DEFINED CONTRIBUTION

BENEFITS

Overview

This section deals with the Fund's benefits and those provided by its ancillary arrangements.

Nature of the defined contribution section

The most important feature of the defined contribution section is that the benefit you receive on retirement (or resignation) depends critically on:

  • The pension saving contributions you and the City of Cape Town make; and
  • The investment return you earn on this money.

The total of your pension savings and the investment return you earn thereon is called your Member Credit.

In addition to retirement and resignation benefits, the Fund also provides death-in-service and disability benefits.

The Fund rules specify that a maximum of 6% of pensionable salary may be allocated to provide death and disability benefits and to pay the expenses of the Fund. In the event that the cost of providing these benefits and meeting the expenses of the Fund exceeds this 6% limit, the death and/or disability benefits must be reduced.

Disclaimer: The following represents a summary of the Rules of the Fund. In the event of a conflict between this summary and the Fund Rules, the Fund Rules will apply. Click here to view our full disclaimer.

What contributions do members pay?

Members that joined the Fund on or after 1 March 2002 contribute at a rate of 7.5% of pensionable salary.

Members that joined the Fund before 1 March 2002 contribute at a rate of 8.5% of pensionable salary unless they exercise an option to contribute at a rate of 7.5% of pensionable salary. (There is a small group of members that joined the Fund before 1 January 1977 that pay a lower contribution rate.)

The entire member contribution is allocated for pension saving and is credited to the Member Credit.

What contribution does the City of Cape Town pay?

The City of Cape Town contributes 18.0% of pensionable salary for each member.

At least 12.0% of the City of Cape Town's contribution is allocated for pension saving (and is credited to the Member Credit) - the balance is applied for death and disability benefits and expenses of the Fund.

What is the definition of pensionable salary?

The amount of your salary that is regarded as pensionable will be set out in your employment contract.

Can I make voluntary contributions?

Members may make voluntary contributions to the Fund.

Prior to March 2016, members were allowed to contribute and receive a tax deduction for an amount of R150 per month or R1800 per annum.  The Taxation Laws Amendment Act which came into effect on 1 March 2016 introduced a cap on contributions for tax purposes. The tax deduction for contributions are limited to 27.5% (of the greater of your taxable income or remuneration), up to a limit of R350, 000 per annum.  The maximum contribution (including any additional contribution) members can make and receive a tax deduction for is now 27.5% per month, up to R350, 000 per annum. Any contribution above this cap, will be taxed. 

How are the contributions received allocated?

The following diagram shows how the contributions that you and the City of Cape Town pay are currently allocated.

 

Image displaying allocations

For most members that joined the Fund before 1 March 2002, the Fund allocates 21.0% of pensionable salary as pension saving (20% of pensionable salary for members that joined on or after 1 March 2002).

The 0.5% of pensionable salary bonus contribution for pension savings is temporary and is payable only because the cost of the risk benefits and expenses are well below 6% of pensionable salary.

The Fund also allocates 0.4% of pensionable salary to a Risk Reserve Account as a margin against an increase in the cost of the death and disability benefits.

Disclaimer: The following represents a summary of the Rules of the Fund. In the event of a conflict between this summary and the Fund Rules, the Fund Rules will apply. Click here to view our full disclaimer.

At what age can I retire?

In terms of the Fund Rules your normal retirement age is 65. If your conditions of employment provide for retirement beyond the age of 65, you may retire at the age stated in your employment contract.

The earliest age at which you can retire is 55 (unless the Trustees consider you to be in ill-health, in which case you may retire at any age). Your employment conditions will set out the notice period you need to give City of Cape Town if you wish to retire before your normal retirement age.

What is my retirement benefit?

Your retirement benefit is your Member Share (i.e. pension savings plus the investment return earned thereon).

How can I receive my retirement benefit?

You may receive up to a maximum of 1/3rd of your retirement benefit as a cash lump sum. The balance of your retirement benefit must be applied to secure a pension, either from the Fund or from an Insurer. The tax treatment of this benefit is described in the section "Taxation of Benefits".

At retirement you thus face two important choices, namely:

  • How much of my benefit should I take in cash?; and
  • What type of pension should I receive in retirement?

These two issues are dealt with in detail in the section titled"Options at Retirement".

Disclaimer: The following represents a summary of the Rules of the Fund. In the event of a conflict between this summary and the Fund Rules, the Fund Rules will apply. Click here to view our full disclaimer.

What benefit do I receive on resignation or dismissal?

On resignation or dismissal you will receive your full Member Credit. The tax treatment of this benefit is dealt under Taxation of Benefits.

What is my retrenchment / redundancy benefit?

If you are retrenched, your benefit will be your Member Credit.

An additional benefit is payable if you were a member of the Fund as at 1 July 1998 and have at least 9 years pensionable service at the time you are retrenched. The additional benefit is generally the lump sum equivalent of an income of 1/51 x your years of pensionable service x a deemed pensionable salary payable from your date of retrenchment up to age 65.

Options with your resignation/retrenchment benefit

You have the following options in respect of the benefit:

  • You can elect to receive your entire benefit as a cash lump sum;
  • You may elect to become a deferred pensioner of the Fund and leave your benefit in the Fund; or
  • You can transfer your benefit to a Preservation Fund, a Retirement Annuity or the Fund of your new Employer.

Again this is an important decision and is dealt with full in the section Options on Resignation/Retrenchment.

Disclaimer: The following represents a summary of the Rules. In the event of a conflict between this summary and the Fund Rules, the Fund Rules apply. Click here to view our full disclaimer.

The benefit your dependants will receive

If you die in service before you reach age 65, your dependents will receive a benefit equal to:

  • Your Member Credit; plus
  • A capital amount according to the following table

Your age at death

Additional benefit (multiple of your annual pensionable salary)

32 or less

9,00

33-35

8,00

36-38

7,00

39-41

6,25

42-44

5,75

45-47

5,25

48-50

5,00

51-53

4,00

54-56

3,00

57-59

2,50

60 to normal retirement age

2,00

The tax treatment of this benefit is covered under Taxation of Benefits.

Should you die in service at age 65 or over, your dependents will receive the equivalent of your member credit.  The life insurance benefit does not apply to death in service at age 65 or over. 

To who this benefit will be paid

In terms of the Pension Funds Act, the Trustees are obliged to apply your death benefit to the persons most financially dependent on you.

To assist the Trustees in this regard you should complete a beneficiary nomination form (click here to complete the Beneficiary Nomination form). Please note that whilst the Trustees will take you nomination form into account they are not bound to follow it.

How much of the benefit is available in cash?

As the default, the benefit payable on your death is payable as a pension to your beneficiaries.

However, within 6 months of your death, your dependants may elect to commute part or the full amount of your pension for a cash lump sum.

Exclusions and limitations

The Fund insures the multiple of salary component of your death benefit (i.e. the amount shown in the table above). This insurance policy has certain limitations and exclusions, namely:

  • Members with a large amount of death cover may have to provide evidence of good health to the Insurer to enjoy the full cover. If you fail to provide evidence of good health your benefit will be limited.
  • New employees need to be actively at work on the first day of their employment in order to be covered.
  • The insurance policy excludes payment is your death arises from nuclear or biological terrorism or as an act of war.

On your death the multiple of salary death benefit shown in the table above is limited to the amount paid by the Insurer.

Funeral benefits

The following table sets out the funeral benefits that are payable if you, or one your dependents dies. Please note you are only covered for this benefit up to age 65.

Member

R20 000

Spouse

R20 000

Children 14 years and older

R20 000

6 years and older, but younger than 14

R10 000

1 year and older, but younger than 6

R5 000

Younger than 1 year (including stillborn)

R5 000

This benefit is provided by a separate arrangement outside the Fund.

Disclaimer: The following represents a summary of the Rules. In the event of a conflict between this summary and the Fund Rules, the Fund Rules apply. Click here to view our full disclaimer.

Disability income benefits

The Pension Funds Act currently precludes the Fund from providing a disability income benefit.

The benefits payable on your disablement are therefore provided for by a separate insurance policy. The Trustees of the Fund, however, govern this separate arrangement, as it is associated to the Fund.

What disability income benefit do I receive?

The disability income benefit is only paid once you have been disabled for a period of 6 continuous months. (You will need to rely on your sick leave to "bridge" this 6-month period to the greatest extent possible.)

If, after the expiry of this 6-month period, the Insurer considers that you are unable to perform your work with City of Cape Town in your current occupation, you will be entitled to a monthly income of 75% of your pensionable salary.

After a further 12 months (i.e. 18-months after you became disabled), the Insurer will re-assess your disability, but this time against a criterion of whether you are able to perform your job, or any similar job that you could do by virtue of your experience, training, education and age, with any Employer.

Only if the Insurer considers you to be disabled (according to the definition) would the benefit be paid.

The tax treatment of this benefit is covered under Taxation of Benefits.

Under what circumstances does this benefit cease?

If, at any time after the benefit has commenced, the Insurer considers you fit to return to work (against the definition of "own occupation" for months 6 to 18 and thereafter "own or similar occupation"), the benefit will cease and you must return to work.

The benefit will also cease if you were to die or once you reach age 60 at which time you would receive your retirement benefits. Even, if in terms of your employment contract you can retire beyond age 60, the benefit still ceases at age 60 and you must retire at age 60.

Does the benefit increase each year?

Each year, at the end of the anniversary month of when the benefit first became payable, your disability income benefit will be increased by 5%. (If inflation is lower than 5% your increase will be limited to inflation.)

What happens to my Fund membership?

Importantly, you remain a member of the Fund whilst you are still in receipt of a disability income benefit.

For the purposes of the Fund benefits you have a deemed pensionable salary, which is defined to be your pensionable salary at the date you became disabled, increased by 5% p.a. (or inflation if less than 5% p.a.) referred to above.

This means that if you were to die, your dependants would be entitled to the death benefits described above) based on your deemed pensionable salary. Should you retire, you will be entitled to the retirement benefits also described above.

This means that you and City of Cape Town will continue to pay contributions to the Fund whilst you are receiving a disability income benefit. The Fund will credit your Member Share Account with the same percentage contribution based on your deemed pensionable salary as for working members.

Exclusions and limitations

The disability income benefit is insured and the following limitations and exclusions apply to this policy:

  • The Insurer will require members that have disability cover in excess of a certain amount to provide evidence of health. If you are affected by this limit, you will be required to provide such medical evidence, else your benefit is restricted to the amount that the Insurer pays.
  • To qualify for the disability benefit you must be actively at work on the first day of your employment. This means no disability benefit will be paid if you were appointed by City of Cape Town, but never spent time at work.
  • If, at the time when you join the Fund, you suffer from some condition that may give rise to a disability claim in the future, you must disclose this information. The Insurer may exclude payment of a benefit if this condition results in a claim within 12 months of you joining the Fund.
  • The insurance policy excludes payment is your death arises from nuclear or biological terrorism or as an act of war.
  • There are also specific policy exclusions that relate inter alia to hazardous activities and pastimes.

The disability income benefit will be limited to the amount paid by the Insurer.

PENSION FUND RULE BOOK

The registered rules of the Fund contain everything you need to know about your Fund, its Governance, Management, Investments and Benefits. The Fund is bound by the Rules of the Fund. In the event of a dispute between any information provided and the Rules of the Fund, the rules will apply.

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