TELKOM POST RETIREMENT MEDICAL AID (PRMA) ALTERNATIVE FOR EMPLOYEES

Accordingly, Telkom intends to address all its long-term liabilities BACKGROUND Telkom’s revenue is under pressure, therefore, changes to the company’s cost bases are necessary and inevitable in order to ensure a sustainable business going forward. Accordingly, Telkom intends to address all its long-term liabilities One of the focus areas is to vary the obligation in the current PRMA benefits to qualifying employees The intention is to introduce an annuity policy with an Insurer for the benefit of the employee to fund employee’s future PRMA contributions. Freeze future Medical Cap increase © Telkom 2013 | Telkom PRMA

CURRENT QUALIFYING REQUIREMENTS Employees must have been a member\dependent of one of the current recognised medical schemes on 30 June 2000 and have remained a member \dependent continuously thereafter until the last day of service. © Telkom 2013 | Telkom PRMA

PRMA - PROPOSAL The company has concluded an evaluation of innovative mechanisms that are available in the market which could entrench and protect the medical aid benefits of qualifying employees. The proposed mechanism provides for Telkom to make a lump sum contribution for the benefit of the employee who then enjoys a benefit that is similar to a pension fund. The comparison to a pension fund is very relevant to the extent that the amount is secured for the employee in a tax efficient manner, grows with investment returns and becomes available after retirement or termination of employment. Based on employees’ individual PRMA liability the actuaries has determined a value for each qualifying employee which will be invested in a Liberty policy for employees. © Telkom 2013 | Telkom PRMA

PRMA - DEFINITIONS Word / Abbreviations Statement of Precise Meaning Post-Retirement Medical Aid MAS Approved Medical Aid Schemes being Bonitas, Bestmed and Discovery.  CPI Consumer Price Index:  shall mean for this purpose, the weighted average consumer price index for all areas for the month in which the date concerned falls, as published by the Central Statistical Services of the Republic of South Africa ("the official index"). Term Annuity A term certain annuity guarantees to pay a monthly income over a defined period of time. In the event that the member dies the annuity continues to be paid to the nominated beneficiary for the remainder of the term. Life Annuity Single Life Annuity: Is an annuity that guarantees to pay a monthly income over the remaining life of the member. Joint life Annuity: Is an annuity that guarantees to pay a monthly income over the longest surviving life of the member and his/her spouse. Annuity Increase profile Level: A level annuity does not escalate over time. In other words the Rand amount received on month one is the same throughout the period of the annuity.   CPI Linked: A 100%CPI linked annuity is guaranteed to escalate at CPI on the 1st of January every year over the term of the annuity. Please note that you will be able to select which increase policy (level or CPI) you would prefer for both Term and Life annuities. © Telkom 2013 | Telkom PRMA

INTERVENTION EVENTS UPON RETIREMENT/DISABILITY/DEATH Current Retirement/Disability Death Spouse/Partner/Dependents continue membership with no future cap increases. Choose Option Child dependents can only continue membership. Voluntary buy off (cash) – fully taxable. Continued membership: Telkom will remain liable to make contributions to the medical aid post retirement. The subsidy has been capped, irrespective of the medical fund’s actual increase. No future cap increases. Voluntary buy off to be transferred to TRF/TPF (non-taxable) NOTE: Resigns from Telkom/MAS No further subsidisation from Telkom towards medical scheme. The following monthly medical caps apply for pensioners: Should the 2/3rd’s be less than the Telkom cap the subsidy amount will only be for the 2/3rd’s. Member Member + 1 Member + 2 Member + 3 R1 388 R2 743 R3 000 R3 139 © Telkom 2013 | Telkom PRMA

INTERVENTION EVENTS “IN SERVICE” (BEFORE RETIREMENT) Proposed Resign from Telkom/MAS Fully taxed Term Annuity over 7 years paid directly to employee/ ex-employee Choice between Inflation Linked or Level Annuity If beneficiary dies before end of term, then annuity is paid to spouse or estate but remains taxable © Telkom 2013 | Telkom PRMA

INTERVENTION EVENTS “IN SERVICE” (BEFORE RETIREMENT) Proposed Death Individual - Term annuity over 7 years With spouse: Choice of 7 year term annuity or single life annuity over spouse’s life Option between Inflation Linked or Level Annuity Tax free Annuity paid directly to MAS if there are still a spouse on same approved MAS policy Taxable Annuity paid directly to: - Spouse (terminated MAS) - Estate if there is no spouse on same approved MAS policy © Telkom 2013 | Telkom PRMA

INTERVENTION EVENTS “IN SERVICE” (PROS / CONS) (BEFORE RETIREMENT) Proposed Current Guaranteed benefit even if you leave Telkom’s employ Income is payable directly to you Guaranteed income payable over 7 years The income is guaranteed by Liberty Once in payment if you die the remaining payments will be paid to your spouse Annuity is payable to your spouse in the event of death, see “After Retirement” pro’s and con’s No benefits is payable when the employee resigns from Telkom or resigns from an approved Medical Aid Scheme. © Telkom 2013 | Telkom PRMA

INTERVENTION EVENTS UPON RETIREMENT Proposed Can choose between inflation linked or level annuity under both options Retirement Choose between: Non taxable annuity payable directly to MAS under both options Life annuity Choose between: Term annuity over 7 years Annuity continues paying for remaining period to MAS upon death of pensioner if spouse are still on same MAS policy Life annuity over life of pensioner only Joint life annuity over life of pensioner and spouse Annuity ceases when pensioner dies Annuity reduces to 50% on death of first beneficiary and ceases on death of last living Taxable annuity payable to spouse/estate upon death © Telkom 2013 | Telkom PRMA

PROCESS UPON RETIREMENT (PROS / CONS) Proposed Current You can choose between a Life or a Term certain income, the income is guaranteed You can move to a lower medical aid plan and still receive the full income (the difference will be paid directly to you) You can move to another approved medical aid scheme and still receive the income Opportunity for your income to be higher that the cap given by Telkom Annuity can be paid directly to you if you no longer belong to an approved medical aid scheme. E.g. if you move to your spouse’s medical aid or no longer want medical aid. Income could be sufficient to cover the full medical aid subsidy Current status remains – Telkom will remain liable to make contributions to the medical aid post retirement, provided the employee retires from Telkom in accordance with the rules of Telkom’s Pension Fund or Telkom’s Retirement Fund. Continuation membership of a recognised medical aid scheme as a pensioner with no future cap increases. Should the 2/3rd’s be less than the Telkom cap the subsidy amount will only be for the 2/3rd’s. Voluntary buy off – implies no further subsidisation from Telkom towards medical aid. -Employee will be responsible for the total contribution towards medical aid. -Amount is fully taxable If retired employees cancel their medical aid they forfeit benefits. Upon death of pensioner Spouse/Partner/Dependents continue membership with no future cap increases. From 1 October 2013: No increase in medical caps No future voluntary buy off © Telkom 2013 | Telkom PRMA

POST RETIREMENT MEDICAL AID (Options) Qualifying employees will have until the 20th of September 2013 to accept the company’s offer in terms of future PRMA contributions. Two options available: Option A: Liberty Prosper Option B: Continuation membership of a recognised medical aid scheme as a pensioner, with no future cap increases. © Telkom 2013 | Telkom PRMA

Broadcast – 12 August 2013 Roadshow 19 – 30 August 2013 TIME LINES Broadcast – 12 August 2013 Roadshow 19 – 30 August 2013 System opens from 19 August – 20 September 2013 for employees to make selection © Telkom 2013 | Telkom PRMA

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