One of the biggest financial concerns for anyone who has reached retirement age is whether the increases in the amounts that they receive from their retirement fund or annuity will keep up with inflation each year.
Not so for the 135 000 South Africans who receive a pension via Old Mutual Corporate’s annuity policies. The company announced this week that these pensioners will again be given pension increases that are comfortably above current inflation figures.
The 2007 bonus rates (increases) announced by Old Mutual for its with-profit annuity Platinum Pension Portfolio vary from 11% for the top pricing category to 6,5% for the lowest pricing category. For the Platinum Pension 2003 annuity portfolio, the bonus rates vary from 9% to 6,5%. These increases apply to the corporate pension schemes, which are underwritten by Old Mutual.
Roy Stephenson, annuities actuary at Old Mutual Corporate, says pensioner increases for all four categories of the Platinum Pension 2003 series have exceeded CPIX over the four years since the product was introduced.
“The increases compare favourably to inflation. CPI and CPIX for the 12 months to December 2006 were 5,8% and 5% respectively.”
The consumer price index (CPI) measures the cost of a basket of goods and services over time, including the cost of mortgage loans, while the CPIX measures inflation without the effects of mortgage loans. These measures are one of the most important indicators of the rate at which the value of one’s money is eroded.
Stephenson warns that the current climate of rising oil prices, combined with the current drought in some parts of the country, is putting the pressure on inflation. “Pensioners should therefore be circumspect in how they spend their money.”
He points out that the increases will become effective from this month onwards, depending on the increase month chosen by the particular participating fund. “The earliest effective date is April and the latest is March next year.”
The rates of increases have largely been maintained at last year’s levels and again are significantly higher than the long-term expected average bonus rates due to the very strong returns earned on investments during the year.
Stephenson says the above-inflation increases have been made possible partly by the exceptional strong growth in the equity markets in the past couple of years, but that there is no guarantee that equity markets will continue to deliver similar growth in future.