Date of calculation: 1 December 2003

Date of birth: 1 December 1983

Date of accident: 1 December 2003

Mortality tables: Black Males

Assumed retirement age: 65 years

Occupation at date of accident: General worker

Earnings at date of accident: R3 000 per month

Assumed future earnings: nil rand per month because of the accident

Under the current system Claimant "A" is paid his full future loss of earnings, calculated from 1 December 2003 at R3 000 per month (with assumed inflationary increases only), to retirement at the age of 65 years, with provision being made for taxation as well as life expectancy, in a capitalized lumpsum.

From this lumpsum a percentage called a " contingency" is deducted to allow for the uncertainties of life not taken into account in the actuarial calculation.

The percentage to be deducted in this fashion is the prerogative of the Court but, in the majority of claims, is negotiated by the parties.

As stated by Dr Robert J Koch on page 110 of "'The Quantum Yearbook 2003" ("Koch"), "The RAF frequently agrees to deductions of 5% for past loss and 15% for future loss".

Furthermore, as also stated by Koch on page 110, as a general rule, a "scale" for a person with average employment habits/prospects and based on age would be: under the age of 20 years - 25%, age 20 to 30 - 20%, age 30 to 45 - 15%, over the age of 45 years - 10% and retired - 5%.

For purposes of this calculation, a general contingency deduction of 20% is illustrated herein below.

The capital value of Claimant A's future loss of earnings, calculated as aforesaid, is;

This means Claimant A will receive a lumpsum of R605 300,00.

Under the proposed system actual losses in arrear would be paid over Claimant A's assumed working life of 45 years until the age of 65.

This would not allow for the deduction of contingencies as the latter relate to uncertainties in "the future".

In the case of Claimant A where a contingency deduction of 20% (a saving of R151 300) is made under the current system, but cannot be made under the proposed new system, the RAF immediately incurs an extra liability, not of 20%, but of 25%, because the 20% not paid under the current system of capitalized lump sums, equals 25% (RI 51 300) of the 80% (R605 300) that is currently paid.

The addition to current costs can be similarly determined for varying contingency deductions (as illustrated in the "sliding scale" above) as follows:

Under the proposed new system the RAF would be required to pay Claimant A R3 000 per month before tax because the periodic payments become taxable in the hands of Claimant A (see Satchwell report on page 661).

The capital value of the R3 000 per month award is R835 000. This is 10.4% more than the lump sum award before contingency deductions (R756 600 in paragraph 3 above) and nearly 38% more than the after contingency deduction net lump sum award (R605 300 in paragraph 3 above) under the current system.

Although the fund would not be required to hold assets balancing its long-term liabilities for payments as the proposed system uses a pay-as-you-go financing system, the reality of the mailer is that the proposed system would therefore eventually cost the RAF 38% more than the current system in this particular example.

Where higher incomes are involved the additional cost to the RAF would be significantly higher. For example, if the income lost and awarded were R8 000 per month, the current system would pay:

The capital value of the R8 000 per month payable under the proposed system would be significantly higher at R2 226 700. The impact of income tax reduces this by 17% before contingencies under the existing system. Together with the effect of the contingency deduction the proposed system would pay 50% more than under the existing system.

If very much higher incomes were to be considered the additional cost to the RAF would be significantly higher. For example, if the income lost and awarded were R30 000, the current system would pay:

The capital value of the R30 000 per month payable under the proposed system would be significantly higher at R8 350 100. The impact of income tax reduces this before contingencies by 31% under the existing system. Together with the effect of the contingency deduction the proposed system would pay 82% more than under the existing system.

Date of Calculation: 1 December 2003

Mortality table: South African Life Tables 1985 - 1994 (Black males)

Net discount rate: 2.5%

Income tax: 2003 /2004 tables.

Reg Munro

FELLOW OF THE FACULTY OF ACTUARIES

FELLOW OF THE SOCIETY OF ACTUARIES OF SOUTH AFRICA