CHANGES TO THE POST-RETIREMENT SUBSIDY FOR SATS PENSIONERS

March 5 2009

CONTEXT and BACKGROUND

• SATS pensioners worked for South African Transport Services - retired before 1 April 1990

• Currently 26 000 former employees and dependants• Average age of 76 - risk pool is projected to extend to 2040

(dependants)

• 60% are female

• 70% are single and have no dependants registered on Transmed

• Ring-fenced on Guardian Plan in Transmed• Like most schemes benefits have reduced with escalating costs

• Guardian plan benefits - similar to the Prescribed Minimum Benefits (“PMBs”), include state hospital care enhanced with access to specialist care and some additional chronic care.

CONTEXT and BACKGROUND (cont)

• Transnet currently pays a subsidy directly to Transmed – subsidy collectively applied (R800pm per SATS family, calculated and paid at beginning of year-R200 mil pa)

• Current ring-fenced subsidy structure is not sustainable – Transmed’s viability would be affected if no solution found before 2010

• After much investigation and consultation, Transnet is proposing the New SATS Subsidy

SOLUTIONS INVESTIGATED

The Risk Equalisation Fund (REF)

• The government announced the concept of REF in 2006 to help stabilise the medical industry and to provide a platform for expanding cover to more South Africans.

• Schemes with healthy membership bases and low claim patterns (typically younger age profiles) would cross subsidise schemes with high claim patterns and clinical medical costs (usually older age profiles) through the use of an equalisation reserve.

• As a result of the continued delay in implementation and the lack of clarity around eventual implementation, the REF has not been considered as part of the SATS solution.

• The financial risk to Transnet of waiting for the REF and underpinning the losses in Transmed until REF is implemented are too significant.

SOLUTIONS INVESTIGATED (cont)

Possible solutions within Transmed• Status quo remains - unsustainable• Fund Guardian Plan benefits – expensive and not cost effective• Fund reduced benefits (slightly more than PMBs) – not attractive• Fund a benefit option that offers less than PMBs (i.e. no hospital cover),

subject to Registrar approval – not attractive

Possible solutions outside Transmed• Transfer SATS pensioner “group” to Government Employees Medical

Scheme (“GEMS”) - declined• Transfer SATS pensioner “group” to an open scheme - declined• Transfer Transnet employees and pensioner “group” to GEMS - declined• Transfer Transnet employees and pensioner “group” to an open

scheme - declined• Pay an independent cash subsidy

CONSULTATIVE PROCESS

• In accordance with PAJA and to ensure that the interests of all parties have been properly understood and taken into account in determining a final solution for the SATS subsidy, a number of consultative processes have been followed:

• Workshops have been held with Transmed and their advisors

• Meetings have been held with GEMS

• Meetings have been held with largest open schemes

• Meetings have been held with the Registrar of Medical Schemes

• SATS consultations include – communications, booklets and ongoing road shows

NEW SATS SUBSIDY - Structure

• Proposed start is 1 July 2009

• Transnet will pay cash into bank account of principal member

• R730 pm for principal member; and

• R590 pm for a spouse; and

• R250 pm for a child under the age of 21 years; and

• R250 pm for disabled children over 21 years.

• Increases from 1 January each year will try to ensure

subsidy keeps up with inflation but will not be more

than 6.25%

NEW SATS SUBSIDY

• MORE MONEY

• An additional R500 ml allocated to actuarial value of R1.2 bn

• CHOICE

• can choose to stay with Guardian Plan

• can choose to move to an open scheme – which meets their needs

• can choose not to join a medical scheme – not recommended

• SUPPORT• Mandated Aon to advice, assist and support SATS pensioners at

Transnet cost

• Correspondence, booklets, call centres and country-wide road shows

ADVANCE TO ARREARS CONTRIBUTIONS

• Open scheme contributions are usually paid in advance

(beginning of month)

• Guardian Plan contributions are paid in arrears (end of

month)

• Transnet will fund an extra month of contributions and

subsidy to Transmed to assist the change to advance

contributions – SATS pensioners will not have to carry this

cost (R20 million)

• Easier transition to open schemes

SATS CONCERNS – open schemes

• Principle of open enrolment - anyone can join the

open schemes, no matter how old, ill or frail

• At the most a 3 month waiting period will be

applied

• If break in medical scheme membership is not more than 90

days – schemes have to cover PMB’s for this 3 month period

(similar to Guardian benefits)

Aon’s ROLE

• SATS pensioners have generally only ever been on one

medical scheme

• Huge mind-set change for them

• Moving schemes may be frightening and confusing for

them

• Transnet has appointed Aon to provide independent

broker advice, assistance and support to the SATS

pensioners - Transnet will fund Aon’s SATS related costs

for a two year period

NEXT STEPS

• Hope to finalise the consultations by mid-April 2009

• Targeting an implementation date of 1 July 2009

CONCLUSION

• MORE MONEY • An additional R500 ml allocated to actuarial value of R1.2 bn

• CHOICE• can choose to stay with Guardian Plan• can choose to move to an open scheme – which meets their

needs• open schemes likely to be better value for money• can choose not to join a medical scheme – not recommended

• SUPPORT• Mandated Aon to advice, assist and support SATS pensioners

at Transnet cost• Correspondence, booklets, call centres and country-wide road

shows

Transnet has done much to improve the SATS pensioners’ ability to access appropriate medical care

STABILITY, EXTRA FUNDING, CHOICE, SUPPORT