RAND WATER PROVIDENT FUND ANNUAL REPORT 2022-2023

RAND WATER PROVIDENT FUND PF12/8/31942

RAND WATER PROVIDENT FUND 2022-2023 REPORT ANNUAL

RAND WATER PROVIDENT FUND ANNUAL REPORT 2022-2023

Rand Water Provident Fund Annual Report | 2022-2023 1

CONTENTS PART1:GeneralInformation............................................. 3 • AboutRandWaterProvidentFund.............................................. 3 • OurStakeholders........................................................... 4 • Ourvalues,cultureðics................................................... 5 PART2:ExecutiveReports.............................................. 6 • ReportbytheChairperson.................................................... 6 • PrincipalOfficer’sReview..................................................... 7 • ForewordbyFundingManager............................................... 12 PART 3: Rand Water Provident Fund Strategy. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15 • MandateoftheFund....................................................... 15 • FundRiskManagement..................................................... 15 • TopResidualRisks. ....................................................... 16 PART4:GroupGovernance............................................. 19 • GovernanceStructure...................................................... 19 • CompositionandTermoftheBoard............................................ 20 • AuditandRiskCommittee................................................... 20 • InvestmentCommittee...................................................... 21 • StatementofCompliance. .................................................. 23 • TreatingCustomersFairly. .................................................. 24 • MemberCommunication.................................................... 25 PART5:AnnualFinancialStatement...................................... 27 • Regulatoryinformation*..................................................... 28 • Statement of responsibility by the Board of Fund*.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31 • Statement of responsibility by the Principal Officer*.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33 • ReportoftheIndependentAuditor............................................. 34 • ReportoftheBoardofFund*................................................. 37 • Statementofnetassetsandfunds............................................. 41 • Statementofchangesinnetassetsandfunds.................................... 42 • Notestothefinancialstatements.............................................. 43 • Reportofthevaluator...................................................... 54 • Report of the independent auditor to the Registrar of Pension Funds.. . . . . . . . . . . . . . . . . . 55 • Investment schedule pertaining to annual financial statements. . . . . . . . . . . . . . . . . . . . . . . 94 • AssetsheldincompliancewithRegulation28.................................... 98 • Report of the independent auditor on compliance with Regulation 28 totheRegistrarofPensionFunds............................................ 100

2 Rand Water Provident Fund Annual Report | 2022-2023

PART 1 About Rand Water Provident Fund

This report provides a succinct and balanced view of our value creation story. Our report shares our strategic journey to becoming our members’ first choice to sustain, grow and protect their prosperity. This report is primarily aimed at our members but will be of interest to all our stakeholders wishing to understand our unique value creation story. Vision: To be the leading and preferred industry player in the administration of Retirement Funds by providing excellent customer service based on best fit technology. Mission: To consistently meet the expectations of Rand Water Provident Fund members • To provide an effective and efficient service by paying claims timeously. • To maximise returns for our members and in so doing provide superior service and aspire to be the administrator of preference. • To build and maintain a financially sound provident Fund. • The use of best fit technology for member information/ education through innovative programs. Strategic Objectives : • Achieve Operational Integrity and Use Best Fit Technology

• Achieve a High-Performance Culture • Positively Engage Stakeholder Base • Achieve Growth • Maintain Financial Health Strategic Objectives

FUND’S STRATEGIC PILLARS

ACHIEVE FUND GROWTH

BEST FIT TECHNOLOGY

MAINTAIN FINANCIAL HEALTH

COMPLIANCE REQUIREMENTS

POSITIVELY ENGAGE MEMBERS

Deliver a member centered fund through operational excellence. Regular flow of information to members. Improved customer survey results. Attention to member feedback. Treat customers fairly.

Understanding the Fund’s risk factors. Mitigate the Fund’s risk factors. Optimization of

Use of Web based technology. Pursue process automation to achieve accuracy and efficiency. Continuous exploration of innovative solutions linked to business priorities.

Review of investment strategy. Monitoring of investment performance. Ensure appropriate replacement ration for members to retire comfortably.

The Fund has complied with all governance and statutory requirements. The Fund complies with regulatory bodies South African Reserve Bank, South African Revenue Service & Financial Service Conduct Authority.

Investment performace.

Rand Water Provident Fund Annual Report | 2022-2023 3

Our Stakeholders

At Rand Water Provident Fund, we champion mutually positive futures for our stakeholders and our business. Accordingly, we act ethically and with intent to ensure our core business activities create sustainable value for the members while also remaining cognizant of our impact in our communities and addressing the needs of broader stakeholders and the environment. Members: Our members are the lifeblood of our business, and we aim to be their first choice. Our member’s base is made up of all permanently employed Rand Water employees. Employer: Rand Water is the employer and the administrator of the fund. It is Africa’s largest water utility, having been in operation for 120 years. Water is primarily distributed via a 3 056km network of large diameter pipelines through which 58 strategically placed service reservoirs are fed. On an average peak day, only 4696 Mℓ/d is supplied against a demand of 5045Mℓ/d. Rand Water Provident Fund aligns with the objectives of the employer. Therefore, the employer’s objectives are cascaded throughout the organisation. Regulators: Other significant stakeholders include regulatory bodies such as the Financial Services Conduct Authority in the financial services sector, the South African Reserve Bank as the prudential authority, and the South African Revenue Services, as well as communities where Rand Water has a significant presence, industry bodies and our peers in the retirement sector. The Fund also has a number of vital contractual stakeholder relationships – for example with Investment Multi managers, our internal and external auditors, and our Consultants – whose skilled professional services are critical to our business. Our business is driven by a desire to improve retirement outcomes. The Fund seeks ways to deliver increased value to contributing members by using funds to create “value add”. We believe our ESG policy will benefit South African communities.

4 Rand Water Provident Fund Annual Report | 2022-2023

Our values, culture & ethics

We contend that conducting business responsibly requires an ethical culture. In order to instill stakeholder confidence in our business, we make sure that we lead with honesty and respect, which is fundamental to the development of this work environment. We foster a culture where administration and oversight structures are aligned with organisational values. As a result, our values guide our interactions with all our stakeholders. Our culture is key to our ability to deliver on our strategic ambitions. We made significant strides in redefining our purpose and values. Employee engagement surveys are administered annually to gather input and track the success and integration of our cultural journey. The survey sheds light on the difficulties that must be overcome in order to effectively carry out and fulfill our culture. We concentrate on the aspects of our culture model related to psychological safety and employee engagement because these are the cornerstones that create high-performing teams and organizations. Ethics set the standards for our corporate governance. We strive to conduct our business responsibly and ethically, and to ensure our behaviour is consistent with our policies, code of ethics, and relevant regulations applicable to the sector.

OUR VALUES - Equity - Integrity - Spirit of partnership - Excellence - Caring

Rand Water Provident Fund Annual Report | 2022-2023 5

PART 2 Report by the Chairperson

Just as the world appeared to be returning to normal following two years of a global pandemic, a series of economic, market and geopolitical headwinds resulted in 2022 and 2023 being beset with challenges. Our unwavering focus on our purpose, as well as knowing that we exist for our members, held us in strong stead amid the ever-changing market environment. This inspires us to find effective and innovative ways to support and care for our members in unprecedented circumstances. This report presents our results as at 30 June 2023, reflecting a year of progress during which the RWPF demonstrated its standing as a member-centered fund that delivers sustainable results for its membership. In the past two financial years, we have undergone a significant change that immensely impacted our lives. Our loved ones left us

Dr V Mello Chairperson of the Board

Dr V Mello Chairperson of the Board

Ms MS Nyembe Principal Officer

unexpectedly, and we became isolated as people. The Rand Water Provident Fund strived to ensure that its members do not have to worry about losing their funds, risk cover, or access to services during the hard times. Despite great uncertainty in both the international and local environments, we managed those factors within our control and monitored closely those beyond our control, ending the year in a strong position to respond to the many changes occurring in our industry. Globally, hybrid business models, which combine working at home and at the office, have contributed to growing concerns about data privacy and cyber threats. During this period, the fund has adopted a strategic framework in compliance with the protection of personal information act and to deal with cyber threats. While increased regulation is aimed at safeguarding and protecting the interests of provident fund members, it also imposes a burden in terms of capacity and resources. Compliance and monitoring requirements are more stringent, and this heightened scrutiny comes with associated costs. Our provident fund must adapt to these evolving regulatory landscapes to ensure that we continue to effectively manage and protect the financial well-being of our members while managing the operational challenges posed by increased regulatory demands. The ongoing volatility in markets may allow unsustainable investments to infiltrate the financial system. Therefore, institutional investors and financial institutions must strengthen their corporate governance protocols for environmental, social and governance (ESG) implementation and compliance. Strengthening the Fund’s sustainability, as it is for all responsible corporate citizens, and the crafting of our ESG policy and strategy during the year was a significant step in the direction we have plotted. The framework is comprehensive and gives us a strong foundation on which to base our investment decisions, incorporating ESG elements that ensure we contribute to a better South Africa and a safer world. The Board maintained its focus on the Fund’s responsible operation and keen oversight of operations. The Board continued to take a long-term view on investment over short-term volatility, as our strategies have proven to return targeted returns over recommended holding periods. Mr ML Ncobela Funding Manager

6 Rand Water Provident Fund Annual Report | 2022-2023

Principal Officer’s Review

Dr V Mello Chairperson of the Board

The local economy experienced loadshedding intensity throughout the financial year from 1 July 2022 to 30 June 2023, despite cold winter weather. It appears the extreme pessimism, including fears of further loadshedding stages or even complete grid collapse, were exaggerated. In reality, the economy has shown to be more resilient than expected. This is not to suggest that the worst is over, just that the economy is not collapsing. There is no doubt that consumers are feeling the squeeze, and despite all the focus on the negative economic impact of loadshedding, consumer spending remains the largest component of the domestic economy and it is vital to understand the health of household finances. Following a 13-month breach, headline inflation eased back into the 3-6% target range in June 2023, and dropped to just above the target midpoint in August. Core inflation, however, remains high relative to the pre-pandemic Ms MS Nyembe Principal Officer

Ms MS Nyembe Principal Officer

trend and risks to both headline and core inflation are elevated. The South African economy is now forecast to grow by 0.7% in 2023 due to stronger than expected investment and continued spending. Our aspirations and our goals in the work we do for our members, alongside our partners, are defined in our purpose: to meet our members’ retirement needs. Our objective of the retirement fund is to provide members with an adequate retirement benefit and to provide benefits to dependants upon the death of a member. In doing so, the fund wishes to be effective, impactful and to create value now and into the future. Our approach to everything we do is rooted in our values-driven culture and our commitment to being an engaged and thoughtful corporate citizen that cares deeply for the wellbeing of our members, our industry, and our society. Rand Water Provident Fund has a fiduciary duty to act in the best interest of its members whose benefits depend on the responsible management of fund assets. This duty supports the adoption of a responsible investment approach to deploying capital into markets that will earn adequate risk adjusted returns suitable for the fund’s specific member profile, liquidity needs and liabilities. Prudent investing should consider any factor which may materially affect the sustainable long-term performance of a fund’s assets, including factors of an environmental, social and governance character. ENVIRONMENTAL, SOCIAL AND GOVERNANCE (ESG) FACTORS Environmental, social and governance (ESG) forms an integral part of Rand Water Provident Fund’s investment strategy. • The Fund is socially conscious of the impact of investments to the South African communities at large. • The Fund also considers good stewardship of nature and the impact of investments to the environmental. • The Fund considers the influence of investments to the generally accepted principles of good governance. Mr ML Ncobela Funding Manager

Rand Water Provident Fund Annual Report | 2022-2023 7

• In evaluating asset managers, the fund considers the extent to which the asset manager uses ESG rating factors to assess the investment merits of stocks and other instruments. • Although asset managers who do not utilise ESG in their rating criteria are not excluded, they will receive a lower score on this rating. High Level Overview

Defined Contribution Fund The Fund has recently added new contribution. Classes tailor made to meet members needs.

Maintaining a good reputation for integrity and excellence

Audit Matters

Drive social transformation through B- BBEE and impact-investing or social and envirmental good.

Financial Matters The Fund has experienced a good investment performance of R 518 million The Fund has a net surplus of R 1.9 million for the year.

Our Status

Internal and External Auditors have been given unrestricted access to all financial records. The Reserve Bank has conducted an inspection on the Regulation 28 quarterly submissions. All significant matters are reported in the Annual Financial Statements.

The fund maintained a sound valuation status.

Strive for outstanding corporate governance. Communicate our brand value and strength to all significant stakeholders.

Financial Highlights and achievements of the past year Our assets under management grew from R3.6bn to R4.2bn, a remarkable feat in a lacklustre market. We registered a one-year return of 12.2% as combined total return from our investment portfolios. The Fund has obtained actuarial exemption in the current year until 2026. Assets and liabilities are 100% matched in a defined contribution fund. This gives our members the necessary comfort and peace of mind that the Fund continues to be financially secure. During the year, we reviewed our investment strategy and approach to ensure improved resilience within our portfolio in order to withstand market volatility while achieving the required long-term returns. As a result, we are investigating impact investments as part of our responsible investment drive. Financial Highlights 30 June 2023

1

2

3

4

5

6

MEMBERSHIP SIZE Membership slightly increased due to a high number of new engagements. FUND MEMBERS 3467 (2022: 3399)

FUND PERFORMANCE Surplus current year as a result of low administration costs. NET SURPLUS YTD R 1.9 million (2022: R 1.5 million)

INVESTMENTS Good investment performance over 12 months ending June 2023. GROSS RETURN ON INVESTMENTS YTD 12.2% 12 Months to June 2023 (2022: 3.84%)

ADMINISTRATION COSTS ADMINISTRATION COSTS INCLUDES ADMIN FEE PAYABLE TO THE EMPLOYER. R 14 million 60% of the admin fee is payable to the employer.

RELATIVE CONTRIBUTION LEVELS FUND CONTRIBUTION R 328 million (2022: R 306 million)

ACCUMULATED FUNDS ASSET AND LIABILITY MATCHING (100%).

R 4.2 billion (2022: R 3.6 billion)

8 Rand Water Provident Fund Annual Report | 2022-2023

Performance Snapshot

Current Liabilities

Current Assets decreased to 2023: R29.1m 2022: R50.9m

Investments up by 16.67% to 2023: R4.22b 2022: R3.66b

decreased to 2023: R50.9m 2022: R90.7m

Re-insurance Proceeds decreased to 2023: R12.9m 2022: R33.4m

Total Assets increased to 2023: R4.28b 2022: R3.71b

Net Surplus R1.9m Increased by 2023: R1.9m 2022: R1.5m

Member Accumulated Balances increased to 2023: R4.2b 2022: R3.6b

Transfer to Member Accounts Increased to

2023: R603.5m 2022: R82.8m

Contribution and claims

600

500

400

300

200

100

0

2014

2015

2016

2017

2018

2019

2020

2021

2022

2023

Contribution

155

168

184

206

233

253

278

301

306

328

Claims

76

143

132

106 51%

155 67%

142 56%

182

261 87%

513

198

Claims Ration

49%

85%

72%

65%

168%

60%

Claims ratio is 60%

Rand Water Provident Fund Annual Report | 2022-2023 9

Claim per category

01

05

03

2023: 5 2022: 3 Disability

2023: 60 2022: 32 Withdrawals

2023: 29 2022: 105 Retirements

04

02

2023: 27 2022: 25 Divorce

2023: 16 2022: 29 Death

Administration costs

2019 R10.9

2020 R11.8

2021 R12.8

2022 R13.1

2022 R14.1

Administration costs have been kept at 4% of Contributions year on year.

10 Rand Water Provident Fund Annual Report | 2022-2023

TRANSFORMATION • Overcoming economic disparities and inequalities in our society has become a major focal point within the Financial Services Sector. Rand Water Provident Fund has made significant strides in this regard. • Rand Water Provident Fund is committed to both the principle and the practical implementation of B-BBEE Policy. The Fund has adopted and implemented B-BBEE policy on investments. • Our investment managers have continued to make strides in not only transforming their businesses, but also investing in initiatives aimed at bridging our South African Gini coefficient. • Rand Water Provident Fund pursues a broad-based empowerment drive that will fast-track the inclusion of marginalized people in the mainstream economy. The Fund has appointed two black Asset Multi-Managers All forward-looking statements, by definition, involve inherent risk and uncertainty because they are based on assumptions related to future events and circumstances beyond our control. Examples include economic and business conditions, as well as market-related risks such as equity fluctuations, interest rates, inflation, and deflation. These circumstances could arise from the impact of competition, legislation, and the policies and actions of regulatory authorities, as well as the timing and impact of any uncertain industry changes. In the year ahead, the Board will continue to strengthen governance across the Fund and ensure that members are serviced to the best of the Fund’s ability. Government’s proposed two-pot pension system is stirring interest among our stakeholders. Scheduled to come into effect on 1 September 2024, the system will allow pension fund members to access one-third of their future retirement savings during their working life, subject to annual limits, while the remaining two-thirds will be preserved until retirement. The Fund has made significant strides to ensure our readiness. All efforts and changes implemented within the Fund are tactically aligned to our key objective of delivering a member-centric service to our members. This will remain one of our focus areas for the year ahead. We will continue to strive to be the Fund of choice and to positively impact the lives of our members.

Rand Water Provident Fund Annual Report | 2022-2023 11

Ms MS Nyembe Principal Officer

Foreword by Funding Manager

For the financial year ended 30 June 2023, the Rand Water Provident Fund delivered a solid investment result. This performance was underpinned by growth. over the 12-month period ending June 2023, the industrial sector led the way with a 34% return, while financials delivered 14%. Resources lagged with a 2.9% return. The local listed property sector was marginally positive in June. However, due to particularly weak patch a year ago, the 12-month return is ahead of cash at 8.9%. South African nominal bonds rebounded; May was one of the worst months since the inception of the All-Bond Index in 2000. The ALBI returned 4.6% in June, pulling year-to-date returns into positive territory at 2%, though still behind cash. The 12-month return is above cash at 8.2%, with the high level of interest income more than offsetting the recent capital volatility. Inflation-linked bonds were also positive, gaining 1.2% in the month and 1.1% over Mr ML Ncobela Funding Manager

Mr ML Ncobela Funding Manager

12 months. The rand also clawed back some lost ground, gaining 5% against the dollar to end June and the first half at R18.89 per dollar. The rand is still 13% weaker against the dollar over the past 12 months, providing a major boost to the returns of global assets from the point of view of South African investors. The Fund’s investment portfolios are suitably diversified and managed to optimise returns within our approved investment mandates. Asset allocation is managed and monitored by our multi-managers, while ensuring sufficient liquid funds are available to meet claims and other liabilities as they fall due. Given the nature of funds liabilities, a portion of our assets are invested in cash and money market instruments and quarterly rebalancing is performed. The fund earned a gross investment return of 12.2% for the 2022/23 Financial Year. This is how our different strategies performed over the year 2022/2023. Investment Returns

RW Inflation 5-7

RW Inflation 3-5

RW Inflation 1-3

0.00%

2.00%

4.00%

6.00%

8.00%

10.00%

12.00%

14.00%

16.00%

Returns

Target

12 Rand Water Provident Fund Annual Report | 2022-2023

Investment performance:

INDICES as at 30 June 2023 Index JSE All Share Index (ALSI) JSE Capped Swix All Share index

12 Month June

19.60% 13.50% 34.20% 14.10% 3.00% 10.00% 8.20% 6.80% 37.10% 6.30%

JSE Industrials JSE Financials JSE Resources

SA Property

All Bond Index (ALBI)

Money Market (SteFI) Composite

Global Equities Inflation (CPI)

Asset allocation analysis and risk budgeting are used to calculate the weightings for the different sources of return. Asset allocation analysis is conducted to determine the optimal mix of asset classes best suited to deliver the expected return. Risk budgeting is used to ensure that we are rewarded for every unit of risk that we pick up. Specialist asset managers are selected by our Multi-Managers within each asset class following a thorough due diligence and selection process, and are given appropriate asset class benchmarks to beat. The portfolios will display short-term volatility but have a higher probability of delivering target or outperformance over the long-term.

Returns History

25.00%

20.00%

19.20%

17.40%

15.00%

15.08%

% of Returns

12.20%

10.00%

8.49%

7.88%

7.17%

5.00%

3.71%

3.80%

1.85%

0.40%

0.00%

2013

2014

2015

2016

2017

2018

2019

2020

2021

2022

2023

Average returns over 10 years is 9%.

Rand Water Provident Fund Annual Report | 2022-2023 13

Moderate Portfolio Rand Water Provident Fund Inflation Plus 3-5%

SA Equity SA Long/Short Equity SA Fixed Income SA Enhanced Income SA Property International Equity International Property International Fixed Income Alternative Investment

1%

3%

2%

5%

7%

30%

12%

16%

24%

Aggressive Portfolio Rand Water Provident Fund Inflation Plus 5-7%

SA Equity SA Long/Short Equity SA Fixed Income SA Enhanced Income SA Property International Equity International Property International Fixed Income Alternative investment

3%

4%

31%

41%

3% 1%

7% 2% 8%

The Fund utilises pooled multi-manager investment vehicles. The investment choices, voting and engagement with individual counters or stocks are therefore delegated to the underlying asset managers who manage the assets in accordance with their investment mandate. The Trustees consider that the robust responsible and sustainable investing approach adopted by the Fund, despite this limitation, is able to achieve the key goal of incorporating ESG factors into investment decisions to enable better management of risk and generate sustainable, long-term investment returns.

14 Rand Water Provident Fund Annual Report | 2022-2023

PART 3 OUR MANDATE

The Rand Water Provident Fund was founded in accordance with the Pension Fund Act, 1956 (Act No. 24 of 1956) and the regulations made in terms of the Act. The Financial Services Conduct Authority, an autonomous statutory body created by Government to govern pension funds, regulates the fund. The FSCA may also publish guidelines and requirements for disclosure to assist the Principal Officer and the Board of Fund to establish and maintain adequate and effective processes of corporate governance. Our mandate is to help our members enjoy a better financial future. We exist to provide retirement and other benefits to eligible employees of participating employers, and to their nominated beneficiaries in the event of death. Our ability to fulfil our purpose rests on sound governance, faultless administration and appropriate investment performance. Given that investment performance and member-centricity are key focus elements that are closely linked to our aim of realising our ambition, we frame our value proposition around the way in which we compare to our industry peers. We strive to nurture and strengthen our relationship with stakeholders, in particular our members and participating employer. During the year under review, the Rand Water Provident Fund has continued with its mandate of providing members and their beneficiaries with retirement benefits. Everything we do as a Fund is underpinned by our guiding purpose, which is to create and sustain a tangible financial legacy for future generations by providing retirement benefits to members and beneficiaries in the event of death. Our ideal replacement ratio is 100% which is higher than industry norm, ensuring that members will be able to maintain their lifestyles when they retire. We have a reputation as a high raking fund in terms of our net replacement ratio. The Fund has a risk management framework, through which the Board establishes and oversees an effective risk management system that extends to every employee. The Finance Department is responsible for risk management and supports operations management in identifying and controlling risks. It provides reasonable assurance to management and the Board that a sound risk management framework is in place. It is the custodian of operational risk management processes like the cyber risk management, business continuity management, project risk management and investment compliance. The department also collaborates with other divisions within the Rand Water Group to ensure compliance with applicable laws and regulations. Our Risk Management framework sets out the overall philosophy, principle, requirement, and responsibilities for a sound approach to risk management and continuous internal control assurance required by the fund. The fund is aware of its responsibility for the governance of risk and has adopted this framework and implemented a system and process for the identification, evaluation and management of identified risks. This is continually reviewed and monitored by the Audit and Risk Committee to ensure that it assists in setting and achieving the fund’s objectives. Fund Risk Management

Rand Water Provident Fund Annual Report | 2022-2023 15

An Active risk management Framework ensures our Fund’s long-term viability and growth, as well as our ability to create long-term value for all our stakeholders. Our risk management process is designed to continuously monitor the internal and external environment for the purpose of identifying any conditions or changes that may require us to mitigate the related risks. This ensures that we remain within our risk tolerance, achieve our business plans and realise our strategic objectives. The fund ensures that the framework considers the risks, opportunities, and other significant matters connected to the context in which the fund operates. It emphasises the legitimate and reasonable needs, interests and expectations of material stakeholders. In the year under review, the organisation held a risk assessment workshop that was internally facilitated by Fund consultants. The workshop reviewed the organisation’s business strategy and undertook an internal and external environmental scan to identify the risks that would impact the fund’s operations.

Top Residual Risks

No Risk Name

Risk Description

1

Market risk (capital loss and volatility)

Market risk is the risk that the value of a financial instrument will fluctuate as a result of changes in the market. Market risk applies to all investments accounted for at fair value. The Fund’s tolerance for volatility risk will be assessed when setting the investment strategy. The risk is recognised by the Board in setting the investment strategy. Increased volatility typically results in increased chances of incurring a capital loss over the short term, and there is a risk that this is not adequately captured in the approach to investment for members approaching retirement. Not being able to provide members with an appropriate Replacement Ratio. Not understanding the impact of decisions affecting the RR factors and not being able to provide benefits to dependents upon the death of a member. Lack of business continuity and institutional intellectual capital/ loss of skills due to no succession plan being in place. Inadequate training to equip trustees to fulfil duties. Lack of understanding of Fund’s objectives. Risk that inadequate investment returns are achieved compromising potential RRs that could be achieved. The risk that there are too many portfolios to choose from and/ or the portfolios selected are not risk profiled to suit the Fund members.

2

Negative real returns This arises if the nominal returns fall below the rate of inflation, and the real value of assets declines over time. This will impact dramatically on the ability to achieve targeted Replacement Ratio.

3

Not achieving the Fund’s main objective

4

Inadequate and loss of knowledge of trustees

5

Inadequate investment returns

6

Member Choice

Investment

16 Rand Water Provident Fund Annual Report | 2022-2023

No Risk Name

Risk Description

7

Market timing

Market timing is an investment technique where the investor seeks to improve long-term returns by correctly anticipating major moves in asset class prices. Empirical evidence suggests that in practice, market timing more often reduces than increases returns as human nature is such that it is very difficult for a typical investor to sell assets when markets are at their peak and sentiment is positive, or to buy assets when markets are depressed.

8

Inadequate mandates Risk that the mandates provided to the asset managers/portfolios selected are not suitable to achieve the Fund’s objectives.

9

Ineffective monitoring of investments Ensure protection of personal information as required by Act

Short termism and inappropriate comparisons because of not understanding the strategy, may lead to value destroying changes. Risk that personal information relating to members may not be adequately protected.

10

Rand Water Provident Fund Annual Report | 2022-2023 17

Top Ten Risks

1

Inadequate mandates 6

Market risk (capital loss and volatility)

2

7

Ineffective monitoring of investments)

Negative real returns

3

8

Not achieving the Fund's main objective (RR)

Inadequate investment returns

Succession planning for employer trustees and their

4

alternates 9

Member Investment Choice

5

Information 10

Protection of Personal

Market timing

18 Rand Water Provident Fund Annual Report | 2022-2023

PART 4 Group Governance

Governance Framework

Members

5 Member Elected Trustees

5 Employer Appointed Trustees

Board of Trustees

Governance

Risk Management

Statutes & Regulations

Organizational Strategy

Board of Trustees Sub Committees

Governance

Oversight level

Principal Officer

Fund Operations

level

Organizational Performance

Combined Assurance Framework

Governance, Risk & Compliance

Governance Operational

Rand Water Provident Fund Annual Report | 2022-2023 19

Composition and Term of the Board

The Board of Trustees consist of ten (10) trustees who are fit and proper to manage the business contemplated by the Rand Water Provident Fund in accordance with the applicable laws and the rules of the fund. Five (05) of such trustees must be elected by members who are known as member representatives. They will also elect an alternate from among their number to act in the absence of each trustee. The other five (05) trustees shall be appointed by the employer, Rand Water, as employer representatives. A Member of the BoT is appointed for a period of four (4) years. At the end of this term, both the Member and the Employer Trustee shall cease to hold office, but will be eligible for re-election for an additional four-year term.

Audit and Risk Committee

The Audit and Risk Committee is established as an independent statutory committee with the authority to execute its obligations in terms of the Pension Fund Act No 24 of 1956. In carrying out its mandate, the Audit and Risk Committee is authorised to have full, free, and unrestricted access to all the activities, records, property, and staff of the Fund. The Committee shall be constituted of at least five members, at least four of which shall be members of the Board of Trustees. Members are appointed for a four-year (4) term and may be eligible for reappointment for an additional four-year term. Notwithstanding this provision, not more than two members of the Audit Committee will be changed simultaneously. The primary role of the committee is to assist the board with all matters pertaining to governance, risk and compliance of the fund, as well as to interrogate all audit matters including third party assurance reports and inspection reports from regulators. The Fund applies a combined assurance approach with five levels of defence: • Management of the Fund oversees the daily internal controls and implements the risk management strategy of the Board of Fund. • The internal legal, risk and compliance functions ensure that the Fund adheres to the requirements of applicable legislative frameworks. • Our internal auditor function assesses the effectiveness of the internal controls, governance and risk management. The Audit and Risk Committee (ARC) of the Fund applies a coordinated approach to the combined assurance provided. The Board of Fund, also known as the Board of Trustees (the Board), serves as the ultimate fiduciary control. • Our external auditors, Mazars, express an opinion on our regulatory annual financial statements. The Fund’s valuators, Alexander Forbes, provides assurance on the solvency and sustainability of the Fund. • The fifth line of assurance consists of regulatory inspectors and licensing authorities. In the context of the current regulatory landscape, regulatory reviews provide a final overlay of external assurance which is entirely independent.

20 Rand Water Provident Fund Annual Report | 2022-2023

Combined Assurance Model

Board of Trustees Audit & Risk Committee

Senior Management

4th line of defense

3rd line of defense (Assurance Providers)

2 nd Line of defense

1 st line of defense

Risk Management

Integrity Probity and Assurance (IPA)

External Auditors

Internal Audit

Internal Controls measures

Manage ment controls

Regulators

Regulatory Compliance

Legal

Investment Committee The Investment Committee is established as a sub-committee of the Board of trustees to assist the board with oversight of investment policies, advisor selection, strategy and fund performance to ensure the best possible outcome for the members and their beneficiaries. The Committee is appointed by the Board of Trustees (BoT) and consists of no less than four members, with two being from the Employer Trustees and two from the Member Trustees. Members are appointed for a four-year term of office and may be eligible for reappointment for an additional four-year term. Notwithstanding this provision, no more than two members of the Investment Committee will be changed simultaneously. In line with our goal of becoming a member-centric fund of choice, we are continually exploring how we can better understand and serve our members while generating sustainable long-term value for all our stakeholders. We continue to make strategic investments to secure Provident Fund’s future growth and build a retirement services business of the future. Our investments represent our response to rapid changes in market trends and our members’ needs and preferences. These investments also reflect our commitment to securing the future we want– not only for our fund, but for our members, communities, and the businesses that we partner with.

Rand Water Provident Fund Annual Report | 2022-2023 21

The Investent policy and strategy has been developed within the constraints of the current legislative environment and has been structured to comply with the requirements of the Pension Funds Act, Regulation 28 and Pension Fund Circular 130. The Fund is invested in pooled portfolios managed via insurance policies (Old Mutual Multi-Managers and 27/4 Investment Managers) and Collective Investment Schemes (Weaver Investment Management). Weaver is currently in its infancy, with a considerable amount of investment required to build the requisite infrastructure and capabilities. They have been deliberately set up in a way that allows us to swiftly adapt to new trends as they emerge and deliver new solutions at pace. We remain steadfast in our belief that doing the right thing for members will translate into sustainable financial value over the long term. The board of trustees recognises that they do not have the requisite skill, experience or time to spend on detailed investment matters. As a result, the board of trustees has appointed a multi-manager to construct investment portfolios and appoint underlying asset managers for the different portfolios. The multi-manager is responsible for the ongoing monitoring of the appointed asset managers and is required to make changes to the portfolios as and when circumstances dictate. Different Portfolio Constructions Each inflation targeted portfolio has a target weighting for the various asset classes. Based on quantitative analysis, this mix of assets should provide the target return over the recommended holding period with the highest degree of probability. Inflation plus 1-3% Inflation plus 3-5% Inflation plus 5-7% Local Equity 11 30 41 Property 3 3 3 Equity Long/Short 5 5 5 Fixed Income 14 15 8 SA Money International 47 12 3 Equity 11 25 32 Property 3 3 3 Fixed Income 6 7 5

Strategic asset allocations are reviewed on a 3-year cycle or shorter, and often in response to regulatory changes impacting portfolio construction.

22 Rand Water Provident Fund Annual Report | 2022-2023

Statement of Compliance

Instances of non-compliance We are not aware of instances of non-compliance with laws and regulations, including the provisions of laws and regulations that determine the reported amounts and disclosures in the financial statements. These financial statements: • Were approved by the Board of Fund on 21 November 2023; • are to the best of the Board member’s knowledge and belief, confirmed to be complete and correct; • fairly represent the net assets of the fund at 30 June 2023 as well as the results of its activities for the period then ended; and • are signed on behalf of the Board of Fund by:

CHAIRPERSON

DEPUTY CHAIRPERSON

BOARD MEMBER

Dr V Mello

Ms L Mashamaite 21 November 2023

Mr E Singo

21 November 2023

21 November 2023

Statement of Responsibility By The Principal Officer

I confirm that for the period under review, the Rand Water Provident Fund has timeously submitted all regulatory and other returns, statements, documents and any other information as required in terms of the Pension Funds Act and, to the best of my knowledge, all applicable legislation.

PRINCIPAL OFFICER Ms MS Nyembe 21 November 2023

Rand Water Provident Fund Annual Report | 2022-2023 23

Treating Customers Fairly

A great member experience is a key driver towards establishing a member-centric fund. At Rand Water Provident Fund, we want our members to feel that their best interests are always considered, and treated fairly, especially during the exit process. The treating customers fairly (TCF) score measures our members’ perception of our performance against our expected TCF outcomes. The member experience measures the service quality experienced, and the office of the adjudicator oversees member complaints in the industry. • The Rand Water Provident Fund is committed to the principle of Treating Customers Fairly (TCF) which means treating our members as we would expect to be treated ourselves. It’s about making sure our services are performed in the way the member has been led to expect. • Members can be confident they are dealing with a fund where TCF is central to the corporate culture. • Services are designed to meet the needs of members and are targeted accordingly. • Members are provided with clear information and kept appropriately informed before, during and after active work life. • Where information is given, it is suitable and takes member expectations into account. • Investment options and contribution classes have led members to expect a certain retirement outcome; members are kept abreast of their investments through their benefit statements. • Members do not face unreasonable barriers to information relating to the fund; all decisions affecting members are timeously communicated to members.

6 TCF Outcomes

27%

35%

27%

15%

MEMBERS & BENEFICIARIES The Fund is confident that the Fund is managed and administered

INFORMATION Members and beneficiaries receive clear and appropriate information regarding the Fund, retirement benefits and the operations of the Fund on joining, and regularly during their membership of the Fund.

BENEFITS The Fund provides products and benefits which perform in a manner that meets the needs and reasonable expectations of its’ members and are in line with what members have been led to expect.

in such a way that the fair treatment of members and beneficiaries is central to the Fund’s culture.

01

02

03

04

05

06

PRODUCT & SERVICES The Fund’s products and services are developed and administered to meet the needs and expectations of members, with the ultimate goal of providing appropriate retirement income.

Where members of the Fund receive advice, the advice is suitable and takes account of their respective circumstances. RECORD OF ADVICE

The members do not face unreasonable barriers when submitting a claim or registering a complaint or changing classes and switching options where the rules of the Fund allow for such choices. UNREASONABLE BARRIERS

30

19

18

28

24 Rand Water Provident Fund Annual Report | 2022-2023

Member Communication

Communication to members

The objective of a retirement fund is to provide members with an adequate retirement benefit i.e. replacement ratio or retirement outcome, and to provide benefits to dependents on the death of a member. The Several factors that impact members’ replacement ratios (RR’s) are communicated to members at appropriate stages in their lifecycle, so that they can plan appropriately for their retirement.

Contribution years ......................... Normal retirement age

Salary progression ......................... Pensionable salary

Non preservation

Cost ......................... Risk premium ......................... Fund expenses

Annuity factors

Factors Impacting RR Factors Impacting RR

=

R

Investment returns

Contributions

Current RR

Target RR

Benefit Statements

• Trustees have resolved to give members updated, personalized information relating to their own accumulated fund value. • To advise members to update the nomination of beneficiary form when sending out the benefit statement. • To assist members to complete nomination of beneficiary forms by workshops / workplace meetings / annual campaign for members to update forms. • The benefit statements are accompanied by information that focuses on the RR as prescribed in PF 86. Benefit statements contain an annual summary of members pension savings. It tells members about the savings and assists with making decisions about their retirement. KEY INFORMATION ON MEMBER BENEFITS STATEMENT: Benefit Statement

CONTRIBUTIONS

INVESTMENT GROWTH

RISK PREMIUMS

FUND CREDIT

ADMIN FEE

RISK BENEFITS

Rand Water Provident Fund Annual Report | 2022-2023 25

Communication Channels

The fund makes use of verbal, written, and visual forms of communication to members and below are channels used to effectively communicate.

USE OF BESTFIT TECHNOLOGY Rand Water Intranet.

COMMUNICATION DEPARTMENT

MEMBER WORKSHOPS Organise workshops to empower members close to retirement for long term financial security.

•

WALK - INS One - on - One

ROADSHOWS • Drive member education and create awareness on new legislations.

•

•

Make Information available on the Website.

• Dissemination of monthly investment information via email.

•

Member Education

•

•

Use of web portal.

• Trustees report, etc.

The fund also communicates in multiple languages in order to reach all members of the Fund.

26 Rand Water Provident Fund Annual Report | 2022-2023