How the Fund’s life stage model works

If you do not want to make any investment decision yourself, your money will be invested according to the Life Stage Model explained in this section.

The life stage model consists of three portfolios, namely the Market-Linked Portfolio, the Stable Portfolio and the Money-Market Portfolio.

  • Your money will automatically be invested according to the Life Stage model unless you make a positive choice to invest your money in another way (i.e. one or more of the “own choice” portfolios).
  • The model assumes that the major determinant of whether you wish to manage your inflation risk or capital risk is the period until your retirement. 

The model does not take into account the possibility that you may be planning to resign soon and intend spending your resignation benefit.  The model may not be appropriate if you plan on taking a living annuity at retirement.

The next section explains the following:

The Market-Linked Portfolio

The Market-Linked Portfolio has been designed to deal mainly with inflation risk. According to the life stage model your money will be invested exclusively in the Market-linked Portfolio until 10 years before your assumed retirement age.

This means that your money will be invested 100% in the Market-linked Portfolio up to age 55.

The Market-Linked Portfolio has an investment objective to deliver an investment return that is 5% p.a. (net of tax and investment management fees) higher than the consumer price inflation rate over any 7-year period, although this return is not guaranteed.

The assets of this portfolio are invested mainly in a mix of shares and bonds (local and offshore). As such, it is exposed to the performance of these markets, and the return you earn from this portfolio over a period may be positive or negative depending on market conditions.

A detailed fact sheet on the Market Portfolio is set out at the end of this guide.

The Stable Portfolio

The Stable Portfolio has been designed to deal mainly with capital risk you face. According to the life stage model your money will be invested fully in the Stable Portfolio from age 60 onwards. Then from age 63 part of your money will be invested in the Money Market Portfolio and at age 64 your money will be invested fully in the Money Market Portfolio (The transition between the Market-Linked; Stable and Money Market Portfolio is explained below).

The investment objective of the Stable Portfolio is to earn a real return (after deducting retirement fund tax and management expenses) relative to price inflation of 3% p.a. over any rolling 3-year period, with a focus on short-term protection of capital. However, this level of return and protection of capital is not guaranteed.

This portfolio aims to achieve sustainable positive returns, with protection against capital loss. It is suitable for members of the Fund who are within five years of retirement, and who want to protect your capital. It is also suitable for any younger members who might prefer “smoother” returns.

The Stable Portfolio can be termed an “absolute return” portfolio. However this is a very broad category, and there are many different strategies which investment managers use to try to achieve absolute returns (or positive returns). Some of these strategies can be very complex. 

A detailed fact sheet on the Stable Portfolio is set out at the end of this guide. 

The Money Market Portfolio

The Money Market Portfolio is invested 100% in SA money-market instruments.  

The prime objective of the Money Market portfolio is to preserve the Rand value of members retirement savings at all times and to increase it with the interest earned on the underlying money-market instruments. Importantly this portfolio does not provide such a guarantee. 

It is expected that over the long-term this portfolio will achieve an after tax return of some 1% per annum above inflation over 12-month periods. 

This portfolio is designed for those members wanting complete protection against "final payment risk". However, it gives limited protection against "inflation risk". 

A detailed fact sheet on the Money Market Portfolio is set out at the end of this guide.

Transitioning between the Market-Linked, Stable and Money Market Portfolios

According to the life stage model, the money you have invested in the Market-Linked Portfolio will be transitioned in 5 more or less equal instalments starting at the end of the month following your 56th birthday. This means that by the end of the month in which you turn 60 your accumulated savings will be fully invested in the Stable Portfolio until you reach age 63.  

From age 63 onwards, 50% of your accumulated savings contributions will be transferred to the Money Market Portfolio. At age 64, 100% of your money will be invested in the Money Market Portfolio until your retirement.

Your future monthly retirement saving contributions will be allocated in the same way as your accumulated savings.

The following table explains this transition in more detail.

Month-end following birthday Allocation of existing savings as well as future contributions
Market-linked Stable Money Market
55 and younger 100% 0% 0%
56 80% 20% 0%
57 60% 40% 0%
58 40% 60% 0%
59 20% 80% 0%
60 0%  100% 0% 
61 0%  100% 0% 
62 0%  100% 0% 
63 0%  50% 50% 
64 0%  0% 100% 

Important assumptions of the Life Stage Model

The life stage model is based on a number of important assumptions, namely:

  • The life stage model assumes that you will retire at age 65 in terms of the rules of the PetroSA Retirement Fund.

For example, if you intend to retire at age 55, you may wish to consider transitioning your retirement savings in the Stable Portfolio from age 45 onwards (as opposed to age 55 as would be the case with the life stage model). Importantly, you would need to indicate this choice by sending in an Investment Choice Option Form.

  • Your money will automatically be invested according to the life stage model unless you make a positive choice to invest your money in another way (i.e. your choice of one or more of the own-choice portfolios).

The model assumes that the major determinant of whether you wishes to manage your inflation risk or capital risk is the period until your retirement. 

The model does not take into account that you may be planning to resign soon and intend spending your resignation benefit. 

The model is also based on an “average risk appetite”. To the extent that your risk appetite is more conservative or aggressive than average, the life stage model may not be appropriate.

The model funds for a cash benefit at retirement.  This may not be appropriate if you plan on taking a living annuity at retirement.