TELKOM POST RETIREMENT MEDICAL AID (PRMA) ALTERNATIVE FOR EMPLOYEES

TELKOM

POST RETIREMENT MEDICAL AID (PRMA) ALTERNATIVE FOR EMPLOYEES

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• 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

BACKGROUND

© Telkom 2013 | Telkom PRMA

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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.


CURRENT QUALIFYING REQUIREMENTS

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• 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.


PRMA - PROPOSAL

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Word / Abbreviations Statement of Precise Meaning

PRMA Post-Retirement Medical Aid MAS Approved Medical Aid Schemes being Bonitas, Bestmed and Discovery. CPI 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").

Term Annuity 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.

Life Annuity 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.

Annuity Increase profile 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. 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.


PRMA - DEFINITIONS

INTERVENTION EVENTS UPON RETIREMENT/DISABILITY/DEATH

Current

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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.

Retirement/Disability

Voluntary buy off (cash) – fully

taxable.

Voluntary buy off to be transferred to

TRF/TPF (non-taxable)

Choose Option

Spouse/Partner/Dependents continue membership with

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

NOTE: Resigns from Telkom/MASNo further subsidisation from

Telkom towards medical scheme.

Child dependents can only continue

membership.

Death


Should the 2/3rd’s be less than the Telkom cap the subsidy amount will only be for the 2/3rd’s.


INTERVENTION EVENTS “IN SERVICE” (BEFORE RETIREMENT)

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Resign from Telkom/MAS

Proposed

Fully taxed Term Annuity over 7 years paid directly

to employee/ ex-employee

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


INTERVENTION EVENTS “IN SERVICE” (BEFORE RETIREMENT)

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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

Death

• Individual - Term annuity over 7 years• With spouse: Choice of 7 year term annuity or

single life annuity over spouse’s life

Proposed

© Telkom 2013 | Telkom PRMA 9

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

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

No benefits is payable when the employee resigns from Telkom or resigns from an approved Medical Aid Scheme.


INTERVENTION EVENTS UPON RETIREMENT

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Proposed

RetirementChoose between:

Life annuityChoose between: Term annuity over 7 years

Can choose between inflation linked or level

annuity under both options

Non taxable annuity payable directly to MAS

under both options

Life annuity over life of pensioner only

Joint life annuity over life of pensioner and

spouse

Annuity ceases when pensioner dies

Annuity reduces to 50% on death of first

beneficiary and ceases on death of last living

Annuity continues paying for remaining period to MAS upon death

of pensioner if spouse are still on same MAS policy

Taxable annuity payable to spouse/estate upon death

© Telkom 2013 | Telkom PRMA 11

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 taxableIf retired employees cancel their medical aid they forfeit benefits.Upon death of pensionerSpouse/Partner/Dependents continue membership with no future cap increases.From 1 October 2013:No increase in medical caps No future voluntary buy off

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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.


POST RETIREMENT MEDICAL AID (Options)

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• Broadcast – 12 August 2013

• Roadshow 19 – 30 August 2013

• System opens from 19 August – 20 September 2013 for employees to make selection


TIME LINES

Thank You!

Documents

TELKOM POST RETIREMENT MEDICAL AID (PRMA) ALTERNATIVE FOR EMPLOYEES