smiths manufacturing provident fund

OLD MUTUAL EVERGREEN PROPOSAL FOR

THE ROAD AHEAD...

SmithS manufacturingProvident fund

4495 Smiths Manufacturing Provident Fund e-book Final.indd 1 2013/03/27 9:20 AM

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contentS03 Let’s talk Umbrellas05 Standalone versus Evergreen - A cost comparison07 Old Mutual’s SuperFund suite of Umbrella Products09 Unpacking Evergreen11 What would a move to Evergreen mean for a member?13 Member Communication15 Member Assistance17 What would a move to Evergreen mean for Smiths Manufacturing

Provident Fund?19 More on ‘what’s in it’ for Smiths Manufacturing Provident Fund21 Proposal from Old Mutual26 Conclusion

4495 Smiths Manufacturing Provident Fund e-book Final.indd 1-2 2013/03/27 9:20 AM

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LET’S TALK

UMBRELLASBelief: Umbrellas have a close connection to their financial institution sponsors and thus a potential lack of independence.

Truth: Yes, there is a close connection to the sponsor but the trustees of the Umbrella Fund have a fiduciary duty to ensure best value for members and can be held legally responsible if best practices are not followed. This includes providing choices that include best of breed products from external providers.

Belief: Umbrellas may not be able to offer the same levels and effectiveness of communication with fund members as standalone funds do.

Truth: Trustees of standalone funds have direct employer-employee relationships, which sensitise them to members’ needs. Employers needn’t (and shouldn’t) abdicate their own interactions with employees. A good Umbrella Fund will plan the communication needs together with the employer, through the member committee.

Belief: Umbrella Funds force you to take the death and disability cover through a specified insurer.

Truth: A number of Umbrella Funds allow you to choose your own insurers. This means that the premiums and benefits can remain the same, once you move to an Umbrella Fund. However, improved

rates could be gained by obtaining a pooled premium rate from an umbrella risk arrangement.

Belief: Standalone funds adopt their own investment policy statements and mandates which they will be unable to keep in an Umbrella Fund.

Truth: There are Umbrella Funds that allow participating employers to maintain their existing investment advisor, investment policy and investment portfolios.

Belief: When moving to an Umbrella Fund, the trustees of the standalone fund lose control.

Truth: A paternalistic attitude towards members is a common feeling for responsible trustees and the employer. But if you consider what is in the best interests of members you can retain the following and save costs to improve members’ retirement:

• Benefit structures remain the same and can be altered to accommodate changing employee needs.

• Investment options can stay the same and also be altered as needs change.

• Death, disability and all other risk benefits can be selected by the employer with any provider exactly as a standalone fund.

• Consultation on section 37c benefits to ensure effective distribution to the employee’s family.

INTERESTING FACTS:

• Ofthe13000fundsthat-untilrecently-werelistedwiththeFSB,80%weresmallandcostswereeatingintomembers’benefits.

• Therearecurrentlylessthan3000fundsinSouthAfrica.Itisestimatedthatbytheyear2015,therewillbehalfthatnumber,suchisthemovetowardsUmbrellaarrangements.

deBunKing the mYthS

WhatisanUmbrellaFund?

A retirement fund in which many employers and their employees participate, which is also referred to as a multi-employer fund.

Umbrella Funds are governed and regulated by the FSB, Pension Funds Act and all the same regulations apply as for a standalone fund.

The board of trustees is at Umbrella level with a member committee at employer level.

Master rules are at Umbrella level with special rules at employer level allowing for each employer to have its own benefit structures for its employees.

BenefitsofanUmbrellaFund

Smaller funds and employers have been opting for Umbrella Funds for over 20 years primarily due to cost savings. In recent years larger funds and their employers are also choosing Umbrella Funds for the same significant cost and time saving in comparison to standalone funds.

3MostcommonreasonsforselectinganUmbrellaFund:

1 More money towards members’ retirement funding.

2 Employers can focus on core business and enjoy reduced direct and indirect costs.

3 Removal of fiduciary responsibility.


The table below compares your current expenses to approximate expenses that will be paid on the Evergreen Umbrella Fund (excluding asset managers fees).

TRUSTEES, EMPLOYERS AND MEMBERS SHOULD BE

FULLY AWARE BEING CHARGED TO A OF ALL COSTS

STANDALONE FUND

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Expenseitem Standalone-approximatedfor2013

Evergreen

Administration Expenses 425 432 243 540

Rebroke Fees 48 792 Included

Actuarial Fees Included Included

Auditors Fees 116 633 Included

Bank Charges – Included

Fidelity Insurance Premiums 6 064 Included

FSB Levy 17 730 Included

General Expenses 32 399 Included

Professional Fees – Included

Telephone and Fax – Included

Trustee Training and Expenses – Not applicable

Consultancy Fees Included Not applicable

Secretarial Services Fee Included Included

Participation Fees – Included

Employer Service Fees Included 100 308

Total 647049 343848

AnnualSavings 303202

Underlyingassumptions:* Standalone costs are sourced from 2012 Annual Financial Statements, excluding Surplus, and include a 5% increase

for 2013.


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Additional Flexibility

FLEX

IBIL

ITY/

COM

PLEX

ITY

EMPLOYER SIZE Micro (<20) SME Large

EASY BENEFIT

PLAN

ORION

EVERGREEN INVESTMENT

ADVICE

The legal entity is the Old Mutual SuperFund and the different products included in that legal entity are designed to suit different employer needs. The less complexity, the less the cost.

OLD MUTUAL’S SUPERFUNDSUITE OF UMBRELLAS

Added benefit for members:Old Mutual waives administration fees ontransfer to SuperFund’s preservation funds.

UNCLAIMEDBENEFITS

FUND

PROTEKTORPRESERVATION

FUNDS

Low

Managed

Flexible

EVERGREENMEMBER CHOICE


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WHATYOUGETReduced administration cost

Reduced employer risk

Reduced fiduciary obligation

Enhanced governance

Enhanced communication

Member education

Long-term sustainability

Member support services

Financial wellbeing programme

Simplified decision making for members at retirement

EVERGREEN MATCHING BENEFITS

AT LOWER COSTS

ABOUTOLDMUTUAL

Old Mutual has been administering retirement funds for over 70 years. Today, through our life assurance, asset management, banking and general insurance operations, we provide world class investment options to more than 4 million South African clients.

EvergreenispartoftheOldMutualSuperFundrangeofsolutionsandwaslaunchedin2004.Itisspecificallydesignedforlargerandmoresophisticatedcompaniessuchasyoursthatwishtoretainsomecontrolviaanemployer/memberselectedmembercommittee.Theexistingbenefitstructurecanremainthesameandriskbenefitscanbeunderwrittenbyanyinsurer.In this way Evergreen provides much of the flexibility of a standalone fund with reduced costs. The ever increasing burden of fund governance and legal liability is absorbed by our SuperFund trustees on behalf of your members, leaving employees of the company to focus on their core business.

EvergreenMemberChoicesPayforwhatyouuse: There are three package options, between which members can switch at no cost:

LowChoice• Suitability: members with a low appetite for risk (default option) • One investment choice: AGP stable growth – includes guarantees and a smoothing mechanism that

protects members against downward market movements when they want to withdraw• Normal cost to member per month: R22.50 ManagedChoice• Suitability: members with a low to moderate risk appetite• Investment choice: includes a life stage model, an Islamic fund and a balanced tracker fund• Normal cost to member per month: R40; Priceinthisproposal:R22.50

FlexibleChoice• Suitability: members with a moderate to high-risk appetite• Investment choice: Members can structure their own investment portfolios using a range of

investment options selected by the Evergreen trustee board as best of breed portfolios, reviewed quarterly by the Evergreen investment sub-committee

• Normal cost to member per month: R65; Priceinthisproposal:R22.50

We’d like to continue the conversation

and consider the merits of a transfer

of the Smiths Manufacturing Provident

Fund to Evergreen. We are suggesting this

product for you on the understanding that

you would wish to maintain the current

benefit structures, with significantly

reduced cost.


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WHAT’S IN IT FOR THE MEMBER

SMITHSMAnUFACTURInGPROvIDEnTFUnDMEMBERPRICE

47%reductionincostsor

R303202

Cost item Current Standalone

Evergreen Cost Benefit to Members

Costs per month R59.78 R31.77 R28.01

InCREASEDRETIREMEnTFUnDInG

FORMEMBERS,EvERGREEnOFFERS:

• Comprehensivebenefitsfromasuiteofwealth-buildingandprotectioncomponentsthattheemployermaypackagetosuit theneedsofthemembers.

• Excellentservicingtohelpthemmanage theiraffairs.

• Accesstoeducationandassistancethat canguidethemtofinancialsecuritythroughouttheirlives.

Moremoneyto retirementsaving


Scooped 1st place -IRF “Best Practices”

Industry Awards.

SuperFund came out tops by winning the best practice

communication in an Umbrella Fund at the institute of retirement funds(IRF)

“best practice” industry awards.

STAnDARDCOMMUnICATIOnSERvICES

Onjoining,membersareprovidedwith:

• A Member Pack which includes a welcome letter and Quick Benefit Guide.

• Face-to-face member education sessions.• A New Entrant Certificate.• A Member Guide that outlines how the fund works and provides detailed benefit

information.• Access to a Financial Wellbeing Programme,

at no additional cost to members or employers, to assist and educate them on all financial matters.

Ongoingcommunicationincludes:

• A public website www.oldmutual.co.za/evergreen that provides product information with user-specific portals for members and employers.

• Secure internet access to personal details, values, investment reports and tools as well as newsletters for employers and members new entrant certificate.

• Ad-hoc newsletters that provide regular updates on all fund related matters.

• Investment statements per member containing member-specific details such as investment status and values.

Quarterlycommunicationsinclude:

• A member newsletter detailing fund related matters. This includes printable poster versions for employer tea pause areas (English, Afrikaans, Xhosa and Zulu) and an investment specific article, which is only sent to Evergreen flexible choice members.

• An investment newsletter detailing relevant investment specific information.

• An investment performance report detailing the various investment portfolios available for each product and measuring these against benchmarks and various indices.

Annualcommunication:

Member benefit statements are dispatched annually.

memBer communication

Our focus group research

shows that across all member

income bands and age profiles,

members want education

workshops, with 1-on-1 sessions,

access to information via a

web portal and access to tools

such as predictive calculators.

It is this ongoing research that

informs SuperFund how to reach

members most effectively.

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Old Mutual believes that the challengeof fund communication is to connectmemberswith their funds in suchawayastogivethemthebestchanceofmakingthebestdecisionsabouttheirbenefits.

The communication challenge goes beyond the production of fund newsletters, member statements and the like, and includes finding ways to encourage members to take ownership of their own retirement and to use their retirement fund in the wisest way possible.


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MEMBERSUPPORTSERvICES

Evergreen places members firmly at the centre of the offering and seeks to provide opportunities for members to connect with their fund and actively engage with their retirement planning needs.

Changes in a member’s circumstances due to life events, (e.g. joining the fund, resigning, retrenchment, death, disability or retirement), can present complications that must be managed.

Also, the planning time horizon often leads to procrastination (I’ll worry about it closer toretirement), or time pressure (I retire next year, so what must I do now?). Often, the net result isthat members make ill-informed decisions, driven largely out of a lack of knowledge and support.

FUnDSELECTAnnUITYOFFERSMEMBERSTHEFOLLOWInGBEnEFITS:

• Simplifiesthedecision-makingprocessforretiringmembers,helpingthemtonavigatethecomplexityofthedecisionstheyface.

• Providesgenericguidanceformembers.

• Providesaccesstofinancialadvice ifrequested.

Evergreen provides members with access to member decision support services. This is a value-added offering that, subject to the provision of contact information, provides members with an effective “GPS” allowing them to take greater ownership of their retirement funding journey.

SIMPLIFIEDOPTIOnSATRETIREMEnT

The Evergreen capability offers retirees a default fund select annuity which allows members (on a no obligation basis) to access an annuity (at corporate rates) that provides a pension for life.

A member’s retirement fund is often the biggest single source of saving for their retirement future. Yet members can often be disconnected and disengaged from their funds.

In many instances, retiring requires the biggest financial decision of one’s life – how best to invest one’s accumulated retirement fund savings. This decision, involves significant complexity, and conventional wisdom is to employ the assistance of a skilled financial advisor.

memBer aSSiStance


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Professional trustees, with industry-specific knowledge can enhance decision making by the fund, thus substantially reducing the risk to employers in the management of the retirement fund.

Over 200 years of combined industry

experience

By participating in Evergreen, precious time can be saved and focused

on your business.

FOCUSOnYOURCOREBUSInESS

Companies do not generally have the time to manage a retirement fund as well as manage and run their businesses. With increasing regulatory focus and requirements placed on retirement funds and their trustees, it makes these tasks even more onerous.

For this reason, there is a growing trend towards outsourcing to Umbrella Funds, as companies recognise that the cost and time required to manage the standalone fund removes focus and resources from the core competencies of their business.

nOPERSOnALRISK

Findings by the Pension Funds Adjudicator against trustees in their personal capacity have highlighted the on-going risks that trustees face. The management of a retirement fund has become extremely complex and is filled with risk, especially as most trustees outsource various functions of the retirement fund, such as administration and investments, to third parties. In some instances third parties may not be liable for any errors or omissions or be financially able to cover any potential losses of the fund. By becoming a participating employer in Evergreen, this risk is removed.

PROFESSIOnALTRUSTEES

SuperFund trustees are professionals and are jointly and severally liable in their personal capacities. More than half the trustees and the principal officer are independent of Old Mutual and between them have over 200 years of combined industry experience. This removes the risk from the shoulders of employees who might otherwise have been required to act as trustees.

As set out in King III (the regulatory South African corporate governance code), the board of trustees acknowledges that it is firstly responsible for the strategic direction of the fund and for the control of the fund with the members’ interests front of mind. Governance excellence therefore underpins the strategy.

To this end, the board of trustees has developed a board charter as recommended in the code of governance principles for South Africa – 2009 (“King III”). This board charter is subject to the provisions of the Pension Funds Act, the rules and any other applicable law or regulatory provision.

The trustees acknowledge that the independence of the board must be respected and requires protection. As a result, the fund and Old Mutual entered into an agreement (the governance agreement) which governs the relationship between the sponsor, Old Mutual, and SuperFund.

TO EVERGREEN

WHAT WOULD A

MEAN FOR

MOVESMITHS MANUFACTURING

PROVIDENT FUND


Peace of mind

* Special rules are subordinate to the Fund’s master rules.

When considering an Umbrella Fund a concern is often raised by large employers that they will disappear into a “black hole” and have to deal with anonymous systems and processes.

not So in evergreen

Evergreen has been designed to provide a competitive advantage in the area of risk management and governance. In support of this, Old Mutual engages in a number of interventions to monitor and support the role of the trustees and thereby protect the interests of the participating employers and their members:

• The Old Mutual compliance office conducts a quarterly compliance audit of administration processes to legislation;

• Old Mutual actuaries and consultants benchmark the governance interventions of the funds against the registrar’s minimum requirements set out in PF130;

• The office of the principal officer conducts an audit of death claims and death claims assessments on a quarterly basis, and

• Old Mutual Group Internal Audit conducts an internal annual review of a number of the administration processes, the results of which are submitted to PricewaterhouseCoopers (PwC).

In addition, the office of the principal officer conducts a compliance audit on an annual basis and the Fund is subject to audit by PwC.

COnTInUITYOFRELATIOnSHIPS

We recognise that we are in a relationship-led environment, and similar to a standalone arrangement, Evergreen makes provision for an account executive who is responsible for the ongoing relationship and for ensuring that the administration runs smoothly into the future. In addition, an administration liaison will be allocated to your account and specifically charged with the responsibility of managing all administration related matters that affect you and your members.

EMPLOYERInvOLvEMEnT(MEMBERCOMMITTEES)

Evergreen is structured so that employers may review and improve benefits to members without being exposed to the risks. This can be achieved through member committees, which are provided for in the SuperFund rules. Evergreen effectively allows you to be “the driver and not the mechanic”. Member committees are funded by the employer and this allows employers and members to retain control over the key elements of a retirement fund, whilst leaving the operational and governance issues to the expertise of the SuperFund trustees.

KEYROLESOFAMEMBERCOMMITTEE

Decide appropriate member level investment choice.

Decide on benefit structure.

Control over special rules. *

Decide on appropriate risk benefit structure.

Decide on selection of risk providers.

Monitor and review performance of administrator, risk benefit providers and investments.

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more on What’S in it for SmithS manufacturing Provident fund


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Assumptions

Number of active members: 902Total annual salaries: R87 730 523

PurchasebasisAdministrator: Old MutualFunding basis: Defined contributionFund type: Provident Fund

BenefitbasisNormal retirement age: 65Net employer contributions (% of payroll): 7.70%

Annual review date: 1 January (1st review January 2015)Data pay points: 2

ProPoSaL per member per month

R28.01 reduction on the total administrative cost

47%

This represents a significant reduction on the total administrative cost (including administration, audit,levies, sundry expenses etc.).

WithEvergreenthereare:• No hidden costs• No investment administration fees levied

against the fund’s assets (investment advisor fees are levied against assets)

Old Mutual will provide Evergreen

administration services to Smiths

Manufacturing Provident Fund as a

participating employer within Evergreen

SuperFund for a monthly fee of

R31.77 per member.

As the move to the Evergreen SuperFund is an Old Mutual initiated proposal, the fee indicated is based on a special discounted administration fee.

Thispriceincludes:• Standard administration services • Standard communication services• Fund expenses and governance• Employer account management servicing• Replacement ratio statements• Two formal member committee meetings per year

Effective saving of R303 202 per annum.

SAvInGOF

EvergreenMemberChoice

Thefeestructureisoutlinedbelow:

* All fees include VAT. The administration fees include the fund governance fee of R4.50 – The portion retained by the fund to pay fund governance and statutory costs.

FeeComponent Randpermemberpermonth

Administration fee * R 22.50

Employer service fee R 9.27

Total administration & service fee R 31.77

Effective savings of* 47%


maKing

thingS go SmoothLY

Sure

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Moneymatters

• Investments Treasury Services (subject to Trustee decision on how the investments are to be treated during transition);

• Managing of unit pricing and bonus declarations, asset manager reconciliation;

• Switching Services (where applicable);• Management of the investment switch process• Bank Account & Expense Management Services;• Processing of investment fees (where

applicable), reconcile ledger accounts to bank statements, reconciliation between Fund’s Bank, Compass and General Ledger. Monitoring of daily bank statement transactions and facilitating miscellaneous payment as per legislative requirements and Fund’s instructions;

• Audit Preparation Services (where applicable);• Prepare audit files and assist audit and make

the fund’s accounting records available to the auditors.

Forthemembers

MemberrecordmanagementUpdate the member’s record with investment returns and member expenses, and endorse member’s records with liens/court orders and settlement thereof as may be required.

BenefitpaymentsDisinvestment of units or money and payment of the member’s claim on behalf of the fund in terms of the member’s instruction, Fund’s rules, the Act and the Income Tax Act. Recovery of any amounts reinsured from the underwriter in respect of death claims.

MemberinformationserviceIssue member transfer certificates. Continue to provide direct access via the Online Member Web, Contact via OM Call Centre for service requests.

Keepingyouintouch

ReportingServices(asagreed)Provision of statutory and Fund level reporting services such as:• Cash flow statements;• Annual Financial Statements;• SA Reserve Bank reporting;• IT3B;• PAYE.

AccountManagementServicesProject management and reporting on progress of transition and administration reporting as applicable to the standalone fund prior to de-registration.

A move to Evergreen will mean that all these services are included at a charge of r6 800 per month (VAT inclusive).

This fee plus your Evergreen fees will not exceed the admin fee

that you paid on Mosaic. Our aim is to complete

termination of the current fund within 6 months.

TransitionMANAGEMENTSERVICES


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vALIDITYThis proposal is valid until end June 2013. Old Mutual reserves the right to revise

this offer and/or price, should final information and data at implementation differ

materially from the current Fund data used for the purposes of this proposal.

DECLARATIOnOFInTERESTWe understand that the Smiths Manufacturing Provident Fund reserves the right

to accept this proposal.

WE CERTIFy ThAT:• This is a bona fide proposal.

• We have not communicated the proposal price to any person other

than you.

• This price has not been fixed or adjusted by arrangements or in collusion.

• The proposal is the legal property of Old Mutual and cannot be shared

with any other competitors.

We believe that the transfer of the Smiths Manufacturing Provident Fund to our Evergreen SuperFund solution offers you a ‘best of both worlds’ opportunity – a standalone experience at reduced costs.

• We see very little in your current experience changing. However, a host of benefits associated with our Umbrella arrangement will automatically accrue to you and your members.

• Where management and responsibility are concerned, you will continue to exert your due influence on the investment structure and options, but enjoy reduced employer risk and fiduciary responsibilities and a resultant reduction in workload and stress over time.

• Your employees will enjoy a significantly greater percentage of their contributions going towards retirement funding, along with other benefits of scale.

• Leanne Kidwell and a special take-on team will assist you with every step and will ensure minimal disruption.

CONCLUSION

Appoint Evergreen and we’ll continue this

journey together.


OM6509355

4495 Smiths Manufacturing Provident Fund e-book Final.indd 27 2013/03/27 9:21 AM

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