Outsourcing Brochure

INDEX

Introduction 2

What is outsourcing? 3

What are the benefits of outsourcing for you? 4

What if you do not outsource? 4

What are the product offerings? 5

Product selection process 5

What are your outsourcing options? 7

Pensioners Options 7

Deferred Pensioners Options 8

Active Members Option 8

Summary of Options 9

Summary of Product offerings 10

With Profit Annuity 10

Inflation Linked Annuity 10

Combination Annuity 10

Living Annuity 11

Retirement Annuity 11

The IBM Retirement Plan 12

Appendices

Appendix 1 - Guaranteed Products 13

Appendix 2 - Living Annuity Products 17

Appendix 3 - Remaining in the IBM Fund 20

Appendix 4 - Surplus Sharing and Transfer Values 21

Appendix 5 - About the Insurers 22

Glossary 23

INTRODUCTION

The Trustees are pleased to advise you that as a result of the Agreement between the Trustees of the IBM South Africa Pension Fund (IBM Fund), the PFAG and IBM, the surplus in the IBM Fund is now ready for distribution. In conjunction with such distribution the opportunity is being offered to you, on a voluntary basis, to outsource your pension. An outstanding range of outsourcing options has been selected for you, which the Trustees consider to be extremely attractive compared to the pension benefits presently provided by the IBM Fund.

The Trustees suggest that you consider accepting one of these options which will result in you receiving a significantly enhanced benefit of approximately 70%. What this will mean for you as a pension increase will depend on your choice of insurer product.

You can choose to stay in the IBM Fund. However, if you do so your benefits will be substantially lower than if you outsource, as you will receive only half the share of the surplus and none of the solvency reserve which has to remain in the Fund.

What do you need to do?

The Trustees realise that this is a very important decision for you. To help you with this decision the Trustees have prepared the information in this brochure for your review. Together with this brochure, you have been provided with your own personal financial information so that you can see what the various options will mean for you.

If at present your spouse is not eligible for a spouse benefit from the IBM Fund and you wish to add such a benefit when you outsource, then please notify the Fund of this immediately in order to receive a revised offer showing this addition. Please provide in writing all relevant details (full name, date of birth, ID number, date of marriage or union) together with your notification.

The Trustees are also setting up a series of road shows around the country to explain the offerings in more detail. You are urged to attend one of these sessions which will provide you with an opportunity to raise any questions that you may have. You can also send any questions that you have to the Fund at:

e- mail address: essopsh@aforbes.co.za (Shaeera Essop)

fax no: 011 302 8578

phone no: 011 302 6265

The fax and phone numbers above will be dedicated to logging queries from you. In whatever form they arrive, every effort will be made to answer your queries as promptly and completely as is reasonably possible.

Note: The Fund will not provide you with financial or investment advice, and therefore recommends that you consult an accredited personal financial advisor before making any decisions. To this end you have been provided with an amount of R 2500 by the Fund. This amount is taxable. It is also important to discuss the implications of this decision with those financially dependant on you.

When you have made your decision you need to complete and return the offer and release forms that have been sent to you.

In order for us to outsource you on 1 November, please return the forms in the pre-paid envelope by 28 September to assist us in completing the administrative requirements in time.

WHAT IS OUTSOURCING?

At present you are a member of a defined benefit pension fund (IBM South Africa Pension Fund – “the Fund”). The most important thing about it is that your present pension is guaranteed for your life and, when you die, a reduced pension is guaranteed for the life of your spouse and dependants where applicable. There is no guarantee of future increases, but once granted, increases are guaranteed. The Trustees aim to grant increases in line with inflation over the long term.

In order to meet its financial obligation, the Fund holds assets that, as a minimum, are sufficient to meet this future payment. Through good investments or when markets are growing, assets may increase beyond the minimum, resulting in a surplus. With poor investments or when markets are in decline they may decrease below the minimum, resulting in a deficit.

Given the possibility of a deficit arising, the obligation is underwritten by the employer (IBM in this case) which is compelled to help make good any shortfall should the Fund’s assets fall below the liability to pay all present pensions (and deferred and future pensions when due) for life.

Outsourcing occurs when this obligation to meet the Fund’s liability is moved from the Fund and employer (IBM) to a registered insurer. This is done by using the Fund’s assets to purchase an annuity product from an insurer for you that will, as a minimum, continue to provide a guaranteed pension to you on the same terms. As the value available to you to outsource your pension is significantly greater than the corresponding amount needed to pay your present pension for life, you will be in the position to buy a pension that will be significantly higher than the pension you presently receive. A guaranteed insurer retirement product is at least as secure as the pension provided by the Fund. Insurers are required by law, at all times, to hold reserves (assets) that more than exceed the sum of all retirement funding liabilities and other guarantees they take on. They are in the business of providing retirement products and services where employers are not.

Alternatively, if your transfer value is R1,5 million or more, you may transfer the amount to a living annuity, described in more detail in this brochure.

If you outsource to an insurer, you will cease to be a member of the Fund. The Fund will have no obligation to continue pension payments to you, or your spouse and dependants, all of whom will have no further claim of any sort on the Fund or IBM. The responsibility to provide for your retirement will rest with the insurer and you will be asked to sign a release form acknowledging that the IBM Fund has no further liability to you.

WHAT ARE THE BENEFITS OF OUTSOURCING FOR YOU?

The benefits of outsourcing are:-

· Greatly enhanced pension benefits

A transfer value will be calculated by the Fund’s actuary for you. The transfer value will consist of an actuarial value, a share of the solvency reserve and a share of the surplus. This will result in an enhanced benefit of up to 70% before tax for members who elect to outsource their pensions. How this additional money will influence your pension increase depends on the insurer product you choose.

The surplus which has arisen in the Fund since 1 January 2003 has been estimated by the Fund’s actuary. This surplus will be used for outsourcing purposes. Three months after outsourcing a valuation will be completed, together with a reconciliation of the actual surplus at the outsourcing date and the estimated surplus used for this offer.

It is possible that your transfer value will increase as a result of the final valuation, resulting in a top up to the amounts transferred at outsourcing, thus further increasing the attraction of the outsourcing offer.

For an explanation of how the surplus will be shared and what your transfer value consists of please refer to Appendix 4.

· Flexibility to choose from attractive outsource options

The range of offerings is far wider than the pension benefits provided by the Fund. A pension can be purchased that guarantees annual increases equal to inflation. An attractive with-profit annuity is also offered, which is similar in nature to the current pension (as with your current pension, future annual increases are not guaranteed), but will start from a much higher base because of the allocation of surplus and reserves to you. Living annuities are also offered to pensioners with a transfer value above R 1.5 million. Finally, a combination, consisting of a with-profit annuity and a living annuity is offered to all pensioners including pensioners with a transfer value of less than R1.5 million, provided they purchase a pension equal to the current level of pension paid by the Fund.

The guaranteed products (but not living annuities) include the same benefits provided for in the Rules of the Fund for spouses, children and guaranteed periods. If you are not currently eligible for a spouse pension you can arrange for this to be included, but please note that you will have to use a portion of your transfer value to pay for this additional benefit which will reduce the level of your starting pension.

There are also very attractive options available to deferred pensioners and active members. (Refer to Pages 8 & 9)

WHAT IF YOU DO NOT OUTSOURCE?

All members have the right to remain in the Fund if they so choose. However, given the significant financial advantages to be gained by outsourcing, it is anticipated that almost all members will leave the Fund. With too few members left, it will no longer be practical to run the Fund. IBM will have to consider closing the Fund in these circumstances. Until that time the Fund will remain in existence and will continue to function as it does today.

For more information on staying a member of the Fund please refer to Appendix 3.

WHAT ARE THE PRODUCT OFFERINGS?

There are numerous insurers and financial institutions, all with a wide, but similar, range of products competing on different terms and conditions. Consequently the Trustees took the view that in an unrestricted situation, it would be a seller’s market with members having to deal individually with brokers, agents, and financial advisors. The Trustees felt that the ensuing disparity of outcomes for members would be inequitable and undesirable. As a result, the products being offered have been selected by the Trustees to avoid this and to use the purchasing power of a large group of members to obtain better prices and terms and conditions.

An analysis of products available in the market showed that three categories of product will give members the opportunity to find an offer suitable to their particular needs. The products chosen are:-

For Pensioners: (and Deferred Pensioners who wish to start drawing a pension)

· Guaranteed Annuity

o With-profit Annuity (With a strong valuation basis of 3.5% PRI – refer to glossary)

o Inflation-linked Annuity

· Combination Annuity (combination of With-profit and Living Annuities)

· Investment-linked Living Annuity (for members with high transfer values)

For Deferred Pensioners: (in addition to the above where applicable)

· Retirement Annuity

For Active Members:

· Retirement Annuity

· IBM South Africa Retirement Plan

For an explanation of the various products please refer to Appendix 1 & 2.

PRODUCT SELECTION PROCESS

Each of the five major insurers (Old Mutual, Sanlam, Metropolitan, Momentum and Liberty) were sent a “Request For Quotation” detailing specific questions to be answered, as well as providing them with a profile of the Fund’s membership. They were asked to submit detailed proposals for each of the products listed above. The living annuity request was sent to the five insurers and also to other financial institutions. Once received and studied by the Trustees, the proposals were followed up by presentations and Q&A sessions with the respondents. This was followed by in-depth analysis and product comparisons.

The Trustees enlisted the services of independent expert consultants to evaluate each category of product, and advise them which insurer’s product is the best, and why.

The consultants used were Rob Rusconi (actuary), Chris Bosenberg (retirement fund consultant) and Frank Durand (investment consultant).

In view of their advice a final choice has been made by the Trustees, using criteria that included:

· product features

· price

· costs and fees

· performance track record

· funding levels

· recent history of bonus declarations

· future projections of performance

· capital reserves and company experience

· approach to governance

The products and the service providers chosen are:-

Guaranteed Annuity:

With-profit Annuity Metropolitan

Inflation-linked Annuity Metropolitan

Combination Annuity Metropolitan

- With-profit Annuity

- Living Annuity

Investment-linked Living Annuity Allan Gray and Momentum

(Living Annuity) (Linked Investment Service Providers or

LISPS)

Retirement Annuity Allan Gray

There is no commission payable by you on any of these products and the costs charged by the service providers are shown under the detailed descriptions of the products in Appendix 1.

The expenses of the outsourcing itself will be borne by the Fund.

For more information about the various service providers please refer to Appendix 5.

WHAT ARE YOUR OUTSOURCING OPTIONS?

PENSIONER OPTIONS

Options available to ALL pensioners are:-

* Metropolitan “Golden Growth” With-profit Annuity (Guaranteed pension), or

* Metropolitan “Linked Growth” Inflation-linked Annuity (Metropolitan Inflation-linked Annuity/ Guaranteed pension), or

* Metropolitan Combination Annuity (Combination of the With-profit Annuity and the Living Annuity), or

* Remain a member of the IBM Fund.

Note: If your Transfer Value is below R 1.5 million and you choose the Metropolitan Combination Annuity you must purchase a with-profit annuity providing a monthly pension at least equal to your current pension. You can then put the balance of your transfer value into the living annuity component.

Additional options available to pensioners who have a transfer value of R 1,5 million or more

The following options are available to pensioners with a transfer value of R1,5 million, or more:-

* Allan Gray or Momentum Living Annuity, or

* Mix of products (Splitting funds between guaranteed and living annuity products)

Pensioners who choose a mix of products should be aware of the following:-

· SARS has stipulated that to split funds between guaranteed and living annuities, one of the annuities must at all times during its existence provide you with a pre-tax income in excess of an annual equivalent of R150,000 (i.e. R12500 if monthly) from a guaranteed annuity. For this purpose the withdrawal rate shown in the LISPA table in Appendix 2 should not be exceeded

· The pensioner must acknowledge in writing that he/she understands the implications and suitability of a living annuity for him/her or his/her dependants if applicable, and understands the risks associated with it. (Refer to Page 12)

· Approval is still awaited from the Financial Services Board to allow the Transfer Value to be split between a living annuity and a guaranteed annuity at percentages selected by the pensioner.

DEFERRED PENSIONER OPTIONS

Options available to deferred pensioners are:-

Deferred pensioners over the age of 55 who start drawing an income at outsourcing date

These members have the same options as the pensioners above.

Deferred pensioners who choose not to start drawing an income, and those under the age of 55

These members have the following options:-

* Allan Gray Retirement Annuity, or

* Remain a member of the Fund.

ACTIVE MEMBERS OPTIONS

Options available to active members are:-

* Allan Gray Retirement Annuity, or

* IBM Retirement Plan, or

* Remain a member of the IBM Fund.

SUMMARY OF OPTIONS

	Pensioners with transfer value of less than R1,5 million	Pensioners with transfer value of more than R1,5 million	Deferred pensioners over the age of 55 who will start drawing an income at outsourcing date	Deferred pensioners over the age of 55 not drawing an income and those under the age of 55	Active members
Metropolitan With Profit Annuity	√	√	√
Metropolitan Inflation Linked Annuity	√	√	√
Metropolitan Combination Annuity - WPA - Living Annuity	√	√	√
Allan Gray Living Annuity		√	√
Momentum Living Annuity		√	√
Own mix of products		√	√
Allan Gray Retirement Annuity				√	√
IBM Retirement Plan					√
Remain a member of the IBM Fund	√	√	√	√	√

SUMMARY OF PRODUCT OFFERINGS

With-profit Annuity

The general characteristics of a With-profit Annuity are:-

· Pension guaranteed for the life of the main member and when he/she dies a reduced pension for the life of the spouse (if applicable or selected)

· Has investment return (“with profits”) component

· Increases depend on investment performance and “smoothed” bonus declarations

· Aim is for more stability in increases over time than in pure market-linked alternatives

· Increases once granted are guaranteed

· Objective is for increases above inflation over time

· Once purchased it cannot be cashed in, but can be transferred to another insurer at a cost.

Inflation Linked Annuity

The general characteristics of an Inflation Linked Annuity are:-

· Pension guaranteed for the life of the main member and when he/she dies a reduced pension for the life of the spouse (If applicable or selected)

· Pension increases annually equal to headline inflation

· Increases are guaranteed except in extreme circumstances as shown in Appendix 1.2

· Once purchased it cannot be cashed in, but can be transferred to another insurer at a cost.

Metropolitan Combination Annuity

The general characteristics of the Combination Annuity are:-

· This is a guaranteed option that has two components:

- With-profit Annuity (refer to product description for details)

- Capital-guaranteed Living Annuity

· The Living Annuity investment vehicle is a capital-guaranteed smooth-bonus fund managed by Metropolitan using a variety of asset managers for this purpose

· Bonuses, once declared, are guaranteed and fully vesting

· The capital guaranteed is the capital after bonus declaration less any withdrawals,

· Withdrawals of up to 10% per annum can be made without affecting the capital guarantee and pensions in payment. See Appendix 1.3 for more details

· The only decision required of you is to annually select a withdrawal percentage of the Living Annuity capital for the year

· On death any remaining balance in the Living Annuity is paid to your beneficiaries or estate.

We recommend that you take independent advice regarding the selection of this option and the rate of withdrawal.

Investment-linked Living annuity

The general characteristics of a Living Annuity are:-

· It is purely an investment from which you withdraw an annual income (pension)

· It offers no guarantees of any sort

· The investor chooses from among the investment options offered by the insurer. This can be changed at any time

· Funds from any source can be added at any time. In some cases there will be a tax consideration

· The pensioner chooses the rate of withdrawal, subject to guidelines and explicit legislated limits

· Pensioners manage the longevity risk (risk of living too long and running out of money)

· The level of capital and resulting pension is determined by the asset performance and rate of withdrawal

· Asset allocation is determined by the pensioner

· The pensioner takes sole responsibility for the consequences of his/her choice

· There are no built-in survivorship benefits for spouse or children, nor is there a guarantee period

· On death any remaining balance can be passed on to your beneficiaries or estate. You determine this.

This option is only available to you if your transfer value is R1,5 million or more.

The two conventional Living Annuities selected by the Trustees are those offered by Allan Gray and Momentum.

For more specific information refer to Appendix 2.

We recommend that you take independent advice before selecting this option.

Retirement Annuity

Retirement annuity funds are almost identical to pension funds. People may invest in them as individuals in order to save for retirement and they offer tax-deductible contributions.

They have been referred to as “portable pension schemes” and are very popular among self-employed people. Pension and provident fund members also use them to increase their retirement savings.

At retirement, the member may take a maximum of one-third in cash and use the balance to invest in a pension for life. Unlike other insurance policies, these cannot be cashed in before age 55, nor can they be used as security.

By pooling the contributions of large numbers of members, access is provided to professional investment expertise. Members are usually given considerable freedom to choose from among a range of investment options.

As with any modern investment of this kind, the choice of how you invest your money will have enormous bearing on the ultimate benefit and professional advice may be appropriate.

The IBM Retirement Plan

This option is only available to members, who are still employed at IBM,

The IBM South Africa Retirement Plan is a defined contribution fund. It is a Hybrid Fund and has a Provident Fund section and a Defined Contribution Pension Fund section. As a condition of employment all new employees are automatically members of the Provident Fund. Employees also have the option of being members of the Defined Contribution Pension Fund.

The Employer's contribution, "core" contribution, of 10% of pensionable salary will always be credited to the Provident Fund.  Employees have a flexible rate of contribution of between 0% and 20% in the Provident Fund and between 0% and 7.5% in the Defined Contribution Pension Fund.

All costs of running the fund and paying insurance premiums for death and disability benefits are deducted from the core contribution. Employees’ contributions and the balance of the "core contribution" are credited to the member's savings accounts.

Members have the choice of investing their savings in a wide range of investment portfolios from, for example, guaranteed products to high-equity funds to a default portfolio consisting of a balanced mix of investments.

When a member leaves the Company for any reason, the full value of his/her savings in the fund/s is available to him/her.

Further information will be provided by IBM to the members concerned.

APPENDICES

APPENDIX 1

Detailed description of guaranteed products

1.1 With Profit Annuity

a) General

An annuity is purchased from an insurer and from it you will be paid a pension. The starting pension is guaranteed for the life of the principal member and when he/she dies a reduced pension for the life of the surviving spouse, if applicable, or if you have so elected.

The insurer determines your starting pension based on the amount of capital transferred, and your profile (factors including your age and that of your spouse, if applicable), and the Post Retirement Interest (PRI) rate. These are the same factors which have been used in valuing your pensions in the IBM fund. The PRI is effectively the minimum rate of interest (or investment return) that the retirement annuity fund must earn to cover the guaranteed annuity.

The insurer invests the assets in order to meet his contractual obligations to pensioners. For this type of annuity, the investment is generally a mix of bonds and equities which form a significant part. The equity element brings the potential for higher investment returns, which then translate into declared bonuses. If the net smoothed investment returns are say 9% p.a and the PRI rate is say 4% then the insurer will be able to grant increases of the difference (9% less 4%) i.e. 5% p.a. The improved pension resulting from the increase is also guaranteed for life.

There is no guarantee that increases will keep pace with inflation. Everything depends upon the performance of the underlying investments. Increases are “smoothed” which means that in times of good investment performance insurers hold back some of the returns and use these in times of low returns. The objective is to provide consistent increases.

If under the IBM Fund Rules your spouse is not eligible for a pension, you can change this at the time of purchase. However a portion of your transfer value will be used to pay for this additional benefit. The same spouse benefits will then apply as apply in the Fund. If no spouse’s pension is applicable now and you wish to include a spouse’s pension, please advise the Fund accordingly by providing the data required in the Option Form.

Once the annuity has been purchased, it is not possible to cash it in or switch it to another pension product. It can however be transferred to a guaranteed product at another insurer, at a cost.

With-profit annuities are a popular form of pension benefit because they offer a chance to share in the performance of the underlying investments and provide a guarantee that the starting pension itself plus increases granted can never reduce.

b) Metropolitan With-Profit Annuity

The fund is called the “Golden Growth” With-Profit Annuity.

The fund was established in 1998 and to date has grown to about 5000 pensioners with a total of R2 billion under management. The fund has over time declared above-inflation increases (past performance is however no guarantee for the future). The most recent increases have been:-

2007 increase of 12.2% versus inflation of 5.8%

2006 increase of 9.6% versus inflation of 3,6%

2005 increase of 6.0% versus inflation of 3,7%

The “Golden Growth” Fund has a substantial surplus. This means that the future increases expected are greater than those that would result from the corresponding investment returns alone. The insurer made a concession in allowing us entry to this over-funded and now closed fund. Consequently, in fairness to the existing pensioners in the fund, our increases will be reduced by 1,25% per year until we have reached parity with those people already in the fund. This reduction is in the opinion of our experts worth significantly less than the benefits the pensioners will derive from the overfunding and this was one of the reasons we selected the Metropolitan With-profit product. The additional assets that make up the over-funding should produce additional returns that exceed and so compensate for the 1,25% reduction. Furthermore, this product has the lowest ongoing cost structure. The combination of these factors results in a very good overall performance by the product.

A full annual pension increase, less the 1.25% adjustment, will be paid in January 2008 to pensioners outsourcing, even though they will only have been members of the Metropolitan Fund from 1 November 2007.

All initial charges are already included in the price of the product. Ongoing charges are lower than the allowance in the Valuation on which transfer values are based. This figure is also lower than the charges quoted by other insurers.

A pensioner choosing this option will be able to transfer money at a later stage from another retirement fund into this annuity and will be accommodated in the same pool. This facility will also apply to pensioners choosing the with-profit annuity within the Metropolitan Combination Annuity.

Metropolitan has an industry-first independent governance committee that oversees the operations of all smooth-bonus products, including the “Golden Growth” With-Profit Annuity. The committee’s role is to monitor important aspects of fund management such as confirming that assets are being managed in terms of stated mandates; verifying that bonuses are declared in line with the stated bonus declaration policy; ensuring that the fund is fully compliant with current legislative practice; and evaluating the long term performance of the fund.

The annual report is made available to all fund members.

Metropolitan will provide a help desk for advice on their products included in this brochure.

1.2 Inflation (Consumer Price Index) Linked Annuity

a) General

An annuity is purchased from an insurer and from it you are paid a pension. The starting pension is guaranteed for your life and a reduced pension for the life of your spouse, if applicable or selected, whoever dies last.

The insurer determines your starting pension based on the amount of capital transferred and factors such as your age and that of your spouse, if applicable. These are the same factors which have been used in valuing your pensions in the IBM Fund.

The insurer owns the assets. The underlying investment is generally in inflation linked bonds. The annual increases are based on the annual increase in Headline CPI. The insurer gives a contractual undertaking that the increases will be in line with this CPI. As this is an insured product structured on a predetermined basis, there is no reference to investment performance. It holds neither upside or downside potential.

With each increase, the improved pension resulting from it is also guaranteed for life. Its hallmark is the certainty that the increases will at all times be equal to inflation, subject to some exceptional circumstances (see below).

If under the IBM Rules your spouse is not eligible for a pension, you can change this at the time of purchase. The same spouse benefits will apply as apply in the Fund.

Once the annuity has been purchased, it is not possible to cash it in. It can however be switched to another guaranteed pension product or transferred to a similar product at another insurer, at a cost.

b) Metropolitan Inflation-linked Annuity

The guarantee provided by Metropolitan falls away in the event of the following events occurring in the same year:-

- Default of the underlying investment in inflation linked government bonds;

- No suitable alternative inflation- linked asset exists - in the opinion of Metropolitan;

- Inflation of 15% per annum for 3 successive years.

This is an unlikely situation to occur which Metropolitan nonetheless needs to protect against. Additionally, as with all such policies, any liability as a result of an unforeseen change in tax legislation will be passed on to you.

In the event of the guarantee to provide inflation-linked increases falling away due to the above circumstances, the contract between the pensioners and Metropolitan will revert to a standard with-profit annuity contract based on a post retirement interest rate of 4.0%.

The costs applicable to the inflation-linked annuity are both upfront and ongoing. However all the expenses are priced for and included in the cost of the outsourcing. No additional expenses are payable that are not priced in at inception. Therefore, the deduction of the expenses from the assets will not impact the pensioner’s future benefits.

1.3 Metropolitan Combination Annuity

This offering is a Guaranteed option that has two components: a With-profit Annuity, and a Capital-guaranteed Living Annuity. It is primarily intended to add a living annuity component to the pension of those with a transfer value of less than R1,5 M. It can also be selected by those with a transfer value of R1,5 M or more who want a living annuity that offers a capital guarantee.

Transfer Value less than R1,5 M

For people selecting this offer it will be mandatory, as a first step, to purchase the With-profit Annuity to provide a monthly pension at least equal to the IBM Fund pension in payment at outsourcing date.

The cost thereof will on average be about equal to your actuarial value and a portion of your reserves. The balance of your transfer value (remaining reserves plus surplus) can then be invested into the living annuity component.

Transfer Value of R1,5 M or more

No restrictions apply. There is no requirement to buy both components of the offering. Should you wish to invest totally in the Capital-guaranteed Living Annuity only, you can do so. Alternatively, should you wish to secure a portion of your pension using a With-profit Annuity and invest the balance in the living annuity component, you can do so. How much of your transfer value you wish to invest in each is your choice.

NOTE: The option of a flexible allocation to each is awaiting FSB approval.

The charges applicable to the Metropolitan Golden Growth With-profit portion of the annuity are as described in item 1.1 (b). Regarding the Metropolitan Living Annuity portion, there is an initial fee of 0.75%. The ongoing fees include an annual capital charge of 1.5% and an investment management fee of 0.60%. Furthermore, an administration fee of 0.4% will be applied to both the With-profit and Living Annuity portions of the Combination Annuity.

Please note that if you choose to invest in the Living Annuity portion only, an administration fee of 0.35% will apply.

If you use a financial advisor the fee is limited to 0.5% of the Living Annuity per annum.

Combination Annuity Characteristics

The With-profit Annuity component is the same as that given in the detailed product description of this type of annuity. The living annuity component is different to the conventional living annuities (Allan Gray and Momentum) in the following respects:-

· The investment is made into a capital-guaranteed fund managed by Metropolitan which uses a variety of asset managers for this purpose

· The capital that is guaranteed is the capital after bonus declaration less any withdrawals

· Normal withdrawal rules for living annuities (2,5% to 17,5%) will apply. Withdrawals up to 10% per annum can be made without affecting the capital guarantee and the pensions in payment. If your withdrawal rate is higher than 10%, and the market has declined in any given month, an adjustment may be made on the portion exceeding 10%

· The investment fund is a smooth-bonus fund with the bonuses declared each year being guaranteed and fully vesting. This means that the bonus, once declared, is fixed and is added to the balance of your investment account

· The only decision required of the pensioner is to annually select a withdrawal percentage for the year.

Other factors to note are the following:-

The Metropolitan Multi-Manager Smooth Growth Fund (Global) invests with a range of South African and globally-based asset managers. The Fund is designed to provide capital protection while targeting inflation plus 4% over the long term. The currently appointed asset managers are:

* Local Equity: Allan Gray, Foord, MetAM

* Bonds: Investec, Prescient, Prudential

* Global Equity/ Marathon, Brandes, Capital Int.

Bonds:

* Cash/Other: MetAM

* Property: MetAM

APPENDIX 2

Detailed description of living annuity products

a) General

A living annuity is simply an investment account from which you withdraw an income. The amount withdrawn is limited by SARS to a range of from 2,5% to 17,5% of capital per year. Income is usually drawn in monthly payments like a pension, although other payment options exist. The withdrawal rate can be changed once a year on the anniversary date of commencement. When you die, the residue can be left to a spouse or children, depending on who survives, failing which it goes to your estate.

With a living annuity you enjoy fully all the rewards of successful investment, but you also carry all the risk that this may not be the case. It is important that these risks be thoroughly understood. They are:-

· There are no guarantees of any sort

· You may withdraw too much too soon

· You may live longer than expected

· Your investment may not perform well

· The market may decline dramatically

The net effect of this is that secure increases in income depend entirely upon investment performance and the rate of your withdrawals. Income can of necessity decrease if the capital value drops too low.

Unlike a pension from a pension fund or guaranteed annuity, where your pension is guaranteed for however long you live, irrespective of market conditions, in a Living Annuity you cannot afford to consume all your capital too quickly in case you live longer than expected – unless you have other sources of income.

The percentage of drawdown is therefore a key consideration. In an inflationary environment of 5%, the Linked Investment Service Providers Association (LISPA) recommends pre-tax withdrawals of capital by age and gender as shown in the table below. The Trustees express no opinion on the validity of the numbers in the table and recommend that you discuss your percentage withdrawals fully with your financial advisor before deciding.

Indicative withdrawals (Table provided by LISPA for 5% Inflation)

Age	55	60	65	70	75	80	85
Male	5,5%	6,2%	7,3%	8,7%	10,7%	13,5%	17,5%
Female	4,8%	5,4%	6,2%	7,3%	8,9%	11,2%	14,6%

This table is based on averages and the indicative withdrawal rates may warrant a more conservative view. Some 50% of all people will live longer than their life expectancy. The table also does not take into account unpredictable medical advances which will extend the life spans of the elderly.

You are also reminded of the recently legislated duty of the administrator to monitor the underlying annuity capital and to reduce the rate at which an annuity is paid whenever the underlying capital becomes insufficient to provide an annuity for life.

If you are invested in a living annuity you have the option of converting to a With-profit Annuity at any age. This will ensure that the risk of living too long and running out of money is avoided. However, once you make this conversion it is irrevocable.

Should you become dissatisfied with your choice of the service provider of your living annuity, you have the option to transfer to another financial institution or insurer. There is a cost to such a move. A conventional living annuity can only be purchased if your transfer value is R1,5 million or more. There is no requirement to purchase a guaranteed product. To do so is a matter of choice. If you so choose, you can invest your entire transfer value into a living annuity.

Should you wish to protect a portion of your pension you can split your transfer value to provide both a guaranteed product and a living annuity. However, there is a stipulation by SARS that to do this, you must earn a minimum pre-tax income in excess of an annual equivalent income of R150,000 (i.e. R12500 per month) from either the guaranteed annuity or the living annuity, whichever one you choose for this purpose.

b) Service and Product Providers

Investment Linked Living Annuities are administered by Linked Investment Service Providers (LISPS) such as Allan Gray and Momentum. The term relates to the administration of a “platform” of investment funds from a range of investment houses. Most LISPS are either associated with life assurance companies or asset management houses which hold life licences. LISPS provide you with three services:-

- Access to a number of unit trust funds, shares or other specialised portfolios and products

-The ability to move between underlying investments

- Regular statements on the value of products you have invested in. The statement also details any changes to your investments, withdrawals, taxes and fees over a reporting period.

LISPS do not own your money. Your money is invested in the name of a custodian or nominee.

LISPS also do not provide financial advice. Normally, a LISP will only accept investments from you if you go through a financial advisor. However, an increasing number of LISPS will allow you direct access to their services.

LISPS differentiate from each other mainly through the range of the underlying investment options they offer and the resultant charging structures.

Charges are levied at a number of levels:-

- The cost of the LISP’s administrative platform

- The cost of the underlying investment management

- The financial advisor fees

- The cost of switching investments

Typically, fees are charged initially and on an ongoing basis. Financial advisor fees are negotiated between the investor and the advisor and are subject to a maximum rate determined by the LISP.

If you are unhappy with your LISP for whatever reason, you can transfer your investment to another LISP, for which there is a charge.

c) Investment Linked Living Annuity Options

Allan Gray Living Annuity

Allan Gray is recognised for its excellent track-record, service levels, low costs and the carefully selected range of excellent investment opportunities. The investor has the choice to structure his/her investment from the Allan Gray Suite of funds and from some 30 additional funds from the foremost asset management houses in South Africa. The range of funds offered is mainly general equity or asset allocation funds with different risk profiles. By avoiding the selection of specialised funds such as gold funds, small caps, etc, the platform provides a good foundation of investment choices erring on the side of safety.

The fee structure is completely transparent. There are no initial platform fees and the rebates received from the asset managers are passed on to the customer through a reduction of the annual administration fee. Investment management fees are industry standard and in some cases are performance-based, which means that the asset manager receives a little more in years in which it delivers a strong investment performance. Financial advisor fees are negotiated between the investor and the advisor. It is not mandatory to enter the platform through a financial advisor.

However, if the investor requires financial advice, Allan Gray has a list of financial advisors who can assist. Allan Gray has reached an agreement with those selected financial advisors that no initial advisor fees will be charged, while annual advisor fees are negotiable.

The asset allocation of the Allan Gray Living Annuity is monitored on an overall fund level to ensure that the Prudential Guidelines are met (Maximum 75% equities and 15% in overseas assets). This means that the asset allocation of an individual investor could deviate if the capacity permits it. However, at the present time, the Allan Gray Retirement Annuity Fund has no available capacity to invest in overseas assets for its members. IBM Fund members who choose this option will be allowed to invest up to the maximum of 15% of their investment in overseas assets.

For details of the funds and the charges please refer to the Allan Gray document included with the brochure.

Momentum Living Annuity

Momentum provides a vast range of investment options and products. In addition to more than 1000 funds available on its open platform, the investor has the choice of investing in shares, Exchange Traded Funds, multi-manager funds, capital guaranteed funds and annuities.

This provides opportunities to the sophisticated investor who wishes to make diverse investments and has the time and expertise to manage them personally.

However, a Core Portfolio range of funds, selected by Momentum from the more than 1000 funds on the platform, is available for investors who want access to a broad range, but that offers simplified choices.

Initial and ongoing administration fees on the open platform are based on a sliding scale. A special rebate of 0.25% was agreed with Momentum for IBM members who elect this option. Rebates in the Core Portfolio range are passed on to the investor, resulting in similar charges in the Core Portfolio to those of Allan Gray.

Initial and ongoing investment management fees are industry standard and in some cases performance-based. It is not mandatory to enter the platform through a financial advisor.

Financial advisor fees are negotiated between the investor and the advisor.

The investor has the option to invest up to 15% in offshore assets in his portfolio.

For details of the funds and the charges please refer to the Momentum document included with the brochure. The charging structure is complex due to the variety of options and it is recommended that you discuss it with your financial advisor.

APPENDIX 3

Choosing to remain a member of the IBM Fund

All members have the right to remain in the IBM Fund if they so choose. However, given the significant financial advantages to be gained by outsourcing, it is anticipated that almost all members will leave the Fund. With too few members left, it will no longer be practical to run the Fund. IBM will have to consider closing the Fund in these circumstances.

By electing to remain in the Fund, you will receive only half the share of surplus that you would receive if outsourcing. This half share will be used to fund an increase in pension or, if still an employee, to increase the capital value of your existing entitlement. The other half share will remain as unallocated (general) surplus held at Fund level. Also, as the Fund will be ongoing, the solvency reserve being paid to members leaving the Fund cannot be paid to those members remaining. It has to be retained as required by Financial Services Board regulations.

The terms agreed for outsourcing now only apply to the present event. When the Fund is terminated, the remaining members will be outsourced on terms that will be determined by the Company and the Board of Trustees in office at that time.

The current Rules of the Fund remain in place and the terms, conditions and benefits defined therein continue to apply. The present Pension Increase Policy of the Fund is to grant an annual increase equal to Headline CPI, if affordable, and subject to overall affordability, as determined by the actuary.

Given the level of unallocated surplus plus solvency reserve, the Fund will remain in a sound financial position and it is reasonable to assume that the increase policy will be maintained. This will be re-assessed by the Trustees after outsourcing has taken place, as will the investment strategy to be followed by the Fund.

APPENDIX 4

Sharing of Surplus

According to the terms of the Agreement two-thirds of the surplus will go to the members and one-third of the surplus will go to IBM.

Pensioners, Deferred Pensioners, Active Members and New Former Members (people who have left the Fund since January 2003) will share in the members’ share of surplus. At an individual level, this will be based on the ratio that the member’s actuarial reserve (liability) at the date of outsourcing bears to the sum of the actuarial reserves of all of the above. Depending on the time elapsed between leaving the Fund and the outsourcing date, new former members will receive a pro-rata share of the individual surplus.

Transfer Value

By way of simple definition, the following is meant by the terms used to describe the transfer value:

· Actuarial Value or Liability: The funding required to pay your present pension for life and thereafter for the lives of your dependants, if applicable. At a Fund level it is the sum of these individual values.

· Solvency Reserve: The funding needed in addition to the assets backing liabilities to protect the Fund against the consequences of potential investment losses. The level of reserve is formula-based and calculated by the Actuary in accordance with FSB regulations.

· Surplus: This is the excess of assets over the sum of liabilities and solvency reserves.

The transfer value will comprise of:

- an amount equivalent to the then actuarial value (liability) of the pensioner or deferred pensioner’s pension entitlement, or an active member’s future pension entitlement based on service up to that date, plus the actuarial value of any spouse’s pension and child’s pension (if applicable).

- your share of the solvency reserve.

- your share of the surplus as stated above.

As a rough guide based on the 2006 Interim Valuation, the solvency reserve and the surplus amounted to approximately 70% of liabilities. The post-outsourcing valuation could well produce a number that is somewhat higher. What this total increase in benefit will translate into as a pension increase for the individual member will depend on the age of the member, the age of the spouse if applicable and the option selected.

APPENDIX 5 – ABOUT THE INSURERS

Metropolitan

Metropolitan, a JSE Top-100 company, is the fourth largest listed life assurer in terms of market capitalization of R6 billion.  Metropolitan insures the lives of some 4,3 million South Africans and provides employment to approximately 8 000 people. The company has 72 offices throughout South Africa, Namibia, Botswana, Lesotho, Kenya, Ghana and Nigeria. The Head Office is located in Bellville. Metropolitan has the third most recognized brand in the insurance industry.

Metropolitan Employee Benefits, the division that provides the products offered to pensioners, is a provider of employee benefit solutions, offering tailor-made products and services centered around specific client needs. Metropolitan has focused its market niche on guaranteed pension and investment products and is the second largest assurer in this field with an increasing market share.

Over the past three years, Metropolitan Employee Benefits has been awarded the largest risk fund to be put out to tender, as well as the largest administration scheme. Last year it was awarded the biggest single premium annuity deal in the local insurance industry’s history.

Metropolitan Employee Benefits has a good reputation for its ability to deliver.

Momentum

Momentum is a wholly owned subsidiary of First Rand, one of the largest financial companies listed on the JSE. Momentum’s core business is life assurance, retirement and investment products and health service. Momentum’s group operating structure includes RMB Asset Management, Advantage Asset Managers and Ashburton. Momentum employs more than 3000 people. The Head Office is in Centurion.

Momentum’s living annuity was specifically selected because of the range of investment options it provides.

Momentum was awarded the first place as the Investment Product Supplier of the Year at the South African Financial Services Intermediaries Association (SAFSIA) partly because of this range offered.

Allan Gray

Established in 1974, Allan Gray Limited is the largest privately owned investment management firm in Southern Africa. Its clients comprise institutional investors - principally retirement funds, medical aid schemes and endowments - and individuals. Clients invest through either segregated accounts or collective investment funds.

Allan Gray is staffed by 550 people locally. The Head Office is in Cape Town with other offices in Johannesburg, Pretoria, Durban, Gaborone, and Windhoek. Allan Gray's global asset management partner, the Bermuda-based Orbis Group, manages a range of offshore equity mutual funds. The two groups share the same ethos and value-based investment approach.

Allan Gray entered the retail investment arena in 1998 with the launch of a focused suite of unit trusts. Since then it has continued to develop its investment platform, having brought it to a stage that signifies the completion of its objective to offer a simple and flexible product range that provides easy access to the Allan Gray suite of unit trusts and other investment funds. Such access can be both direct (Allan Gray Unit Trusts) or via the Lisp platform (Allan Gray unit Trusts and other investment management funds), with pricing parity across the product range.

GLOSSARY

Note: All terms are defined within the context in which they are used in this Brochure.

Actuary: A professional with specialist skills who determines the financial soundness of pension funds and insurer products. This is done by means of a Valuation. The actuary is accountable to the Financial Services Board for the reliability of the Valuation results.

Actuarial Value or Liability: See Liabilities. This value is calculated by the actuary for each member. This amount represents the reasonable expectation of what amount of money is required today to meet the Fund’s future benefit obligation to each member. The sum of these individual values equals the Fund’s liability towards all its members.

Annuitant: Someone who is in receipt of a pension paid from an annuity.

Annuity: A financial product into which an investment is made and from which a pension is paid. Annuities come in two forms: Guaranteed – where the pension is guaranteed for life; and Living – where the income (pension) amount is not guaranteed and neither is it guaranteed to last for the lifetime of the annuitant.

Assets: Money in all its forms such as Cash, Bonds, Shares and Unit Trusts.

Asset Manager: Someone who invests money on behalf of investors into the different types of assets with the objective of growing or protecting their value.

Benefit: The term used to describe a pension, pension increase or any other payment from either a pension fund or an insurer.

Bonds: An investment underwritten by Government, technically a loan from the investor to Government, in which money is committed generally for a fixed period at either a fixed or variable rate of interest. Bonds are regarded as “near-cash” in investment characteristics but should give higher returns than cash over the long term.

Bonus: The term used by insurers and financial institutions to describe an increase in benefit or pension increase.

Capital: The value of a member’s retirement funding interests, whether held in a pension fund, a living annuity or a guaranteed annuity product.

Capital Guarantee: When an insurer provides a capital guarantee, it undertakes that the member’s capital, although invested, will not reduce in the event of a decline in the value of the underlying assets. The cost of providing this guarantee is charged for in the price paid for the product.

Drawdown: The rate or percentage that members withdraw annually from the capital invested in a living annuity. The annual amount so determined is then divided up into the payment frequency selected – monthly, quarterly etc.

Equities: Shares that are traded on a Stock Exchange.

FAIS: An acronym for Financial Advisory and Intermediary Services. All practising financial advisors must be FAIS-accredited with the Financial Services Board which has set criteria for this purpose. Such accreditation identifies the person as suitably qualified to give financial advice.

Financial Advisor: A person who is qualified to assess an individual’s personal circumstances and suggest investment solutions that will best meet that person’s specific needs. They may work for an insurer, financial institution or be independent; generally charge a fee for advice given; and/or receive a commission for business placed with the service providers.

Financial Institution: An organisation other than an insurer (who also offers life assurance) and that deals in investment products. Examples would be Allan Gray, Investec, etc.

Funding Level: The value of assets of a pension fund or insurer product as a percentage of its liabilities plus reserves.

Governance: The rules by which any organisation conducts its business. It includes items like prudent management, sound business practices, transparency, equitable treatment and ethical behaviour.

Headline CPI: The official average annual percentage increase in the prices of a basket of goods and services, as determined by Stats SA, the government statistician.

Insurer: An organisation whose primary business is life assurance but which also deals in retirement funding products and investments.

Insurer Product: In this context, the range of annuities offered for the provision of pensions.

Liabilities: The funding required to pay a pension for life and thereafter for the lives of your dependants if applicable. At a Fund or insurer product level it is the sum of these individual values.

Market: The term used to describe the general environment in which all financial instruments (shares, bonds, unit trusts etc) are traded.

Outsourcing Date: The date on which members cease to be members of the IBM Fund and start to receive a pension from an insurer or other financial institution.

Post Retirement Interest (PRI) Rate: This is the minimum rate of interest (or investment return) that the insurer providing a with-profit annuity must earn to cover the guarantee implied in its product pricing. A PRI of 4% means that if investment returns in future exceed 4% plus inflation you can expect to receive inflationary increases. If inflation is at 6% per annum in the future the investment returns need to exceed 10% p.a. for actual increases to keep up with the rate of inflation.

Service Provider: The insurer or other financial institution from which members obtain their chosen products.

Smoothing: With regard to pension increases or bonuses, this is the practise whereby in times of strong investment performance some of the returns are held back to be given out in times of weak performance. The purpose of smoothing is to provide consistency of increases to customers.

Solvency Reserve: This is the funding needed, in addition to the assets backing liabilities, to protect the Fund against the consequences of potential investment losses. The level of reserve is formula-based and calculated by the actuary in accordance with FSB regulations.

Valuation: The calculations made by the actuary to determine the financial soundness of the pension fund or insurer product. The actuary calculates the Fund liability and reserves and determines whether there are sufficient assets to cover this amount.

Vesting: This is when a member acquires a lifetime right to a pension as well as to any subsequent increases or bonuses that follow.

With-profit Annuity: This is an annuity, paying smoothed annual increases, in which a significant part of the assets are invested in equities. It is the equity element that has the potential for higher investment returns. The smoothed returns less insurer costs and the PRI (see above) translate into increases or bonuses.

Withdrawal Rate: This term is often used with the same meaning as the Drawdown (see above).