Notes to the Annual Financial Statements

for the year ended 31 December 2006

8	Employee Benefits Costs

8.1	Pension fund The Company operates a defined benefit pension plan (“Fund”). The Fund is governed by the Pension Fund Act, 1965. The latest actuarial valuation was carried out as at 31 December 2006. A valuation was also carried out in terms of IAS 19 as at 31 December 2006. The next actuarial valuation will take place for the year ending 31 December 2007.

	The following principal actuarial assumptions were used:	2006	2005
		%	%
	Discount rate	8.0	8.5
	Expected return on plan assets – members	8.4	8.8
	Expected return on plan assets – pensioners	8.4	9.3
	Future salary increases	5.5	5.5
	Future pension increases	3.5	4.5

	The Fund’s 31 December 2003 surplus apportionment exercise has been approved, although payments in terms of this exercise still need to be made. As a result of this approval the Company has accounted for the amount allocated to the Employer Surplus Account in terms of this apportionment exercise and following approval by the Trustees of the Fund. This amount has been reflected as other income and the asset included in the balance sheet as a financial asset. The actuarial surplus was not accounted for in the accounts in previous years due to the promulgation in December 2001 of the Pension Funds Second Amendment Act, which requires any surplus arising to be apportioned amongst the employer, past and present employees and continuation members. The asset recognised on the Company’s balance sheet is subject to the limit set out in paragraph 58 of IAS 19. The paragraph 58 limit is the sum any cumulative unrecognised net actuarial losses and past service costs and the present value of any economic benefit available in the form of refunds from the Fund or reduction in future contributions to the Fund. The Fund has undergone a surplus apportionment exercise as required by legislation. The estimated surplus at 31 December 2005 was R204,779,000. In addition to the above the Fund’s Trustees and the Company have agreed to give existing defined benefit members the option to convert to the defined contribution structure with effect from 1 April 2007. Enhancements will be offered to these members if they elect to convert. The enhancements can amount to up to 105% of the member’s actuarial reserve value. The value of these enhancements is estimated to be R132,521,000 at 31 December 2006. A constructive obligation has been raised in respect of this obligation, as the number of employees who will elect the enhancement is not known.

	From 1 April 2006 all new members of the Fund join the Fund’s defined contribution plan. The actuarial surplus has been determined as follows:

			2006
			R000
	Present value of funded obligations
	Actuarial value 1 January 2006		588,414
	Current service cost		18,029
	Employee contributions		9,300
	Benefit payments		(24,617)
	Interest cost		50,128
	Actuarial loss for the year		189,457
	Closing actuarial value 31 December 2006		830,711

	Fair value of plan assets
	Actuarial value 1 January 2006		(793,193)
	Expected investment return		(71,352)
	Employee contributions		(9,300)
	Benefit payments		(18,600)
	Interest cost		24,617
	Actuarial gain on assets for the year		(193,647)
	Actuarial value 31 December 2006		(1,061,475)
	Net surplus		(230,764)

		2006	2005
		R000	R000

	Group and Company
	Disclosure in
	Income statement
	Pension fund surplus	230,764	–
	Pension fund change provision included with administration expenses	132,521	–
	Deferred tax raised in regard to pension fund surplus	28,490	–

	Balance sheet
	Asset
	Retirement benefit fund surplus	230,764	–
	Liability
	Pension fund change provision	132,521	–

	Pension funds of foreign subsidiaries Foreign subsidiaries have defined contribution plans under which fixed contributions are paid into a separate entity, and will have no legal or constructive obligations to pay further contributions if the funds do not hold sufficient assets to pay all employee benefits relating to employee service in current or prior periods. The regular contributions constitute net periodic costs for the year in which they are due and as such are included in staff costs.

8.2	Post-retirement medical aid benefits The Company operates a defined benefit plan for qualifying employees, which is administered by Discovery Health Limited. The nature of the benefit is to pay 50% of the medical aid contributions in retirement to members. There are currently 661 members being those staff who joined the medical aid before October 2002. The latest actuarial valuation was carried out in terms of IAS 19 Employee Benefits as at 31 December 2006. The next actuarial valuation will take place as at 31 December 2007.

	2006	2005
The following principal actuarial assumptions were used:
Discount rate	9.0%	8.5%
Health care inflation rate	7.8%	7.0%
Average retirement age	63	63

If the differential between the discount rate and the health care inflation rate is 2.5% then the related cost would be approximately R2.5 million. The amount recognised in the balance sheet in respect of the defined benefit post-retirement medical aid plan is as follows:

	2006	2005	2004	2003
	R000	R000	R000	R000
Group and Company
Present value of unfunded obligations	53,418	44,928	83,121	69,321
Unrecognised actuarial (losses)/gains	(6,015)	(1,859)	457	(380)
Liability recognised in the balance sheet	47,403	43,069	83,578	68,941

The movement in the liability recognised in the
balance sheet is as follows:
Balance at beginning of year	43,069	83,578	68,941	70,000
Current service cost	2,696	2,584	2,417	1,977
Interest cost	3,874	9,416	6,425	8,182
Employee benefit payments	(909)	–	(3,370)	(4,152)
Actuarial loss	(94)	–	–	–
Change in subsidy policy	–	–	9,165	(7,066)
Effect of curtailment or settlement	(1,233)	(52,509)	–	–
Balance at end of year	47,403	43,069	83,578	68,941

Amounts recognised in the income statement in
respect of the defined benefit plan are as follows:
Current service cost	2,696	2,584	2,417	2,584
Interest cost	3,874	9,416	6,425	9,416
Employee benefit payments	(909)	–	(3,370)	–
Change in subsidy policy	–	–	9,165	–
Actuarial loss	(94)	–	(94)	–
	5,567	12,000	14,543	12,000

The charge for the year is included in “administrative and other
operating expenses” in the income statement.

There is an offer to members to accept a payment in respect of the
future right. It is currently unknown how many members will accept
the offer.

Fair value asset held to partly fund the liability and held in cash and
cash equivalents are as follows:

Balance at beginning of year	11,758	9,900	11,758	9,900
Investment gains on plan assets	–	1,858	–	1,858
Balance at end of year	11,758	11,758	11,758	11,758

The fair value plan assets at the balance sheet
date is analysed as follows:
Included in cash and cash equivalents	11,758	11,758	11,758	11,758

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Notes to the Annual Financial Statements

8

Employee Benefits Costs