Page 181 - WCPP Annual Report 2021-22_Draft #7.6.2

Annual Report for the 2021/22 Financial Year
Vote 2: Western Cape Provincial Parliament
Part E: Financial Information for the year ended 31 March 2022

Notes to the Annual Financial Statements

16. Employee benefit obligations (continued)

Key assumptions used

The legislature made use of an independent firm to perform the valuation of post -retirement medical aid benefits, long service

awards and once -off gratuity liabilit y. Julian van der Spuy B.Comm. (CERA)(FIA) and Chris van Wyk B.Comm. (Actuarial
Science), from ZAQEN Consultants and Actuaries were the experts for the valuation. The key assumptions used by the experts are
listed below for the last valuation on 31 March2022:
Post-Retirement medical aid benefit: Discount rates - Yield curve rate
Post-Retirement medical aid benefit: Medical aid contribution inflation - CPI+1%
Long service awards: Discount rates - Yield curve rate
Long service awards: Salary inflation - CPI+2%
Once-off gratuity: Discount rates - Yield curve rate
Once-off gratuity: Salary inflation - CPI+2%

The CPI (Consumer Price Index) is calculated based on the difference between the nominal and yield curves.

Sensitivity analysis

Deviations from th e assumed level of mortality experience of the current employees and the continuation members
(pensioners) will have a large impact on the actual cost to the Western Cape Provincial Parliament. If the actual rates of

mortality turns out higher than the rates assumed in the valuation basis, the cost to the Western Cape Provincial Parliament in the

form of subsidies will reduce and vice versa.
The effect is as follows by increasing and decreasing the mortality rates by 20%:

20% Mortality 20% Mortality
rate decrease rate decrease
Effect on the aggregate of the interest cost 974,000 760,000
Effect on defined benefit obligation 9,732,000 7,728,000

The cost of the subsidy after retirement is dependent on the increase in the contributions to the medical aid scheme before and

after retirement. The rate at which these contributions increase will thus have a direct effect on the liability of future retirees.

The effect is as follows for a 1% p.a. change in the medical aid inflation assumption:
1% Medical 1% Medical
aid Inflation aid Inflation
decrease decrease
Effect on the aggregate of the interest cost 808,000 901,000
Effect on defined benefit obligation 8,171,000 9,050,000

Deviations from the assumed level of withdrawal experience of the eligible employees will have a large impact on the actual

cost to the Western Cape Provincial Parliament. If the actual rates of withdrawal turns out to be higher than the rates assumed
in the valuation basis, then the cost to the Western Cape Provincial Parliament in the form of benefits will reduce and vice

versa.

The effect is as follows by increasing and decreasing the withdrawal rates by 20%:

20% 20%
Withdrawal Withdrawal
decrease increase

Effect on the aggregate of the service cost and interest cost 1,567,000 1,436,000
Effect on defined benefit obligation 6,921,000 6,461,000

The cost of the long service leave and gratuity payment is dependent on the increase in the annual salaries paid to employees

and political office bearers. The rate at which salaries increase will thus have a direct effect on the liability.

The effect is as follows for a 1% p.a. change in the Normal Salary inflation assumption:

Annual Report for 2021/22 Financial Year Page 166