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HSRC Annual Report 2016/17
PART E: Annual Financial Statements
12.6 Summary of valuation methods
12.6.1 Liability valuation method
The liability is taken as the present value of the employer’s share of active employee contributions projected into
the future using the probability of survival to retirement age and beyond, taking into account the assumed rates of
withdrawal and mortality. For each future continuation pensioner, the liability stops when the continuation pensioner
and any remaining spouse are assumed to have died. For each active member, this projection is based on the probability
of survival to retirement age and beyond, taking into account the assumed rates of withdrawal and mortality. For each
pensioner, the liability stops when the pensioner and any remaining spouse are assumed to have died.
12.6.2 Valuation method
In accordance with the requirements of GRAP25, the Projected Unit Credit method of funding has been applied. The
assumption underlying the funding method is that the employer’s post-employment medical scheme costs in respect
of an employee should be fully recognised by the time that the employee reaches fully his/her accrued age.
Although this liability only vests at retirement (or to remaining beneficiaries in the event of earlier death in early retirement
age) and is not necessarily affected by the length of service that an employee has had with the employer, accounting
standards require that the liability for in-service employees accrue uniformly while in service.
The employer’s liability is taken as the present value of the obligation to settle post-employment healthcare contributions
excluding the portion of contributions funded by the continuation pensioners.
It has been assumed that the medical contribution subsidies will increase in line with health care cost inflation. We have
made no allowance for volatility in the contributions due to fundamental changes in the underlying demographics of
the scheme.
Basis of valuation
The liability has been valued on a contribution basis, where the liability is valued as the present value of the post-
employment medical scheme contributions, in respect of the active employees and the continuation pensioners.
12.7 Analysis of past year and future projected liability
Year ending
31/03/2016
R’000
Year ending
31/03/2017
R’000
Year ending
31/03/2018
R’000
Opening accrued liability
4,290
3,476
3,294
AISA Liability
Current service cost
12
15
15
Interest cost
301
299
266
Actuarial loss/(gain)
(623)
(34)
-
Total annual expense
(310)
280
281
Contributions (benefits paid)
(504)
(462)
(441)
Closing accrued liability
3,476
3,294
3,134
13. Analysis of surplus
2017
R ‘000
2016
R ‘000
(Deficit)/Surplus recorded
(19,643)
31,545
Deficit recorded for the financial year is not as a result of overspending for 2016/17, but was as a result of utilisation of
prior year surplus. The surplus retention was approved by National Treasury in terms of Section 53(3) of the PFMA to
retain a surplus that had accumulated from the 2015/16 financial year. Approval was granted on 16 September 2016.
The balance of the approved surplus had been committed as at 31 March 2017.