13. EMPLOYEE BENEFIT ASSETS AND LIABILITIES
 
  2019 
R’m 		   2018 
R’m 		  
Employee benefit assets        
Retirement benefit asset  304     504    
Employer surplus asset  136     –    
Trattamento di Fine Rapporto (TFR) retirement benefit obligation  –     (111)   
Post-employment medical aid asset  16     17    
Post-employment medical aid obligation  (8)    (9)   
   448     401    
Employee benefit liabilities             
Trattamento di Fine Rapporto (TFR) retirement benefit obligation  130     –    

The Group currently participates in the following pension and provident funds in southern Africa:

Name of fund   Life Healthcare DB Pension
Fund		 Lifecare Group Holdings Pension
Fund		   Life Healthcare Provident
Fund		   Life Healthcare DC Pension
Fund		   Lifecare National Provident
Fund		   Old Healthcare Provident
Fund		  
Fund description Closed fund Dormant Active Active Dormant Dormant  
Classification   Defined benefit   Defined benefit Defined contribution provident fund Defined contribution pension fund   Defined benefit   Defined benefit  

The assets of all the funds, whether they are defined benefit or defined contribution, are held and administered separately from the Group’s assets. The assets are administered on behalf of the funds by external financial services companies. All the funds are governed by the Pension Funds Act of 1956.

The active pension and provident funds require triennial statutory financial reviews. Financial reviews are, however, carried out annually to determine the solvency of the plans. Defined contribution funds are not guaranteed by the employer.

An application to the Financial Sector Conduct Authority (FSCA) was submitted on 20 February 2019 to transfer the sum of approximately R165 million from the Employer Surplus Account (ESA) in the Life Healthcare DB Pension Fund (LHC Fund) to the ESA in the Life Healthcare Provident Fund in terms of section 15E(2) of the Pension Funds Act, Act 24 of 1956.

On 2 May 2019 approval was obtained from the FSCA to transfer the funds to the ESA of the Life Healthcare Provident Fund with the effective date of transfer set as 31 January 2019. 95% was a scrip transfer between the two funds and 5% was in cash, resulting in a total transfer value of R165.7 million. Life Healthcare will take a partial contribution holiday in the Provident Fund, resulting in a portion of the employer contributions being paid from the ESA in the Provident Fund, and the balance being paid by the employer over approximately four years.

Pension funds

Actuarial assumptions applied in the valuation of the defined benefit funds:

  Life Healthcare
DB Pension Fund		   Lifecare Group Holdings
Pension Fund		  
  2019  
R’m  		   2018  
R’m  		   2019
R’m		   2018  
R’m  		  
Discount rate 9.64     9.74     7.50   8.00    
Consumer price inflation (CPI) 6.07     6.60     4.10   4.80    
Expected long-term rate of return 9.64     9.74     7.50   8.00    
Compensation increase rate 7.07     7.60     n/a   5.80    
Pension increase rate 6.071   6.601   n/a   3.60    
Rates of mortality 0.502   0.502   n/a   1.003  

The long-term investment return assumption is based on the expected long-term returns on equities, cash and bonds. In setting these assumptions the actual asset split of the various funds is used.

1 A future pension increase assumption of 100% of the long-term inflation assumption was used. This is in excess of the LHC Fund’s formal pension increase target of 75% of CPI but is in line with the LHC Fund’s secondary target of providing increases of up to 100% of CPI, subject to affordability. It is assumed that, in line with actual LHC Fund experience, 85% of members uplift the capital value of their benefits on retirement, calculated as per the rules of the LHC Fund, and use these to purchase pensions outside of the LHC Fund. Only 15% of members are assumed to retire and draw a pension from the LHC Fund.
2 The full mortality assumption is as follows: PA(90) rated down 1 year plus 0.5% improvement per annum from 2015.
3 The full mortality assumption is as follows: PA(90) rated down 2 years plus 1.0% improvement per annum from 2004.

The last statutory actuarial valuations for the funds were:

Life Healthcare DB Pension Fund   30 June 2018. The next statutory valuation report will be prepared as at 30 June 2021.
Lifecare Group Holdings Pension Fund   31 March 2016. The next statutory valuation report is currently being prepared for the valuation date ended 31 March 2019.

The main risks to the Company of sponsoring a defined benefit plan is that a net loss/deficit may arise.

In terms of legislation any deficit arising from a triennial statutory valuation will need to be funded by the participating employer over the next three years.

Fund deficits tend to arise from any of the following events:

  • Investment returns lower than the valuation assumptions
  • Higher than expected salary and pension increases
  • A strengthening of the valuation assumptions from time to time
  • Increasing pensioner longevity

The Company contribution rate could increase in real terms in future.

Increases in the Company’s contribution in real terms could be caused by an ageing membership, a strengthening of the actuarial valuation assumptions and increases in future real pensionable salaries.

The Group’s obligation in respect of retirement benefits as measured in terms of IAS 19 are tabled below.

    Life Healthcare
DB Pension Fund		   Lifecare Group
Holdings Pension Fund		 Life Healthcare
Provident Fund (ESA) 		 
    2019 
R’m 		   2018 
R’m 		   2019 
R’m 		   2018 
R’m 		   2019 
R’m 		   2018 
R’m 		  
Defined benefit fund asset                          
Balance at 1 October    504     471     –     –     –     –    
Net income/(expense) recognised in profit or loss       37       35       (1)      (2)      (26)      –    
   Current service cost     (11)    (10)    (1)    (2)    –     –    
   Past services cost     –     (17)    –     –     –     –    
   Transfers     –     17     –     –     –     –    
   Company contributions     –     –     –     –     (30)    –    
   Net interest income     48     45     –     –     4     –    
Remeasurements recognised in other comprehensive income     (71)      (2)      1       2       (4)      –    
   Remeasurements on pension asset     (96)    (34)    –     30     (4)    –    
   Liability gain arising from changes in economic assumptions       29       13       –       –       –       –    
   Experience variance     (4)    19     –     (32)    –     –    
   Impact of paragraph 64 limit adjustment on asset       –       –       1       4       –       –    
Transfers (out)/in     (166)    –     –     –     166     –    
Balance at 30 September     304     504     –     –     136     –    
Actual value of defined benefit liability and funded status                                        
Present value of defined benefit obligation     (490)    (522)    (118)    (113)    –     –    
Asset at fair market value     794     1 026     141     136     136     –    
Funded status     304     504     23     23     136     –    
Unrecognised due to ceiling     –     –     (23)    (23)    –     –    
Asset recognised in the statement of financial position       304       504       –       –       136       –    
Reconciliation of defined benefit obligation                                        
Balance at 1 October     (522)    (520)    (113)    (138)    –     –    
Service costs     (11)    (10)    (1)    (2)    –     –    
Contributions     (2)    (3)    –     –     –     –    
Interest cost     (52)    (53)    (9)    (10)    –     –    
Benefits paid     69     47     5     15     –     –    
Settlements     –     –     –     48     –     –    
Past services cost     –     (17)    –     –     –     –    
Risk premiums     1     –     –     –     –     –    
Settlement gain     –     –     –     4     –     –    
Expenses     2     2     (1)    2     –     –    
Remeasurements     25     32     1     (32)    –     –    
Balance at 30 September     (490)    (522)    (118)    (113)    –     –    
Reconciliation of fair value of plan assets                                        
Balance at 1 October     1 026     991     136     159     –     –    
Expected return on assets     100     98     11     12     4     –    
Contributions     2     3     –     –     (30)    –    
Risk premiums     (1)    –     –     –     –     –    
Benefits paid     (69)    (47)    (5)    (15)    –     –    
Remeasurements     (96)    (34)    –     30     (4)    –    
Transfers (out)/in     (166)    17     –     (17)    166     –    
Settlements     –     –     –     (31)    –     –    
Expenses     (2)    (2)    (1)    (2)    –     –    
Balance at 30 September     794     1 026     141     136     136     –    
Composition of plan assets     %     %     %     %     %          
Cash     1.0     6.6     50.7     56.8     5.0     –    
Equity instruments     36.2     51.8     –     22.3     32.1     –    
Bonds     12.1     12.4     28.5     20.9     12.3     –    
Commodities     1.4     1.4     –     –     1.0     –    
Property     3.7     4.5     –     –     4.1     –    
Offshore and other     45.6     23.3     20.8     –     45.5     –    
      100.0     100.0     100.0     100.0     100.0     –    
  Life 
Healthcare 
DB Pension 
Fund 
R’m 		 Lifecare 
Group 
Holdings 
Pension 
Fund 
R’m 		  
Expected contributions for the next annual reporting period:      
Member contributions 2  –   
Company contributions 8  –  
Benefit payments (23) (4)  
Expenses (2) (1)  
Risk premiums (1) –   
The weighted average duration (years) 8.0  –   

An employer contribution rate of 22.56% was recommended in the statutory actuarial valuation as at 30 June 2018. The employer contribution rate is fully funded from the employer-owned surplus within the LHC Fund. The employer elected to take a full contribution holiday with effect from 1 December 2016.

Sensitivity analysis

  2019   2018  
1% movement in the key assumptions: Increase 
R’m 		   Decrease 
R’m 		   Increase 
R’m 		   Decrease 
R’m 		  
Life Healthcare DB Pension Fund                
Effect on the defined benefit obligation                
Discount rate  (36)    +47     (47)    +56    
Inflation rate  +42     (32)    +49     (42)   
Pension increase rate  –1    (32)    –1    (38)   
Mortality rate  (14)    +12     –     –    
1 The impact of a 1% increase in the future pension increase assumption is not included, as the normal valuation basis already assumes future pension increases of 100% of CPI, and in terms of the fund’s pension increase policy, increases of greater than 100% of CPI cannot be granted.

Lifecare Group Holdings Pension Fund

The active members had been transferred to another scheme in the previous financial year and had no liability as at the valuation date. The surplus liabilities and paid up liabilities are defined contribution type of benefits and are not affected by any assumptions made.

The assumptions that have the greatest impact on the fund’s valuation liabilities are the pre and post-retirement valuation discount rates.

TFR retirement benefit obligation (Alliance Medical)

Italian employees are entitled to a payment when they cease to be employed by the company under a TFR scheme. The scheme is not defined as a defined benefit pension but is an unfunded liability, and therefore not all requirements under IAS 19 (revised) are applicable and therefore limited disclosure is provided below:

  TFR scheme  
  2019
%		   2018
%		  
Actuarial assumptions applied in the valuation of the unfunded liability:        
Discount rate for liabilities 0.8   0.8  
Inflation rate 1.5   1.5  
Future salary increases 1.0   1.0  
Future pension increases 2.6   2.6  
  2019 
R’m 		   2018 
R’m 		  
Reconciliation of the unfunded liability        
Balance at 1 October  (111)    (79)   
Service costs  (10)    (7)   
Interest cost  (2)    (1)   
Remeasurements  (8)    (3)   
Arising on acquisition of subsidiary  –     (25)   
Contributions  (2)    –    
Expenses  –     (1)   
Benefits paid  4     5    
Effect of foreign currency movement  (1)    –    
Balance at 30 September  (130)    (111)   

Sensitivity analysis

  2019   2018  
0.25% movement in the key assumptions: Increase 
R’m 		   Decrease 
R’m 		   Increase 
R’m 		   Decrease 
R’m 		  
Effect on TFR unfunded liability                
Discount rate  (3)    +4     (2)    +2    
Inflation rate  +3     (3)    +2     (2)   
Future salary increases  +1     (1)    +1     (1)   

Post-employment medical aid benefit (southern Africa)

Life Healthcare Group has a liability arising as a result of a post-employment employer subsidy of healthcare benefits. Members of certain medical aid plans, who joined the Company before 1 November 1996 and remain in the employment of Life Healthcare Group until retirement, are eligible for a post-employment subsidy of their medical contributions.

Life Healthcare carries a fully funded liability for a post-retirement medical aid subsidy in respect of 8 (2018: 8) employees and 34 (2018: 40) pensioners who did not accept an alternative benefit offer made by the Company during the 2013 financial year.

The post-employment medical aid liability is funded via investments held in the PFV benefit fund and is a closed fund.

Life Healthcare Group is liable to make good on any shortfalls in the fund.

The benefit fund meets the definition of a defined benefit plan and has been disclosed in accordance with IAS 19.

The plan represents the market value of the assets.

The defined benefit fund is actuarially valued using the projected unit credit method. The benefit fund is a closed fund.

  Post-employment
medical aid benefit		  
  2019
%		   2018
%		  
The following actuarial assumptions were applied:        
Discount rate 9.50   9.80  
Consumer price inflation 5.40   6.30  
Expected return on assets 9.50   9.80  
Healthcare cost inflation 7.40   8.30  

The Group’s obligation in respect of post-employment medical aid benefit is tabled below:

  2019 
R’m 		   2018 
R’m 		  
Defined benefit fund asset        
Balance at 1 October  8     7    
Net periodic income             
   Net interest income  1     1    
Remeasurement recognised in other comprehensive income             
   Loss on benefit payments from plan assets  (1)    –    
Balance at 30 September  8     8    
Actual value of defined benefit liability and funded status             
Present value of defined benefit obligation  (8)    (9)   
Asset at fair market value  16     17    
Funded status  8     8    
Asset recognised in the statement of financial position  8     8    

Sensitivity analysis

  2019   2018  
1% movement in the key assumptions: Increase 
R’m 		   Decrease 
R’m 		   Increase 
R’m 		   Decrease 
R’m 		  
Effect on the defined benefit obligation                
Healthcare cost inflation rate  +9     (8)    +10     (9)   
Discount rate  (8)    +9     (9)    +10