The low 2.9% GEPF pension increase has created an outcry among GEPF pensioners. Many point out that the National Treasury used an annual inflation rate of 4.4% for the budget. So why are pensioners only receiving 2.9%?

I wrote an article in News24 explaining how pension funds use the inflation rate and how the date of the review matters.

The GEPF uses the November year-on-year price changes to determine the pension increases. It just happened that in 2024, the November year-on-year CPI rate was 2.9%. Yet in June the increase in inflation was 5.1% year-on-year.

The drop in the year-on-year inflation rate in November was largely due to the difference in the fuel price between 1 December and 30 November.

I commented that this led to a “lotto” system as the increase was affected by the review date.

Find more articles on the GEPF here

Brian Karidza, Head of Actuarial & Benefits Administration Services at the GEPF, wrote to me to explain that while there may seem to be a “lotto” effect, it still works out the same over time.

“I would like to provide some context and a detailed example to explain why the differences in increases between funds may not be as significant as they appear at first glance,” Karidza wrote.

What follows below is the GEPF’s detailed explanation of how the increase works.

The GEPF’s explanation

The feeling that pension increases are a “lotto” is understandable, but the GEPF does not fully agree with this view. This situation is similar to that of companies with different financial year-ends. If you compare investment performance over a year for companies with different end-of-year dates, you might get different values, even if both companies are performing well.

Pension increases work in a similar way – the increase amount depends on the specific increase date and the inflation measure used. What is important is to look at performance over a sufficiently long period.

Let’s illustrate this with an example. Consider two funds:

• Fund A grants increases in April based on the previous November year-on-year inflation.
• Fund B grants increases in September based on the June year-on-year inflation in that year.

Assume a pensioner started with a pension of R100 on 1 January 2021. If the pension were increased each month by the monthly inflation experienced in South Africa, it would grow to R124.47 by 1 April 2025. Now, let’s examine what would happen in Fund A and Fund B:

Now, let’s look at this in more detail. Both Fund A and Fund B provide amounts higher than the R124.47 that would result from monthly inflation adjustments by 1 April 2025. In most cases, Fund B will have a lower pension amount from April to August each year compared to Fund A, but it will be higher for the remainder of the year. If we look at total payments over the period from 1 January 2021 to 31 March 2025:

• Fund A would have paid a total of R5 728.48.
• Fund B would have paid a total of R5 709.32.

This means Fund A actually pays 0.34% more in total than Fund B over the same period. While this is a simplified example, it demonstrates that differences in payment amounts based on the timing of increases are often small when viewed over a longer period.

Unfortunately, members are not always prepared to conduct such detailed analyses, which can lead to the incorrect view that some funds are significantly better or worse than others.

It is true that many pensioners are struggling to keep up with the cost of living, but this is likely more related to having low savings at retirement rather than pensions not keeping pace with inflation. This is an aspect that is often overlooked.