TELKOM
POST RETIREMENT MEDICAL AID (PRMA)
ALTERNATIVE FOR EMPLOYEES
BACKGROUND
• Telkom’s revenue is under pressure, therefore, changes to the company’s cost bases
are necessary and inevitable in order to ensure a sustainable business going forward.
• Accordingly, Telkom intends to address all its long-term liabilities
• One of the focus areas is to vary the obligation in the current PRMA benefits to
qualifying employees
• The intention is to introduce an annuity policy with an Insurer for the benefit of the
employee to fund employee’s future PRMA contributions.
• Freeze future Medical Cap increase
© Telkom 2013 | Telkom PRMA
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CURRENT QUALIFYING REQUIREMENTS
Employees must have been a member\dependent
of one of the current recognised medical schemes
on 30 June 2000 and have remained a member
\dependent continuously thereafter until the last
day of service.
© Telkom 2013 | Telkom PRMA
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PRMA - PROPOSAL
• The company has concluded an evaluation of innovative mechanisms that are
available in the market which could entrench and protect the medical aid benefits of
qualifying employees.
• The proposed mechanism provides for Telkom to make a lump sum contribution for
the benefit of the employee who then enjoys a benefit that is similar to a pension
fund.
• The comparison to a pension fund is very relevant to the extent that the amount is
secured for the employee in a tax efficient manner, grows with investment returns
and becomes available after retirement or termination of employment.
• Based on employees’ individual PRMA liability the actuaries has determined a value
for each qualifying employee which will be invested in a Liberty policy for employees.
© Telkom 2013 | Telkom PRMA
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PRMA - DEFINITIONS
Word / Abbreviations
Statement of Precise Meaning
PRMA
MAS
CPI
Post-Retirement Medical Aid
Approved Medical Aid Schemes being Bonitas, Bestmed and Discovery.
Consumer Price Index: shall mean for this purpose, the weighted average consumer
price index for all areas for the month in which the date concerned falls, as published
by the Central Statistical Services of the Republic of South Africa ("the official index").
A term certain annuity guarantees to pay a monthly income over a defined period of
time. In the event that the member dies the annuity continues to be paid to the
nominated beneficiary for the remainder of the term.
Single Life Annuity: Is an annuity that guarantees to pay a monthly income over the
remaining life of the member.
Joint life Annuity: Is an annuity that guarantees to pay a monthly income over the
longest surviving life of the member and his/her spouse.
Level: A level annuity does not escalate over time. In other words the Rand amount
received on month one is the same throughout the period of the annuity.
Term Annuity
Life Annuity
Annuity Increase profile
CPI Linked: A 100%CPI linked annuity is guaranteed to escalate at CPI on the 1st of
January every year over the term of the annuity.
Please note that you will be able to select which increase policy (level or CPI) you
would prefer for both Term and Life annuities.
© Telkom 2013 | Telkom PRMA
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INTERVENTION EVENTS UPON RETIREMENT/DISABILITY/DEATH
Current
Retirement/Disability
Death
Spouse/Partner/Dependents
continue membership with
no future cap increases.
Child dependents
can only continue
membership.
Choose Option
Voluntary buy off
(cash) – fully
taxable.
NOTE: Resigns from
Telkom/MAS
No further subsidisation from
Telkom towards medical
scheme.
Continued membership:
Telkom will remain liable to make
contributions to the medical aid post
retirement.
The subsidy has been capped,
irrespective of the medical fund’s
actual increase. No future cap
increases.
The following monthly medical caps apply for
pensioners:
Member
Member
+1
Member
+2
Member
+3
R1 388
R2 743
R3 000
R3 139
Voluntary buy off to
be transferred to
TRF/TPF
(non-taxable)
Should the 2/3rd’s be less
than the Telkom cap the
subsidy amount will only
be for the 2/3rd’s.
© Telkom 2013 | Telkom PRMA
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INTERVENTION EVENTS “IN SERVICE” (BEFORE RETIREMENT)
Proposed
Resign from
Telkom/MAS
Fully taxed Term Annuity
over 7 years paid directly
to employee/ exemployee
Choice between Inflation
Linked or Level Annuity
If beneficiary dies before end of term, then annuity is
paid to spouse or estate but remains taxable
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INTERVENTION EVENTS “IN SERVICE” (BEFORE RETIREMENT)
Proposed
Death
• Individual - Term annuity over 7 years
• With spouse: Choice of 7 year term annuity or
single life annuity over spouse’s life
Option between
Inflation Linked or
Level Annuity
Tax free Annuity paid
directly to MAS if there are
still a spouse on same
approved MAS policy
Taxable Annuity paid
directly to:
- Spouse (terminated MAS)
- Estate if there is no
spouse on same approved
MAS policy
© Telkom 2013 | Telkom PRMA
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INTERVENTION EVENTS “IN SERVICE” (PROS / CONS) (BEFORE RETIREMENT)
Proposed
Current
Guaranteed benefit even if
you leave Telkom’s employ
Income is payable directly to
you
No benefits is payable when
the employee resigns from
Telkom or resigns from an
approved Medical Aid Scheme.
Guaranteed income payable
over 7 years
The income is guaranteed by
Liberty
Once in payment if you die the
remaining payments will be
paid to your spouse
Annuity is payable to your
spouse in the event of death,
see “After Retirement” pro’s
and con’s
© Telkom 2013 | Telkom PRMA
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INTERVENTION EVENTS UPON RETIREMENT
Proposed
Retirement
Choose between:
Can choose between
inflation linked or level
annuity under both
options
Life annuity
Choose between:
Non taxable annuity
payable directly to MAS
under both options
Term annuity over 7 years
Life annuity over life
of pensioner only
Joint life annuity over
life of pensioner and
spouse
Annuity continues paying for
remaining period to MAS upon death
of pensioner if spouse are still on
same MAS policy
Annuity ceases when
pensioner dies
Annuity reduces to 50%
on death of first
beneficiary and ceases
on death of last living
Taxable annuity payable to
spouse/estate upon death
© Telkom 2013 | Telkom PRMA
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PROCESS UPON RETIREMENT (PROS / CONS)
Proposed
Current
You can choose between a Life
or a Term certain income, the
income is guaranteed
You can move to a lower
medical aid plan and still
receive the full income (the
difference will be paid directly
to you)
You can move to another
approved medical aid scheme
and still receive the income
Opportunity for your income
to be higher that the cap given
by Telkom
Annuity can be paid directly to
you if you no longer belong to
an approved medical aid
scheme. E.g. if you move to
your spouse’s medical aid or
no longer want medical aid.
Income could be sufficient to
cover the full medical aid
subsidy
Current status remains –
Telkom will remain liable to
make contributions to the
medical aid post retirement,
provided the employee retires
from Telkom in accordance
with the rules of Telkom’s
Pension Fund or Telkom’s
Retirement Fund.
Continuation membership of
a recognised medical aid
scheme as a pensioner with no
future cap increases. Should
the 2/3rd’s be less than the
Telkom cap the subsidy
amount will only be for the
2/3rd’s.
Voluntary buy off – implies no
further subsidisation from
Telkom towards medical aid.
-Employee will be responsible
for the total contribution
towards medical aid.
-Amount is fully taxable
If retired employees cancel
their medical aid they forfeit
benefits.
Upon death of pensioner
Spouse/Partner/Dependents
continue membership with no
future cap increases.
From 1 October 2013:
No increase in medical caps
No future voluntary buy off
© Telkom 2013 | Telkom PRMA
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POST RETIREMENT MEDICAL AID (Options)
Qualifying employees will have until the 20th of September 2013 to accept the
company’s offer in terms of future PRMA contributions.
Two options available:
– Option A: Liberty Prosper
– Option B: Continuation membership of a recognised medical aid scheme as a
pensioner, with no future cap increases.
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TIME LINES
• Broadcast – 12 August 2013
• Roadshow 19 – 30 August 2013
• System opens from 19 August – 20 September 2013 for employees to make
selection
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Thank You!