, gradually moving your fund savings into a portfolio that aims to invest in the Alexander Forbes
LifeStage AnnuityTM or another living annuity at normal retirement date.
If you choose the Purchasing Power portfolio, your fund credit will be invested in the relevant portfolio,
depending on how many years you have until your normal retirement date. So, if you choose the Purchasing
Power portfolio and are within three years of your normal retirement age, your fund credit will be invested in
the Purchasing Power portfolio that targets a three-year period to normal retirement date. The following year,
the fund credit will move automatically into the portfolio that targets two years to normal retirement date, and
so on.
An example of this option is as follows:
Number of Years to retirement
7 years to NRD
6 years to NRD
5 years to NRD
4 years to NRD
3 years to NRD
2 years to NRD
1 years to NRD
Normal Retirement Age
Portfolio your funds will be invested in
High Growth – 50% plus Medium/High Growth – 50%
Medium/High Growth – 100%
T5
T4
T3
T2
T1
Lifestage Annuity or Living Annuity
The Purchasing Power portfolios are labeled according to the period before normal retirement age when you
will be able to invest in them.
The portfolios are designed to provide a “LifeStage” approach to investing for members who:
- wish to secure a reasonable income after retirement while still lowering the chance of volatility in the
short term close to retirement, and
- want to invest in the Alexander Forbes LifeStage AnnuityTM or another living annuity after retirement.
Each of the Purchasing Power portfolios has different risk-return characteristics. The T5 portfolio has the
highest expected return and volatility, while the T1 portfolio has the most conservative expected return and
volatility. The “building block” portfolio for each asset class is constructed by Investment Solutions and
invests in several underlying investment managers with complementary investment styles. Details of the
construction of the Purchasing Power portfolios are contained in Annexure 2.
The range of portfolios is continually monitored by Investment Solutions and Alexander Forbes. The
portfolios will be changed if it is believed that the risk-return characteristics can be improved. This will allow
the portfolios to take advantage of new opportunities as and when they arise.
Tactical asset allocation is allowed in the portfolios. This allows Investment Solutions to deviate from the
targeted asset allocation to add value to the portfolio’s returns. The amount of this deviation depends on the
portfolio but is no more than 5% of the targeted asset allocation benchmark.
The fee on the Purchasing Power channel portfolios is contained in Annexure 2.
WHAT WILL HAPPEN IF I MAKE A CHOICE TO SWITCH PORTFOLIOS?
It is important to note that if you decide to switch funds from the Main Portfolio, to the Lifestage option, all of
your funds in the Main Portfolio will be switched to the Lifestage option. If you do not make this switch,
these funds will remain invested in the Fund's Main Portfolio.
SWITCHING
Please note that certain Investment Portfolios have specific rules, such as notice periods and maximum
amounts. Should you be switching out of or into the Main Portfolio, your switch will only be actioned once
the Fund Actuary has calculated the monthly unit price in respect of the Market Portfolio. In order for your
Switch to be processed, your Switch Notification Form must reach Alexander Forbes by the 25th day of the
preceding month.
Should you be switching between the Lifestage Model, individually elected Lifestage Portfolios, the Inflation
Linked Bond Channel or the Purchasing Power Lifestage Channel, your Switch Notification Form will be
processed within 5 working days after receipt, or, if applicable, in accordance with the time frame prescribed
in the Fund’s Switching Rules.
Should you wish to make an active investment choice you will need to complete the pre-retirement
investment switch form. Once completed, please fax your pre-retirement investment switch form to
Alexander Forbes on (011) 263 2948. After receiving your form, Alexander Forbes will process your switch
instruction and will switch your current fund credit into the portfolio of your choice, in accordance with the
time frame prescribed in the Fund’s Switching Rules.
WHAT WILL HAPPEN TO MY ONGOING MONTHLY CONTRIBUTIONS AFTER THE SWITCH?
100% of your ongoing monthly contributions will be invested in the portfolio that you have selected.
FINANCIAL PLANNING ADVICE
If you are planning to switch portfolios or are approaching retirement it is important that you consult
a certified financial planner before making any decisions regarding your fund credit, and that you
read and understand the investment choices that are available.
Please note that in terms of the Financial Advisory and Intermediary Services Act neither the Fund
Consultant nor the Fund Officer is permitted to provide individual financial advice.
Please refer to the Fund’s website and that University Notice System for the details of the retirement
planning talks that will be held mid-late October.
Past Investment Returns
The investment returns earned on the Main Portfolio are posted online monthly and there are links to Fact
Sheets relating to the Investment Solutions portfolios that will give you up-to-date information on those
portfolios, including the gross returns earned.
Annexure 1 – Asset Allocation
Alexander Forbes Lifestage Portfolio Range
Purchasing Power Portfolio
Asset Class
T5
T4
T3
T2
T1
Equity
36.5%
30.5%
24.5%
18.5%
12.5%
Bonds
11.9%
15.3%
18.7%
22.1%
25.5%
Cash
3.4%
2.6%
1.7%
0.9%
0.0%
Inflation Linked
Bonds
6.6%
6.8%
7.1%
7.3%
7.5%
Real Return
Focus
20.4%
21.7%
23.0%
24.2%
25.5%
Caveo
0.0%
0.0%
0.0%
0.0%
0.0%
Property
0.0%
0.0%
0.0%
0.0%
0.0%
Global
14.2%
13.4%
12.6%
11.8%
11.0%
Sakhisizwe
3.6%
3.0%
2.3%
1.7%
1.0%
Annexure 2 – Fees
Main Portfolio
Allan Gray
The fee for the local Allan Gray portfolio is 0.70% of asset value per annum. The fee for the offshore Orbis
portfolio can be between 0.5% and 2.5% of asset value per annum, depending on the performance of the
portfolio.
Foord Asset Management
The fee for the Foord portfolio is 0.85% p.a of assets in respect of the domestic (local) portion and 1.35%, in
respect of the offshore portion of the portfolio (the the offshore component currently makes up 25% of the
total portfolio.)
Alexander Forbes Lifestage Portfolio Range
Asset Size
AF High
Growth
AF High /
Medium
Growth
AF Medium
Growth
First R50m
Next R50m
NextbR100m
Next R300m
>R500m
International
0.88%
0.74%
0.59%
0.51%
0.44%
1.00%
0.88%
0.74%
0.59%
0.51%
0.44%
1.00%
0.86%
0.72%
0.57%
0.50%
0.43%
1.00%
AF Medium
Growth /
Conservative
Growth
0.75%
0.63%
0.50%
0.44%
0.38%
0.90%
AF
Conservative
Growth
0.75%
0.63%
0.50%
0.44%
0.38%
0.90%
The fee for the Inflation-Linked Bond portfolio is 0.55% p.a. of assets.
The fee for the Purchasing Power channel portfolios is 0.86% p.a. of the first R50 million of assets
invested. After this, the fee reduces depending on the size of assets.
*Please note that all fees quoted above exclude VAT.