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Absa Retirement Annuity Fund: Core PortfolioKeeping you financially fit for retirement prosperity

2 | Absa Retirement Annuity Fund: Core Portfolio

Contents

Absa Retirement Annuity Fund: Core Portfolio (the “Core Retirement Annuity”) is a uniquely designed low cost retirement annuity (“RA”) solution, based on so-called life stage investment philosophy. Life stage investing is based on the observation that investors’ risk appetites generally decline as they near their

retirement date. In the Core Retirement Annuity, your exposure to risky assets is automatically reduced as you near retirement (visit etf.absacapital.com for more details about the investment methodology).

Absa Retirement Annuity Fund: Core Portfolio 2

About the Core Retirement Annuity 2

The Core Retirement Annuity is ideal if 2

Benefits 3

Significant tax advantages 3

How the Core Retirement Annuity works 3

Annual review 5

Costs matter 5

Minimum investment amount 6

Fees 6

Accessing your Core Retirement Annuity 6

How to invest 6

Appendix 1 7

About the Core Retirement Annuity

The Core Retirement Annuity provides diversified exposure to various asset classes (domestic and international equity, property, commodities, fixed income and cash), subject to overall limits imposed by the Regulation 28 of the Regulations made under the Pension Funds Act, 1956. The portfolio is composed utilising passive building blocks (exchange traded funds and notes) to ensure low investment costs. The portfolio is rebalanced bi-annually.

The Core Retirement Annuity is ideal if

• You want to top-up your pension or provident fund.

• You’re self-employed.• Your employer does not provide a pension or

provident fund.• You wish to reduce your tax liability.• You are looking for a low cost retirement solution.

Absa Retirement Annuity Fund:Core Portfolio

You invest in yourself everyday. Why not invest in your future too?

Absa Retirement Annuity Fund: Core Portfolio | 3

Significant tax advantages

• Your contributions to a RA are tax deductible by up to 15% of your non-pensionable income.• The return on investment earned on your RA is tax-free.• And, at retirement, a significant portion of the cash sum is tax-free.

Your RA will automatically be adjusted every year in line with the asset allocation that corresponds with your retirement age.

Benefits

• Simplicity and convenience: Your portfolio is automatically adjusted each year so that your risk reduces closer to retirement.

• Easy to transact and manage: Simple online application process, investment tools, statements on demand, and recommended annual investment reviews.

• Low investment costs: Portfolio building blocks comprise low-cost passive investments (exchange traded funds and notes).

• Full transparency as to where your money is invested.

• Offered through the Absa Retirement Annuity Account: See Appendix 1 for additional benefits.

How the Core Retirement Annuity works

• You will be placed into an asset allocation that is based on your length to retirement (life stage), according to information you provide on your current age and expected retirement age. If you are still far off from retirement, you will be placed in a portfolio with greater allocation to shares (equity).

• In the long run, this asset class typically produces higher returns and should recoup any short-term losses incurred by the higher risk. The opposite

is true, the closer you are to retirement as the emphasis now is to protect your retirement nest egg.

• Your RA will automatically be adjusted every year to be in line with the asset allocation that corresponds with your retirement life stage.

For illustration purposes figure 1 below shows the movement from higher to lower equity exposure as you approach retirement and figure 2 the detailed holdings per life stage.

Figure 1

Ass

et A

lloca

tion

%

0%10%

35+ 30-35 25-30 20-25 15-20 10-15 5-10 0-5

20%

50%40%30%

60%

80%90%

70%

100%

Years to Retirement

Equity (Domestic and International) Other Asset Classes

4 | Absa Retirement Annuity Fund: Core Portfolio

¹ The consolidated total expense ratio (TER) is a measure of the weighted average total expense ratios of the ETFs that make up each years to retirement category. The TER is a measure of the ETFs assets that have been sacrificed as payment for services rendered (allowable charges per prescribed industry standards) in the management of the ETF(the TER excludes brokerage and transactional costs), expressed as a percentage of the daily average value of the portfolio and calculated over a 12 month rolling period. A higher TER does not necessarily imply a poor return, nor does a low TER imply a good return. The current TER cannot be regarded as an indication of future TERs.

Figure 2: Fund holdings and total expenses ratios

Source: Absa – 31 Jan 2014

NewFunds Govi

ETFFixed Income 9.32% 9.32% 9.32% 9.32% 9.61% 11.79% 14.72% 14.06%

NewFunds ILBI

ETFFixed Income 11.78% 11.78% 11.78% 11.78% 14.07% 18.23% 23.16% 17.40%

NewFunds Traci

ETFCash 2.46% 2.46% 2.46% 2.46% 4.45% 3.12% 10.01% 30.61%

Consolidated Total Expense Ratio¹ 0.31% 0.31% 0.31% 0.31% 0.30% 0.30% 0.29% 0.28%

Fund Asset Class

Years to retirement

35+ 30-35 25-30 20-25 15-20 10-15 5-10 0-5

NewFunds

eRAFI Overall ETFDomestic Equity

21.18% 21.18% 21.18% 21.18% 19.83% 18.42% 14.17% 8.64%

NewFunds Equity

Momentum ETFDomestic Equity

21.18% 21.18% 21.18% 21.18% 19.83% 18.42% 14.17% 8.64%

NewFunds Swix

ETFDomestic Equity

21.18% 21.18% 21.18% 21.18% 19.83% 18.42% 14.17% 8.64%

db x-trackers

MSCI World Index

ETF

International Equity 11.21% 11.21% 11.21% 11.21% 10.51% 9.75% 7.50% 9.07%

STANLIB SA

Property ETFProperty 1.69% 1.69% 1.69% 1.69% 1.87% 1.86% 2.11% 2.93%

Absa Retirement Annuity Fund: Core Portfolio | 5

investment – especially important for the long-term investments such as those for retirement.

In figure 3 on the following page the National Treasury of South Africa* highlights the potential effect that different annual fees might have on an individual’s final retirement benefit over a period of 40 years. Annual fees vary from zero to five per cent along the horizontal axis. The vertical axis shows the final retirement benefit, re-scaled so that, in the case of no annual fees, the benefit equals 100.

For instance, if the recurring charges deducted from the fund account of a regular saver are reduced from 2.5% to 0.5% of assets each year, he or she would receive a benefit 60% greater at retirement after 40 years, all else being equal. Alternatively, the saver could get the same retirement benefit by making contributions over his or her lifetime that are around 40% lower.

Costs matter

South Africa has one of the highest cost bases for retirement savings in the world. Layers of administration fees, management and platform fees eat up a significant portion of your investment returns.

The importance of all these fees is often overlooked as it is difficult to visualise a difference one percent of additional fees can make during the life of the

Annual review

Annually, you are encouraged to review your current situation to determine if you would like to make changes to your stipulated retirement age, and contribution level. If no action is taken you will remain in the existing asset allocation until your age bracket changes, whereby you are automatically re-allocated to the next asset allocation category.

Annual charge

Figure 3: Effect of recurring charges on retirement fund accumulations

Retir

emen

t be

nefit

0.0% 0.5% 1.0% 1.5% 2.0% 2.5% 3.0% 3.5% 4.0% 4.5% 5.0%

100

80

60

40

20

0

Contributions Growth fees

*Source: Treasury of South Africa (2013) Charges in South African retirement funds, [Online], Available:http://www.treasury.gov.za/public%20comments/Charges%20in%20South%20African%20Retirement%20Funds.pdf [11 July 2013].

Note: These results assume regular contributions increasing at 6 per cent per year for 40 years. Although investment returns were assumed to be 10 per cent each year.

6 | Absa Retirement Annuity Fund: Core Portfolio

Minimum investment amount

Lump sum investment: R10 000Recurring investment (debit orders): R500 per monthAdditional investment: R5 000

Fees

Annual administration fee*: 0.228% Consolidated total expense ratio of asset allocation categories (see figure 2 above): • An annual processing fee of R228 per client is levied

and is deducted pro rata from the investment on a quarterly basis.

• An additional retirement fund cost of approximately R34 per product per annum will be deducted.

Accessing your Core Retirement Annuity

The Core Retirement Annuity is accessible at the correct retirement age. Despite early retirement, the earliest age is still 55. However, if you emigrate or

suffer ill health, you will be able to access your RA before you retire.

Transfers from other registered funds

Transfers from other approved Pension or Provident and Retirement Annuity Funds can be transferred free of tax into the AIMS Retirement Annuity Fund

and are completed by filling out a manual transfer form downloadable under the how to invest page or product page at etf.absacapital.com

0.28% - 0.31%

These are fund expenses and are directly related to, for example, annual auditing fees, fidelity insurance cover and trustee remuneration.

• There is no asset management fee charged.• All fees quoted above are inclusive of VAT, which

will be levied where applicable.*The annual administration fee is calculated on the market value of the units held in the fund. Any financial adviser initial and annual review fees are negotiable between you and your financial adviser, if applicable.

This product aims to offer you a low cost retirement annuity and the fees are well below the industry average.

How to invest

Application is directly online. Visit the how to invest page or product page at etf.absacapital.com and click on apply.

Benefits

Retirement BenefitsOn retirement a cash lump sum of up to one-third of the retirement benefit may be taken. The remaining two-thirds of the retirement benefit is used to purchase a compulsory annuity. In the event that the total retirement benefit, on retirement, is equal to or less than R75 000 then 100% of the retirement benefit may be taken as a cash lump sum subject to tax.

Death BenefitsIn the event of the death of the member prior to retirement date, the benefit will be paid to the member’s dependants or nominated beneficiaries in such proportions as the trustees deem equitable or, failing such persons, the member’s estate. The dependants have the following options subject to the trustees’ decision: • Convert to a cash lump sum equal to one-

third of the value of the investment and use the remaining balance to purchase a compulsory annuity.

• The dependents may elect to receive the full benefit as a cash lump sum, subject to tax.

Disability Benefits In the event of a member becoming permanently disabled prior to age 55, the member may apply to the trustees of the fund to be allowed to retire early on the basis of disability. The member may, subject to income tax, convert to a cash lump sum equal to one-third of the value of the benefit or may elect to receive the full benefit as a cash lump sum where the benefit is equal to or less than R75 000.

Tax implicationsIn terms of current legislation, members are entitled to deduct their contributions from taxable income, within certain limits. On retirement the member may take up to one-third of the retirement benefit proceeds available in cash, of which a portion may be received tax-free. In addition to this any contributions that the member may have made in the past that did not rank for deduction may increase the tax-free portion.

The balance of the retirement benefit proceeds must be used to purchase a compulsory annuity. The income from this annuity is subject to normal tax. During the term of the investment no tax is levied on any interest income, net rental income and/or foreign dividends earned, within the fund.

Appendix 1: Absa Retirement Annuity AccountThe Absa Retirement Annuity Fund offers members a versatile and tax effective vehicle through which they can make the necessary provision for their retirement years in a flexible manner.

Ideal investorThe Absa Retirement Annuity Fund is suitable for individuals who: • Are self-employed and do not belong to a

pension or provident fund.• Receive a salary and wish to make additional

provision for their retirement years.• Wish to reduce their tax liability.• Seek to invest in a flexible retirement savings

vehicle. • Wish to make lump sum investments and/or

recurring contributions to a retirement fund.

Salient featuresThe salient features of the Absa Retirement Annuity Fund are: • Flexibility in terms of contributions and

portfolio adjustments.• Transparency related to fees, investment

terms and underlying investment holdings.• Regular reporting on portfolio holdings,

investment values and transactions.• No penalties related to aspects such as

minimum investment term or contributions.• Simplicity in terms of product features, fee

structures and administrative processes.• Investment term dependent on the selected

retirement age, which may not be prior to the age of 55.

• Easy transition to a post-retirement income solution on the AIMS platform.

• Tax-free transfers from approved pension, provident, preservation or other retirement annuity funds.

• Special arrangements in the event of death or disability.

• Choice that allows for the construction of a diversified portfolio from a comprehensive range of funds within Prudential Investment Guidelines.

• Withdrawals prior to retirement are allowed where the total retirement benefit of the Retirement Annuity Fund is less than R7 000. The withdrawal will be seen as a lump sum benefit received (thus it forms part of the member’s gross income) and not a withdrawal, and as such will be taxed at the member’s normal tax bracket.

• Full withdrawals are allowed where the member is emigrating from the Republic of South Africa. Proceeds will be subject to tax.

Contact information

Absa Client Contact Centre: +27 (0)860 000 005Website: www.etf.absacapital.com

FAIS Act Notice and Disclaimer

Absa Bank Limited, registration number 1986/004794/06 (ABSA) is an authorised financial services provider in terms of the Financial Advisory and Intermediary Services Act 37 of 2002 (FAIS). This product is supplied by Absa Bank Limited and administered by Absa Investment Management Services (Pty) Ltd (collectively referred to as Absa). The information contained herein is not advice as defined and contemplated in the FAIS Act. No information contained herein is to be used or construed by you as an offer to sell and/or a solicitation of an offer to buy securities and/or any other financial product (‘products’) of any nature. The information contained herein including all research, opinions or other content is not intended to and does not constitute financial, accounting, tax, legal, investment or other professional advice. Absa does not act in any way as a financial advisor and does not hold itself out to be such. Investors are encouraged to obtain independent professional investment advice before investing in any of Absa’s products. Please note that merits of any investment should be carefully considered together with the investor’s specific risk profile and investment objectives. Prior to investing or transacting, you should fully understand the products and any risks and issues related to or associated with them. The products may involve a high degree of risk including, but not limited to, the risk of low or no investment returns, capital loss, adverse or unanticipated financial market fluctuations, inflation and currency exchange. Retirement Annuities are long term investments.The value of the underlying solution may go down as well as up and past performance is not generally a guide to the future. The information, views and opinions expressed herein are based on third party sources believed by Absa to be reliable and are therefore expressed in good faith.Illustrations are not guaranteed but are for illustrative purposes only. All views and estimates are given as of the date hereof and may change without notice. Absa may not request or induce in any manner a client to waive any right or benefit conferred on the client by or in terms of any provision of the FAIS General Code of Conduct, or recognise, accept or act on any such waiver by the client. Neither Absa, its affiliates, holding company, subsidiaries or directors, shareholders, agents, consultants or employees shall be liable for any damages or losses suffered by you resulting from your use of this document or the information contained therein, including without limitation any indirect, special or consequential losses whether arising out of contract, delict or equity. Absa expressly disclaims any liability for any damage or loss as a result of errors or omissions. This document is for information purposes only and may be amended without notice. Absa holds adequate professional indemnity and fidelity insurance cover to meet its contractual obligations. The Conflict of Interest Management Policy and the Complaints Resolution Policy and Procedure may be accessed on www.absa.co.za or may be requested from the Compliance Department.

Product Supplier Absa Bank Limited Registration Number 1986/004794/06 Authorised Financial Services Provider with FSP number 292 and Registered Credit Provider Reg No NCRCP7. Registered address 7th Floor, Barclays Towers West, 15 Troye Street, Johannesburg, 2001, Postal address 15 Alice Lane, Sandton, Box 7735, Johannesburg, 2023,Internet address http://www.absacapitaletfs.com

AdministratorAbsa Investment Management Services (Pty) Ltd (AIMS) Registration Number 1980/002425/07, Authorised Financial Services Provider with FSP number 524, approved benefit administrator in terms of section 13B of the Pension Funds Act with registration number 24/246, Registered address, Absa Investments Campus, Block D/E, 61 Empire Road, Parktown, 2193, Postal address, PO Box 974, Johannesburg, 2000 Telephone number 0860 000 005, Fax number 0861 339 265, Internet address https://www.absainvestments.co.za