Retirement Fund Industry Definitions

An investment strategy that seeks to deliver a higher return than the market index through market timing and stock picking.

The administrator is responsible for collecting contributions, managing member exits, paying benefits and reporting to members, employers and trustees.

A term distinguishing investments on the basis of their differing risk and return characteristics. The key asset classes are listed equities (shares), bonds, property and cash. Other asset classes include commodities and private equity (investments in unlisted companies that may also use debt finance to leverage (increase) returns).

A pre-defined, independently calculated index used to measure the relative performance of an investment portfolio.

The investment return delivered by the benchmark.

The name and proportion of asset classes and individual securities making up a particular benchmark.

In the context of retirement funds, the term “benefit” refers to a monetary payment from a retirement fund such as your investment or a death benefit from a life insurance policy.

A panel of individuals tasked to oversee the management and running of a retirement fund, to ensure members’ interests are well managed and safe-guarded and that the fund complies with the fund rules and applicable regulations.

The amount invested in the retirement fund on behalf of the member (employee or individual investor). The contribution for pension and provident funds is generally expressed as a percentage of the employee’s salary or wage.

A pension or provident fund.

Your pension or provident fund investment is also called your fund credit.

An investment strategy that seeks to mirror the performance of an index (such as the stock market) by investing directly in the shares that make up the market index.

The general increase in the cost of goods and services over time.

The rate of increase in the general cost of goods and services. The official inflation rate is based on the Consumer Price Index issued monthly by Stats SA.

The length of time your investment (retirement fund) is expected to remain invested. An individual’s investment horizon depends on when their investment will be needed. For a retirement fund, the investment horizon is your retirement date. If you are 40 years old and your expected retirement date is 65, your investment horizon is 25 years (65 less 40).

The investment horizon is used to determine the investor’s risk tolerance, which drives their risk exposure. In general, the shorter the investor’s horizon, the less risk they should be willing to accept.

The return your investment earned, which can comprise income (interest, dividends and rent) and capital (the change in the asset price – can be positive or negative).

Return includes the income and capital return. The price return only includes the capital return i.e. it excludes the income return. The return reported on the stock market is usually only the price return. For example, if the FTSE JSE Index levels starts the year at 30 000 and ends the year at 33 000 the (price) return is 10%. This excludes dividends paid, which may add another 3% to the total return the investor earned.

The investment return before fees.

An investment strategy that attempts to predict the direction of future market movements in order to buy low and sell high. This strategy is used by some fund managers, with the aim of earning an above-market return. However, most market timing strategies fail.

An investor (employee or individual) in a retirement fund is called a member of the fund.

The investment return weighted by the actual money invested in the fund during the period. This accounts for cash flows in and out of the fund and measures the return earned by the average rand invested in the fund. The alternative method is the time-weighted return.

The contribution invested, net of administrative costs and risk premiums.

The investment return after fees.

Drawing together contributions, investments and retirement funds into a single form, to realise advantages of scale (lower costs, improved oversight).

A retirement fund that enables employees leaving a company to invest their pension or provident fund and to preserve the tax advantages of a retirement fund (provided they defer receipt of the benefit to at least age 55). The workings of a preservation fund are more fully explained in the section under ‘Preservation’.

The investment return less the inflation rate. If the return is 12% and the inflation rate is 5%, then the real return is 7% (12% less 5%).

An investment fund created in terms of the Pensions Funds Act to enable individuals to save for retirement in a regulated and tax-efficient manner. Retirement funds comprise Pension, Provident, Retirement Annuity and Preservation funds.

This refers collectively to the 10X Retirement Funds.

Administrator and investment manager to the 10X Retirement Funds.

This includes the 10X Umbrella Pension and 10X Umbrella Provident Fund, the 10X Pension Preservation and 10X Provident Preservation Fund and the 10X Retirement Annuity Fund.

This refers to the transfer of assets from one retirement fund to another as defined in S14 of the Pension Funds Act.

Another term for financial instruments that are listed on a recognised exchange and include shares, bonds and property.

An employer-sponsored retirement fund with membership restricted to that employer’s staff. Also knows as a self administered fund or a free standing fund.

Identifying and buying/selling securities that are expected to outperform/underperform a benchmark; an investment strategy used by active asset managers aiming to deliver an above-average return.

The return earned by a portfolio over a specific time period, irrespective of fund flows. This is used to compare the performance of different portfolios. This is simply the change in the unit price over the period and ignores cash flows in and out of the fund.

Theoretically, this is the total cost of running an investment fund expressed as a percentage of assets under management. In practice it may exclude trading costs (brokerage and taxation), investment management fees and initial fees.

A retirement fund structure that pools various company-sponsored retirement funds to achieve benefits of scale and uniform governance structures i.e. it allows many companies to participate in the same pension or provident fund.

The income used by your employer to calculate your pension or provident fund contribution. This income will typically include any fixed remuneration (e.g. salary or wages) but may exclude variable amounts such as commissions, bonuses and overtime. Pensionable income is also called retirement funding income.

Your taxable income excluding (if any) your pensionable income, retirement fund lump sum benefits, assessed losses and capital gains. It includes any rental and investment income. Individuals may deduct up to 15% of their non-pensionable income as tax free contributions to an RA. Non-pensionable income is also called non-retirement funding income.