COSTLY

Why an RA doesn’t have to be so Re­tire­ment in­vestors risk los­ing a large chunk of their fi­nal re­tire­ment amount as a re­sult of high fees on their in­vest­ments, but there are op­tions

CityPress - - Tenders & Auctions -

There is no need to pay 2% a year for a re­tire­ment an­nu­ity (RA) be­cause more cost-ef­fec­tive op­tions are now avail­able. Last month, 10X In­vest­ments grabbed the at­ten­tion of hun­dreds of shop­pers at Nel­son Man­dela Square in Sand­ton with the kick­off of its #StopDay­lightRob­bery cam­paign, which saw masked peo­ple us­ing chain­saws to cut off 40% of ev­ery­thing in a life-sized house­hold dis­play, in­clud­ing a BMW.

Ac­cord­ing to Steven Nathan, CEO of 10X In­vest­ments, the in­ten­tion be­hind the chain­saw chop was to vis­ually il­lus­trate how re­tire­ment in­vestors around the coun­try risk los­ing 40% of their fi­nal re­tire­ment amount as a re­sult of high fees on their in­vest­ments.

While Nathan is cor­rect that fees could have a big­ger im­pact on your fi­nal re­tire­ment lump sum than rel­a­tive in­vest­ment re­turns, the good news is that you re­ally do not have to be pay­ing high fees for your re­tire­ment fund­ing or, in fact, for any in­vest­ments.

As fi­nan­cial plan­ner Craig Gradidge points out, it is pos­si­ble to have a fully di­ver­si­fied re­tire­ment in­vest­ment in­clud­ing in­vest­ment fees, ad­min­is­tra­tion costs and ad­vice for 1.3% a year, com­pared with the av­er­age 2.25% that was the norm a cou­ple of years ago.

His­tor­i­cally, the re­tire­ment in­dus­try was dom­i­nated by life in­surance com­pa­nies that sold high-cost poli­cies with very lit­tle trans­parency when it came to costs. With changes to leg­is­la­tion forc­ing more trans­parency, the aware­ness of fees by in­vestors and the in­crease in in­vest­ment-linked re­tire­ment op­tions, fees of re­tire­ment struc­tures have been driven down sig­nif­i­cantly. At the same time, fees in un­der­ly­ing in­vest­ment funds have been driven down by pas­sive tracker funds and so­called smart tracker funds, while trans­parency and lim­its on ad­vice fees have re­duced the costs of com­mis­sions.

To­day, there are sev­eral re­tire­ment an­nu­ity struc­tures on the mar­ket for which you would pay less than 1% a year.

There are some in­vest­ment houses that of­fer di­rect ac­cess to their re­tire­ment an­nu­ity prod­ucts, and then there are linked in­vest­ment ser­vice providers that al­low you to blend sev­eral in­vest­ments to­gether.

You could de­cide whether or not you wanted to use a fi­nan­cial ad­viser and then ne­go­ti­ate your fees ac­cord­ingly. Di­rect RA prod­uct providers:

These are in­vest­ment man­age­ment houses that pro­vide re­tire­ment an­nu­ity struc­tures for their in­vest­ment funds. They are pas­sive tracker funds and you are lim­ited to their range of funds. These are ideal for monthly debit or­ders as their min­i­mums start at about R500 a month.

has a max­i­mum fee of 0.9% a year on all its in­vest­ments, in­clud­ing re­tire­ment an­nu­ities, liv­ing an­nu­ities and preser­va­tion funds.

pro­vides the Sa­trix Re­tire­ment Plan via the Glacier in­vest­ment plat­form with the Sa­trix Bal­anced unit trust fund as the un­der­ly­ing in­vest­ment. The to­tal cost is 0.75% a year (0.25% for the bal­anced fund and 0.5% for the plat­form).

of­fers a re­tire­ment an­nu­ity op­tion that in­vests in the Syg­nia Skeleton Bal­anced 40 Fund for just 0.4% a year.

Early next year, Grindrod will be launch­ing re­tire­ment so­lu­tions that pro­vide an ac­tive man­age­ment strat­egy to match as­sets and li­a­bil­i­ties over time. De­spite the ac­tive ap­proach, the fund will have an ac­tive as­set man­age­ment fee of 0.5% a year and a client ad­min fee of 0.25%, with a to­tal prod­uct fee of 0.75%. Plat­form providers:

Linked in­vest­ment ser­vice providers such as Al­lan Gray, Stan­lib and In­vestec of­fer in­vest­ment plat­forms that al­low you to in­vest in a range of un­der­ly­ing funds. The choice of un­der­ly­ing funds will af­fect your to­tal cost and, in some cases, the min­i­mum in­vest­ment amounts tend to be higher than the di­rect in­vest­ment op­tions.

The av­er­age plat­form fee is about 0.5% a year, which

10X In­vest­ments Sa­trix Syg­nia

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