More re­tire­ment agility

Financial Mail - - INVESTOR’S NOTEBOOK -

Lib­erty prod­uct tsar David Lloyd might look as if he has just stepped out of an episode of Starsky & Hutch, but he has done a lot to re­ju­ve­nate the com­pany’s prod­uct menu. He favours ma­cho names such as “Bold” and “Agile” and, to be fair, he has helped Lib­erty re­cover some ground.

The Agile re­tire­ment an­nu­ity was re­cently up­dated, and it set the bar a lit­tle higher than be­fore. As well as the guar­an­teed re­tire­ment in­come, it has a high-wa­ter-mark guar­an­tee. I wish other Lib­erty prod­ucts, such as its Evolve en­dow­ment, of­fered this too.

In­vestors know that if they opt for the high-wa­ter-mark ben­e­fit, at a one­off charge of 1% for five years, their an­nu­ity will never fall be­low 80% of its max­i­mum value. The guar­an­teed re­tire­ment in­come re­mains a use­ful fea­ture of Agile. For ev­ery R100,000 you in­vest you might get, say, R2,000/month of in­come. The down­side is that its Ex­act In­come Fund is suit­able only for mem­bers plan­ning to buy a fixed an­nu­ity — which has no in­fla­tion pro­tec­tion.

I un­der­stand other life of­fices can de­sign guar­an­teed in­come prod­ucts on de­mand —at least in the­ory. I like the idea of mix­ing the Ex­acta (not the kind you find in Turf­fontein Race­course) with reg­u­lar mar­ket-linked funds, and adding the high-wa­ter-mark guar­an­tee where ap­pro­pri­ate. You can re­move and re­in­state the guar­an­tee at will, but I don’t ad­vise such crude mar­ket tim­ing.

Mark Lape­dus, Lib­erty’s in­vest­ment prod­ucts ac­tu­ary, says profit shar­ing kicks in at 13%, and Lib­erty takes 25% of any re­turn above this. It is hard to re­mem­ber when we last had a year with a 13%-plus re­turn, but they do come around. Lib­erty would have had some nice fat-cat re­turns in the year af­ter the global fi­nan­cial cri­sis.

But the life of­fice is go­ing back to its roots — its core in­vest­ment prod­uct used to be the 90/10, in which it would share in 10% of the down­side and the up­side of the port­fo­lio.

To­day it sub­sidises the down­side by top­ping it up when it falls be­low 80%. It shares 25% of the up­side, but only af­ter the hur­dle of 13%.

Broader op­tions

The good news is that in­vestors are not re­stricted to in-house Lib­erty and Stan­lib prod­ucts, which have had lack­lus­tre per­for­mance over the past five years. Eight funds of­fer the guar­an­tee, from four fund houses: Al­lan Gray, Pru­den­tial, Corona­tion and In­vestec. They are all multi-as­set funds.

Lape­dus says the high-wa­ter mark gives the op­por­tu­nity to in­vestors who might only be com­fort­able in a sta­ble fund to in­vest in a higher-risk bal­anced fund. In the long run they would have a much bet­ter chance of achiev­ing their re­tire­ment goals. In fact, Lape­dus says many in­vestors see sta­ble funds as too risky, as they can in­vest up to 40% in shares. So the guar­an­tee might per­suade clients to get out of the il­lu­sory safety of money-mar­ket port­fo­lios.

I wouldn’t be sur­prised if many in the legacy Lib­erty re­tire­ment an­nu­ity move to Agile. It has some nice, clearly spelt-out guar­an­tees. I pre­fer this ap­proach to the pa­ter­nal­is­tic smoothed­bonus poli­cies at Old Mu­tual, in which the client’s op­tions are con­strained: the penal­ties for com­ing out of smoothed bonus early or when mar­kets are down are se­vere. In ef­fect, the en­tire risk is passed on to the client.

In prin­ci­ple clients who have, say, 30 years to go, can ride the mar­ket cy­cles. But now that it is easy to keep in touch with port­fo­lio val­ues daily, find­ing a way to limit losses is de­sir­able.

Agile isn’t enough on its own to turn around Lib­erty, but at least it is help­ing to build cred­i­bil­ity again in its core af­flu­ent mar­ket.

In­vestors are not re­stricted to in-house Lib­erty and Stan­lib prod­ucts, which have had lack­lus­tre per­for­mance

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