Eskom Pension and Provident Fund pays out R100m bonus to pensioners

In a surprise payout, Eskom's 33,000 pensioners received a shared R100-million bonus. Chief Executive and Principal Officer Linda Mateza says the fund's decision-makers were mindful that the pension that many live on is insufficient. In South Africa, many households are dependent on a pension, with many recipients sustaining their children, grandchildren and other relatives on a modest monthly income. In the midst of the Covid-19 pandemic – and the economic turmoil that comes along with it – Mateza says the idea around the bonus was to alleviate some of the stresses felt by many during this time. – Jarryd Neves.Well, different people are addressing the Covid-19 crisis in various ways. One of the more novel approaches has come from the Eskom Pension and Provident Fund, which today paid a bonus to its pensioners. The Chief Executive and Principal Officer, Linda Mateza, joins us. It's unusual, Linda. I haven't heard of any other pension fund doing something similar. It's a sizeable bonus R100-million – that you are sending to all 33,000 pensioners. What motivated this? .___STEADY_PAYWALL___.Thank you, Alec. I think it is unusual. I am not aware of any other pension fund that has done it at this time. What motivated it is a recognition that pensioners are undergoing some financial hardship as a result of Covid-19, because we're aware that each pensioner – in a number of cases – actually supports entire households on their pension and with households being under strain and people having lost their jobs, I think we, as EPPF (Eskom Pension and Provident Fund) were mindful that the level of pension that people live with is insufficient. So we began to wonder, as some of the initiatives that we undertake as to how we could help them to alleviate some of this hardship.."I think we were mindful that the level of pension people live with is insufficient.".You decided that a bonus would be the right way to do it. It's not usual that pension funds would declare extra amounts because you have a responsibility to increase pensions, I guess, every year. What is the condition of the fund like, so that you could do this? .So perhaps just to take a step back, the EPPF grants an annual increase to pensioners every year, in line with its pension increase policy. We evaluate the affordability of that increase according to the funding level of the pension fund and various other factors that our actuary has to take into account. .As of last year, when we had to make a decision for the 2020 annual increase, we found that the fund could actually only afford a pension increase of 2%, which we realised is far below inflation. However, given that we have to sustain the fund into the future (even for future generations of pensioners), we actually couldn't afford to give more than that..I think in part, this is what motivated that decision about the bonus. So part of what we do every year is the decision on the pension increase.We also grant an annual pension bonus when it's affordable for the fund to do so. We did that last year. The practice of paying bonuses to pensioners is something that the founders established annually anyway. However, this time around, recognising that we had granted a low increase of 2% and the financial hardships that are being experienced right now, we thought it opportune for us to actually pay another bonus, a special bonus on a once-off basis just to assist with the current crisis to our members..Read also: Meet Caroline Henry: new Chairman of Eskom pension fund.What does it work out to for the members? .In total, we have paid over R104-million per household. It works out to between R3,500 and R5,000. The reason why there's a range is that our lower income households have received a higher bonus relative to those who have higher income. On average, our members earn R8,500 as a pension, but there's quite a wide range around that figure. Some are far lower, others higher. Therefore, the lower income households have received a higher proportion of the bonus. ."On average, our members earn R8,500 as a pension, but there's quite a wide range around that figure. Some are far lower, others higher. Therefore, the lower income households have received a higher proportion of the bonus.".You say that the households support many people, numerous people on average. And how many would each pensioner support? .It varies, but we've come across instances where it's up to four dependents. So in some cases it's grandchildren and in some cases it's extended family or unemployed children, for that matter. .So it's a sizeable increase and a sizeable support base for the household, given the quantum that you're talking about. Was there much lobbying by pensioners for this?.There's been lobbying, Alec, for a higher increase. Ever since we implemented the 2% increase at the end of last year for 2020, a number of pensioners, understandably, were quite upset that 2% is below the cost of living. It's below inflation and they were agitating for us to pay a higher increase. .We couldn't, however, pay a higher increase. This is how we arrived at a decision of a bonus as opposed to an increase. An increase increases the base of the pension level permanently. If we were paying a hundred and we increase it to ten, we are paying 110 and anything in subsequent years is on top of that 110. So suddenly we would have found ourselves with a liability that's growing by R5-billion, whereas with a once-off bonus we could make a difference, but it was limited to one event at one point in time and not permanently factored into the base of pensions into the future. .Makes a lot of sense. I wonder if other pension funds are looking at you or discussing similar approach?.I think it would largely depend on whether they're a defined benefit pension fund like we are, and secondly, the status of their funding level. We are in a fortunate position that our funding level is above 100%. .So what that means for the lay person is that, if the pension fund were to close down today, we would be able to pay everyone to whom Eskom owes a pension – both now and into the future. So 10% funding level means our assets are greater than our liabilities and our funding level – at the last valuation – was around 115% percent. So to the effect that other pension funds might be looking to emulate the same, the starting point would be an evaluation of their funding level. How healthy is that funding level? .The other factor being, are they a defined benefit or defined contribution pension fund? A defined contribution pension fund actually couldn't do something like this, because the value of each member or pensioner's interest is valued almost daily. It's not a pool of assets. .It's an individual portfolio which depends on the market values of that day. That's in their portfolio. Whereas with a defined benefit pension fund, it's a pool of assets. It's a cross-generational savings vehicle. So we are able to take an approach that addresses the entire portfolio and evaluate the impact on the entire portfolio without prejudicing individual members..It makes a lot of sense. Thanks for unpacking that. Just to close off with, this has been described as a health crisis, but in fact, it's also an economic crisis. What kind of feedback are you getting from members? Given that the average that they receive per month is R8,500, these aren't people who are living off the fat of the land, exactly..Well, we've received messages of gratitude. A couple of our pensioners actually called in to ask whether we've made an error in the payment, which was really sweet. But we communicated to them that it's a once-off payment and it's to help them to meet the challenges of the time. It's not a solution because the economic crisis is deepening by the day and we realise we can't resolve all the problems, but we can certainly help in some way.

Eskom Pension and Provident Fund pays out R100m bonus to pensioners

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