Old Mutual’s 2008 pensioner increases keep up with inflation

Against a backdrop of increasing local and international economic difficulty, Old Mutual Corporate recently announced increases to the annuities under its management that compare favourably with the current rate of inflation.

According to Roy Stephenson, Head of Annuities at Old Mutual Corporate, in such a volatile environment, most people who have invested for a steady income require that their investment is secure, and that their income levels keep pace with inflation. “For pensioners invested in a with-profit annuity with Old Mutual, both of these essential requirements have been admirably met during 2007, and the 135 000 people who rely on Old Mutual for their retirement income can look forward to an increase in their monthly pension payments in 2008 that offsets most of the effects of inflation.”

Platinum Pension Portfolio

The 2008 pension increase rates for Old Mutual’s Platinum Pension with-profit annuity Portfolio, range from 11% for category A pensions (the highest increase category) to 6.5% for category F (the lowest increase category).

 (Click on image to enlarge)

PLEASE NOTE
(a) Applicable to old Mutual Platinum Pension annuitants o¬nly.
(b) Year-on- year CPIX as at 31 December 2007.
(c) Five year average year-on-year CPIX as at 31 December 2007.

The 2008 Platinum Pension increases compare reasonably well with inflation, and are based on returns for the year ending 31 December 2007. The pension increase rates are higher than the long-term expected average increase rates due to favourable returns earned over the 12 months to end of December 2007. Over the long term, one would expect Category A increases to be in line with inflation and Category D increases to be roughly 1.5% below inflation.

Platinum Pension 2003 annuity portfolio
Old Mutual’s Platinum Pension 2003 with-profit annuity portfolio delivered pension increase rates that ranged from 8.5% to 6.0% across the various pricing categories - marginally lower than the increases declared in 2007, but still offsetting most of the effect of inflation, which was 8.6% and 9.0% (for CPIX and CPI respectively) for the 12 months to 31 December 2007.

 (Click on image to enlarge)

PLEASE NOTE
(a) Applicable to Old Mutual Platinum Pension 2003 annuitants only.
(b) Year-on-year CPIX as at 31 December 2007.
(c) Five year average year-on-year CPIX as at 31 December 2007.

The 2008 increases on the Platinum Pension 2003 Portfolio offset most of the effects of inflation. As with the Platinum Pension Portfolio, the pension increase rates are higher than the long-term expected average increase rates due favourable returns earned over the 12 months to the end of December 2007. Over the long term, one would expect Category A increases to be roughly 0.5% below inflation and Category D increases to be roughly 2.5% below inflation.

According to Stephenson, the increases are based on a number of factors, particularly the selected pension category and the performance of the equity market over the period. “They are also calculated in such a way that they allow Old Mutual to continue delivering the smoothed investment returns required to maintain the ongoing financial security of the pensioners invested in the various plans.”

“The global economy has entered a period of uncertainty and volatility in recent months and rising inflation means the cost of living is steadily increasing around the world, including South Africa.”

He says the latest pension increases declared mean that the top increase categories of both the Platinum Pension Portfolio and the Platinum Pension 2003 range are still above inflation for the past five-year period.