Notes to the financial statements | Note 10.3

Settlement of the TRF

The TRF is a hybrid fund which was established on 1 July 1995. The TRF is a defined contribution plan in respect of in-service members and a defined benefit plan in respect of pensioners, i.e. members' benefits accrue on a defined contribution basis until retirement. At retirement, members have the option to purchase a guaranteed pension from the TRF, at which point they become defined benefit pensioners. Prior to 1 July 2024, the option to purchase a pension from the fund was limited to those who joined employment before 1 September 2009, but a rule amendment in the TRF extended this benefit option to all retiring employees.

A rule amendment was registered by the FSCA with effect from 1 July 2024 to remove the employer's obligations to make special contributions to the TRF as may be necessary to eliminate any actuarial shortfalls in the pensions account by limiting the pensioner liability in the TRF to the balance in the pensions account.

As a result of the rule amendment, no obligation exists in any scenario for Telkom to make contributions or any other payments to fund any deficit in the fund as pension increase percentages and pensions itself may be adjusted to eliminate any shortfall. The rule amendment prescribes an investment strategy which mitigates against future deficits. Thus, the amounts available for in-fund pensions will always be equal to the amount available in the pensions account. Due to this matching, Telkom will never have any obligation towards the TRF. Therefore, Telkom settled the TRF liability as it had no further obligation for part or all of the benefits provided under a defined benefit plan.

Linked to the rule amendment is an in-principle decision made by the Telkom Board to pay a once-off amount to strengthen the pensioner reserves following the rule amendment. This resulted in Telkom having to pay the TRF the once-off amount on approval of the rule amendment by the FSCA. In November 2024, the once-off amount of R330 million was paid to the TRF, funded through the post-retirement medical aid (refer to note 10.4) to settle the provision raised in September 2024. Refer to note 2.5.1 for significant transaction disclosure in relation to the settlement of the TRF.

The gain or loss on settlement is the difference between:

• The present value of the defined benefit obligation being settled, as determined on the date of settlement; and
• The settlement price, including any plan assets transferred and any payments made directly by the entity in connection with the settlement. In Telkom's case, the R330 million will form part of the amount that the entity pays in connection with the settlement.

The amendment has changed the nature of the liabilities relating to the fund from a defined benefit to a defined contribution plan (as no further Company obligation remains) according to IAS 19, with effect from 1 July 2024.

Included in the loss on settlement of the TRF is the non-cash portion of R288 million resulting from the recognition of the asset ceiling which is appropriately accounted for in the cash generated from operations note in the increase/decrease in provisions line item. Refer to note 3.6.

The loss on settlement after tax is R451 million.

Effective 1 July 2024, Telkom is accounting for the TRF as a defined contribution plan

Fund rules

The Telkom Retirement Fund was established on 1 July 1995 as a hybrid defined benefit and defined contribution plan. Existing employees were given the option to either remain in the Telkom Pension Fund or to be transferred to the Telkom Retirement Fund. All pensioners of the Telkom Pension Fund and employees who retired after 1 July 1995 were transferred to the Telkom Retirement Fund. Upon transfer, the government ceased to guarantee the deficit in the Telkom Retirement Fund. Subsequent to 1 July 1995, further transfers of existing employees occurred. As from 1 September 2009, all new appointments are on a defined contribution scheme. These members would be required to purchase their pensions from an insurance company.

The pensioner pool of the Telkom Retirement Fund only consists of pensioners and requires that at least 60% of the best-estimate liability in respect of pensioners be invested in a liability matching portfolio.

Pensioner increases are subject to affordability, targeting 0% to 80% of CPI. However, from 1 July 2024 Telkom's obligation to make special contributions to fund any actuarial shortfall was removed. Actuarial shortfall can be funded by reducing the pension increase or allow for a possible reduction in the pensions.

The funded status of the Telkom Retirement Fund prior to 1 July 2024 is disclosed below: