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5/10/10 GEPF

GEPF Presentation to: Standing Committee on Finance5 May 2010

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PRESENTATION AGENDA

2. GEPF Annual Report 2008/09

Financial Highlights

4. Challenges and Actions 1. Introductory Overview3. Achievements and Initiatives

GEPF InvestmentsOrganisational Achievements and InitiativesGovernance

5. Questions and Answers

Separation

Roles and Responsibilities of Fund and GPAA

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1. Introductory OverviewOverview of the GEPF

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BACKGROUND

GEPF was established in terms of the GEP Law, proclamation 21 of 1996Its predecessor is the Government Service Pension Fund (GSPF)GEPF was born out of the amalgamation of:

The GSPF TBVC pension schemes

Other pension schemes from the self governing states

(Interim Constitution & Public Service Act, 1994)

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Defined Benefit Fund (risk with Employer/State)The State is the major sponsoring employer Juristic entity

(Separate from the State, PFMA not applicable)Section 2(2)

Governed by a Juristic Board of Trustees

(Section 6)

(Section 31)

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BACKGROUND (Cont.)

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Administration of the FundFinancial Reporting and audit arrangements

Communication with members & pensioners

Protect Member RightsInvestment of all the assets of the FundManagement of the benefit structure and all related rulesTransitional arrangements and transfers between fundsManagement of financial arrangements: Pension increases, review of contribution rates, actuarial valuations, etc.Dissolution of the Fund

BOARD OF TRUSTEES RESPONSIBILITIES

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GEPF PROFILE

6th Largest Fund in the world (Watson Wyatt: 2009)1.197 (2008: 1.160) million contributing members

318 (2008: 311) thousand pensioners & beneficiaries639.7 (2008: 707) billion of assets under management

Largest Fund in Africa in terms of assets and membership under administration819 billion of assets under management – 31 March 2010 (unaudited)

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2. Annual ReportGEPF Annual Report

2008/09

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Financial Highlights

GEPF Annual Report 2008/09

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FINANCIAL HIGHLIGHTS

Accounting Policies are aligned with the Regulatory Reporting Requirements (RRR) as per Financial Services Board (FSB)Unqualified audit opinion on the Annual Financial Statements - March 2009

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FINANCIAL HIGHLIGHTS TABLE

Feb 2010 R’ bn

(Unaudited)% Mar 2009

R’ bn % Mar 2008 R’ bn

Mar 2007 R’ bn

Mar 2006 R’ bn

Accumulated reserves

768 20% 640 (10)% 707 659 546

Contribution received

32 6%

30 17% 26 23 20

Benefits paid (28) (7)%

(30) 18% (26) (24) (17)

Administration costs

(0.33) (0.3)

%

(0.34) 21% (0.28) (0.26) (0.32)

Admin costs/member/month in Rand

19,91 7%

18,67 18% 15,85 14,70 19,19

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2007 2006

RETURN ON INVESTMENT

ROI (%)

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RETURN ON INVESTMENT

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RETURN ON INVESTMENTS

This trend has reversed as investments are valued at R775bn and net income has increased to R127m for the 11 months ended February 2010 (unaudited).

The ROI became negative in 2008/9 financial year due to a loss of R99bn in fair value adjustment ( global financial crisis) and an impairment loss of R2,5bn.The return on investment (ROI) trend has been declining over the past four years to 2008/9 as investments have been growing at a declining rate while net income has been decreasing.

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3. Achievements and InitiativesGEPF Annual Report 2008/09

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GEPF InvestmentsGEPF Current

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ASSET LIABILITY MODEL (ALM)

Is the link between the liabilities (actuarial valuation) and the investment strategy/portfolio structure.

Present Value of the cash flows gives rise to the Actuarial LiabilityThe structure of the cash flows gives rise to the Investment Strategy/portfolio structure

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ACTUARIAL VALUATION

1818Source: Alexander Forbes

Financial Position Statutory ValuationMarch 2006 R’m

Statutory Valuation March 2008 R’m

Interim Valuation March 2009 R’m

Actuarial Value of Assets 545 563 707 042 639 747

Liabilities 536 523 707 042 699 247

Active Member liability 297 990 433 286 496 574

Pensioner liability 120 744 155 654 175 579

Data and other Reserves 6 828 24 610 27 094

Contingency Reserves held 110 961 93 492# 0

Mortality Improvement Reserve

11 137 16 878 19 548*

100% CPI Pension Increase Reserve

57 354 133 957 127 329*

Solvency Reserve 42 470 64 081 70 851*

Surplus/(Deficit) 9 040 0 (59 500)

Funding level 101.68% 100% 91.5%

*The 2009 liability excludes the contingency reserves highlighted in red above, as this reserves can only be held to the extend that they are affordable. # The fund could not afford the full reserve of R 214 916m , we only set aside R93 492m - of which was affordable.

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PORTFOLIO STRUCTURE

Asset Class Strategic Asset

Allocation

Asset Allocation

Range

Current Asset

Allocation

Amount Invested

R’bn

Equities 51% 40 -55% 55.38% 437.45

Private Equity aimed at infrastructure, socially desirable investments and BEE financing (ISIBAYA, PAIDF)

6% 3-9% 1.11% 9.03*

Bonds 31% 25-45% 33.80% 276.98

Property 5% 0-7% 3.42% 28.06

Cash/Money mkt instruments

5% 0-10% 4.73% 38.80

Structured Investments

2% 0-3% 1.64% 29.15

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The Assets of the fund as at 31 March 2010 are sitting at R819.47bn (28% up y-on-y)*ISIBAYA mandate is currently under review, to be aligned to GEPF’s recently adoptedFramework on developmental investing

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FRAMEWORK ON DEVELOPMENTAL INVESTING

Developmental investing is about identifying investment opportunities that will generate excellent invest returns with a high positive social impactOur framework is based on the extensive research which was conducted over the last year , consultations with external stakeholders, and trends in global best practices

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PILLAR FRAMEWORK FOR INVESTMENT

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Pillar I Investments in

Economic Infrastructure

•Energy Infrastructure•Transport Infrastructure•Water Infrastructure•Broadband Infrastructure

Pillar II Investments

in Social Infrastructure•Affordable housing•Healthcare•Education

Pillar III Investment

in Sustainability

projects •Renewable energy•Green buildings•Clean technologies

Pillar IVInvestment in

New enterprises, BBBEE, Job

creation

Sustainable investments that delivers both good investment returns and high social and environmental impact

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RESPONSIBLE INVESTING

GEPF is a founding signatory of the United Nations backed Principles of Responsible Investing (RI)As a signatory we have committed to:

Incorporate Environmental, Social & Governance (ESG) issues into investment analysis and decision making

Be active owners and incorporate ESG issues into our ownership policiesSeek appropriate disclosure on ESG issues by entities in which we invest

Promote acceptance and implementation of the principles within the investment industry

Work with other signatories to enhance our effectiveness in implementing the principlesReport on activities and progress towards implementing the principles

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GEPF’s commitment to RI is informed by the belief that:

“ Sound environmental management forms an essential part of sustainable economic growth and social development – the basic ingredients for corporate sustainabilityThe mismatch between social and private financial returns is not sustainable ; the two need to be aligned if the market system is to be sustainableEnhanced governance mitigates risks of total corporate failure, which ultimately leads to enhanced long-term returns ”

Own Companies that generate profits that are worth having……

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GEPF RESPONSIBLE INVESTMENT POLICY

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Obey the laws, adhere to regulations, offer healthy working places, be profitable & create value, pay people fairly, treat stakeholders fairly, don’t waste capital, do not cause collateral damage…

Citizenship beyond legal duties: Endorse & implement sector charters, transformation beyond minimum required, adopt high environmental standards, uphold high levels of ethical & governance standards,

Generate profits that are worth having

+

GEPF’s RI Policy

Great & Sustainable Companies

Essentials

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Organisational Achievements & Initiatives GEPF

Current

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BENEFIT PAYMENTS - BACKLOG REDUCTION

Financial Year Outstanding Claims

Percentage increase /

(reduction) in backlog

2007/2008 20 5912008/2009 22 389 8%2009/2010 14 036 (37%)2010/2011 (Target)

7 018 (50%)

<60 61-90 91-120 121-150 151-180 181-240 241-365 366 > Total

GEPF 2008/09 7,939 1,057 821 477 326 473 559 2,899 14,551

GEPF 2009/10 3,616 292 258 241 146 230 276 1,300 6,359

Employer 2008/09 745 161 213 183 143 304 407 4,087 6,243

Employer 2009/10 681 197 133 131 90 187 323 4,070 5,812

Tax Status 2008/09 415 109 92 88 51 80 135 625 1,595

Tax Status 2009/10 726 135 117 93 42 76 124 552 1,865

Total 2008/09 9,009 1,327 1,126 748 520 857 1,101 7,611 22,389

Total 2009/10 5,023 624 508 465 278 493 723 5,922 14,036 2626

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Service ChannelsAll service channels cater for the full spectrum of GEPF services.Client Liaison Officers (CLO) deployed in all regional offices to act as liaison between employer departments and the GEPF.

Interact regularly with Public Protector on member queries and reports from the office.

Satellite client office in Durban, Johannesburg; Port Elizabeth; Mthatha Regional offices in all nine provinces (increased from 4 to 9)Call centre

CLIENT INTERFACE

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CLIENT INTERFACE / INCREASED GEPF ACCESSIBILITY

Gauteng

Johannesburg Pretoria

Nelspruit

Free State

Bloemfontein

Western Cape

Kimberly

Eastern Cape

PE

KZN

PietermaritzburgDurban

LimpopoMpumalanga

Polokwane

Cape Town Bisho

Mthatha

Northern Cape North West

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GEPF increased GEPF Footprint supports Employer liaison and education.Client Liaison Officers (CLO) and Client Service Agents (CSA) are deployed at employer departments to facilitate speedy processing of exit documents.

813 Employer training session were presented to National and Provincial Departments.

GEPF participates in Employer departments HR Forums.

EMPLOYER INTERFACE

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MEMBER COMMUNICATION

CONVENTIONALQuarterly Newsletter for Active and Pensioner members Institute of Retirement Funds Accolades (IRF)2009 Winner “ Large Fund Category” (IRF Communication Challenge)2008 Winner “Best Performing Member Newsletter” (IRF Communication Challenge) 2009 Winner “ Special Mention Award – Training and Engagement with Organised Labour” (IRF Communication Challenge)

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MEMBER COMMUNICATION (Cont.)

NON CONVENTIONALRoad Shows (Mmabatho; Lebowakgomo; Soshanguve; Galeshewe; Botshabelo; Mafikeng)Exhibitions (Rand Easter; Pretoria and Royal Shows)9 National Talk Shows campaigns in all different languagesCommunity Radio Talk Shows in all provinces. Conducted Provincial Union road shows as part of member awareness campaigns.

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SERVICE DELIVERY INITIATIVES

Data Quality Improvement Project in place:Implement appropriate technology and systems to support the service delivery improvement plan - (Data improvement; business process enhancements)Negotiate Employer draft SLA and Memorandum of Understanding (MOU) with applicable stakeholders in current financial year.Continue with stakeholder consultative forums.

One Client – One System NumberClient Status and Field Population and clean-up

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SERVICE DELIVERY INITIATIVES (Cont.)

Compliance to approved PFMA Supply Chain aligned policies Embedding Monitoring and Evaluation FrameworkNew process for deduction of departmental debt complaint to PFA Electronic Document management – Upfront scanning Human Capital

Organizational structure is 95% filled . ( 853/ 900 as of Nov 09)Absorption of contract employees into permanent staff

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ICT INITIATIVES

Enhance ICT Security and Consolidate Consolidate ApplicationsBusiness ContinuityEnhance ICT infrastructure and networksICT Architecture review and implementBusiness Process Automation Enhance ICT GovernanceBusiness Process Review and ConsolidationEnhance Applications

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GovernanceGEPF

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GOVERNANCE

Internal Audit function in place and operational 3-Year Rolling Internal Audit Coverage Plan approved and operationalThe risk management framework has been approved by the BOT and being implemented.The Fraud Prevention Plan implemented and whistle-blowing has been encouraged together with the Fraud HotlineThe loss suffered through fraud of R1.3m was less than R2.5m suffered in the previous financial year115 cases on alleged fraud and 55 registered with SAPSICT Governance Model in place

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Section 37D of the Pension Fund Act (PFA) – non-member spouse to claim a portion of the members interest, in terms of the divorce order at date of divorce and not at date of exit.

CLEAN BREAK PRINCIPLE

The GEPF does not fall under the PFA and Section 37D is not applicable to the GEPF.The GEPF non-member spouse only entitled to his/her portion of the member pension interest at the date of exit.

The GEPF has recognised the need to align to current pension practices and processes, investigating the possibility of implementation of the clean break principle within the GEPF.

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Investigation process is advanced

CLEAN BREAK PRINCIPLE (Cont.)

GEPF Board has identified a preferred method of implementation.Outstanding processes :

Engagement with National Treasury and PSCBC structures as required in terms of the GEP Law.

Enactment of the necessary GEP Law and Rule amendments

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SeparationGEPF & GPAA Interim

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MODEL PRE SEPARATION 2005 - 2008

GEPF - BOARD OF TRUSTEES

GEPF-BOARD COMMITTEESCEO-GEPF

EXCO

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The Executive Authority is the Minister of Finance.

SEPARATION BACKGROUND

The Board and the Minister of Finance agreed to separate the Fund and the Administration to establish a Government Component in terms of Public Service Act. Government Component is to be called Government Pension Administration Agency (GPAA).On 26 March 2010, Government Notice No 231 together with Proclamation No 10 was gazetted establishing the GPAA, with effect of 1 April 2010.

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The GEPF Board has signed and submitted the following agreements to the Minister of Finance for his approval and signature:The Statement of Co operation on the Administration of the GEPF which formalizes the agreement between the Minister of Finance and the GEPF Board to co operate with each other in the pursuit of effective, efficient and accountable administration of government employees pensions.

SEPARATION GOVERNANCE ARRANGEMENTS

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The Administration Agreement which establishes the relationship between the GEPF and GPAA for the rendering of Administration Services.The Service Level Agreement which sets out the nature and level of services to be undertaken by GPAA on behalf of the GEPF. The Service Level Agreement has be reviewed on an annual basis.Service Delivery Improvement Plan to be implemented by GPAA aimed at achieving optimal efficiencies and improved service delivery to GEPF members.

SEPARATIONGOVERNANCE ARRANGEMENTS (Cont.)

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The transfer of Employees and Business Agreement which allows for the transfer of administration business and employees from the GEPF to the GPAA as a going concern. The Agreement allows for the transfer of employees in terms of Section 197 of the Labour Relations Act (LRA).

SEPARATION GOVERNANCE ARRANGEMENTS (Cont.)

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MODEL PRE SEPARATION 2008 - PRESENT

GEPF - BOARD OF TRUSTEES

PO-GEPFFUND-EXCOGEPF-BOARD COMMITTEESCEO-GEPFADMIN-EXCOAMIN-MANCO

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MODEL POST SEPARATION

MINISTER OF FINANCEGEPF - BOARD OF TRUSTEES

PO-GEPFGEPF-EXCOGPAA-EXCOGPAA-MANCOCEO-GPAAGEPF-BOARD COMMITTEES

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Roles and Responsibilities of the Fund and GPAA

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GEPF FUNCTIONS

Investments and Actuarial Manage the SLA with Service ProvidersStrategy and advisory services Board SecretariatGovernance Legal & Compliance

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GPAA FUNCTIONS

Member Support & CommunicationFund & Agency AccountingLegal & Governance AdministrationICT Services Employee Benefit AdministrationInvestment Administration

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OTHER GPAA FUNCTIONS

Special Pensions Administration separately in terms of the Special Pensions ACTProgramme 8

IOD

Military Pension Post Retirement MedicalCivil Pensions

Other Pension Funds

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4. ChallengesGEPF Annual Report 2008/09

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CHALLENGES AND ACTIONS

CHALLENGES ACTIONSNational Social Security Fund (NSSF) impact unknown

Researching possible impact on Fund

Pensions Fund Act (PFA) Alignment of Fund Rules to PFA

Accurate and Complete Member Data

Client Information Quality Programme in place to address challenge

Member & Pensioner Education Varied Communication Channels and Self Service Options to promote awareness

Timeous Submission of Exit Documents by Employers

Introduction of SLA with Employer Departments to enforce Compliance to Section 7 of the GEP Law

Operating Platform – Archaic Implement appropriate technology and systems to support the service delivery improvement plan

GEPF Reputation and Perception

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5. Questions and Answers

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