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
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