Government Employee Pension Fund vs an RA

Parliament

There is a need to make some local Government resources available. From time to time I will just do a few posts to fulfil this need. These posts will be on top of the usual weekly posts. This post about the Government Employee Pension Fund is the first in this series of about 5 posts that I will systematically make available. I will follow this one up with posts about the Road Accident Fund (RAF), Unemployment Insurance Fund (UIF), the Reserve Bank and National Treasury.

The present Government Employee Pension Fund (GEPF) was established in 1996 when it took over the fund from the previous government. At that stage, it was severely underfunded. Since then the funding has grown to about 108% of the required amount. So in other words, it will be able to meet its obligations to the 1.2 million active members and 450 000 pensioners.

At this stage, it has about R1,8 trillion in assets which are managed by the Government Pension Administration Agency (GPAA). Like other retirement funds, a large portion of it is invested in shares on the Johannesburg Stock Exchange (JSE). So it is exposed to fluctuating market conditions.

What is the Government Employee Pension Fund payout?

The GEPF does not care how much money you invested in the fund. It does not even take into consideration what the market performance was during this period. It only takes into consideration your final salary, how long you worked for the government and the accrual rate that is determined by the GEPF. So, in other words, it is an extremely predictable amount which you can calculate with the calculators located here.

A Retirement Annuity (RA), on the other hand, takes into account the amount you save each month, how long you invested and your return over that period. Of these, the last factor is the wildcard. We have no idea what the performance of shares will be over our working careers. If you want to calculate the amount you need to save, I have built a calculator that can help you with that.

What are the rules of the GEPF?

You receive a guaranteed income for the rest of your life that is adjusted with at least 75% of inflation each year (sign me up!). If you were to pass away before your spouse, they will continue receiving 50% of the income for the rest of their lives. Should the fund underperform, it will require the government to top it up and will ultimately become a burden for taxpayers.

An RA, on the other hand, is your responsibility. You determine where it is invested as long as it is Regulation 28 compliant. If you do not save enough, it is on you. Then if you were to pass away one of two things happen. It is either transferred to your spouse if it is invested in a guaranteed annuity or it forms part of your estate if it is a living annuity. For a definition of these annuities, you can read my article titled worst ways to withdraw retirement savings.

How much does the average person have for retirement?

The GEPF presently has assets worth about R1,8 trillion and according to the GEPF website, it needs to support about 1.8 million people. Of these, over 450 000 are already retired. So, this means that the average government employee has about R1 million saved.

According to Rational Standard, the total retirement savings of South Africa is about R4 trillion. This leaves R2.2 billion spread out between the privately administered and underwritten funds. To a lesser extent, this also includes the funds for Telkom, Transnet and the Post Office. According to the Registrar of Pension Funds Annual Report, the total amount of people contributing to these funds is 15 230 000. This means that the average person outside of the GEPF only has about R150 000 saved. Are the Government better savers than us?

Conclusion

The Government Employee Pension Fund looks like it is working well and is sustainable. Recently, the funding percentage has been coming down slightly, but this can also be a result of the sideways equity market. If you do belong to the fund though, your retirement is sorted, irrespective of what the market does. The concern is whether the government will tap into this resource for funding other underperforming State-Owned Enterprises.

Be safe out there,

Hendrik

Frequently asked questions

Does the Government Employee Pension Fund have funeral benefits?

Yes, the GEPF pays funeral benefits as well. For a member, pensioner or spouse, this amount is R15 000. In the unfortunate event that your child dies, the fund also pays R6 000. This amount is payable within 72 hours and you will require a death certificate, the person’s ID and a few forms that are available here.

Where do I get the GEPF forms?

All the forms are available on the GEPF website. This includes the retirement, resignation and funeral forms.

What are the contact details for the Government Employee Pension Fund?

Toll-free number: 080 0117 669

Email address: enquiries@gepf.co.za

Postal Address: GEPF Private Bag X63, Pretoria, 0001

Where is the GEPF office?

34 Hamilton Street, Arcadia, Pretoria, Gauteng

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Endnote

Thank you for reading to the end. Apparently, the average person spends 8 seconds on a page, so you are special. If you have any suggestions, feel free to drop me a mail on the contact page. If I missed anything or you have questions, don’t hesitate to comment below. I might even notice it and respond. If you enjoyed this article and really want to throw me a bone, please share it.

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