Right of Re­ply

New San­lam RA in­cen­tivises dili­gent re­tire­ment sav­ing

Finweek English Edition - - MONEY -

Fin­week con­trib­u­tors and cer­ti­fied fi­nan­cial plan­ners, Gregg Sned­don from The Fi­nan­cial Coach and Craig Gra­didge from Gra­didge-Mahura In­vest­ments, re­cently took the San­lam Echo Re­tire­ment An­nu­ity prod­uct to task for be­ing com­pli­cated and ex­pen­sive.

Jan Steenkamp, ex­ec­u­tive head of San­lam Seg­ment So­lu­tions, dis­agrees:

There is wide­spread con­cern within Govern­ment and in­dus­try about South Africa’s poor sav­ings cul­ture, and ac­knowl­edge­ment of a dire need for in­ter­ven­tion to be­gin to shift the sav­ings and re­tire­ment re­al­ity faced by mil­lions of South Africans.

The coun­try’s poor sav­ings cul­ture is partly the re­sult of a ‘con­sump­tion’ mind­set, with most work­ing peo­ple liv­ing above their means and funded by debt, in­stead of liv­ing be­low their means and sav­ing.

It is within this con­text and mind­ful of the need for a mul­ti­fac­eted ap­proach to the sav­ings cri­sis, that San­lam has de­vel­oped a re­tire­ment an­nu­ity that in­cen­tivises sav­ing.

The San­lam’s Cu­mu­lus Echo RA in­cen­tivises clients to save through a trans­par­ent bonus (called the Echo Bonus), the value of which is com­mu­ni­cated over the life­time of the prod­uct.

The re­tire­ment in­dus­try of­fers peo­ple an in­tan­gi­ble ben­e­fit, which will only prove its worth in the fu­ture. Our chal­lenge, there­fore, is to com­pete with im­me­di­ate needs, and to make the ben­e­fit of sav­ing for re­tire­ment tan­gi­ble and vis­i­ble for our clients.

Against this back­ground, the Cu­mu­lus Echo RA and the Echo Bonus were pur­pose­fully de­vel­oped in re­sponse to our ex­pe­ri­ence that most peo­ple, who save dili­gently for re­tire­ment through­out their work­ing lives, are ex­tremely pleased with their de­ci­sion and reap the re­wards of their dili­gence.

Re­sults from the 2013 San­lam Bench­mark sur­vey into re­tire­ment sav­ings, in­di­cated that 51% of pen­sion­ers sur­veyed ad­mit­ted to a short­fall be­tween their cur­rent monthly re­tire­ment in­come and their monthly liv­ing ex­penses.

There is an un­de­ni­able need for two crit­i­cal ele­ments to help ad­dress the re­tire­ment sav­ings cri­sis. First, the aver­age South African needs ac­cess to qual­i­fied fi­nan­cial ad­vice and, se­condly, they need in­for­ma­tion about and ac­cess to a di­verse range of re­tire­ment sav­ings op­tions.

The Cu­mu­lus Echo RA presents a so­lu­tion to a very spe­cific re­tire­ment sav­ings re­al­ity, as it en­cour­ages peo­ple to start sav­ing as early as pos­si­ble and to com­mit to their re­tire­ment sav­ings plan. SAN­LAM NOTES FOUR KEY REA­SONS WHY THE CU­MU­LUS ECHO RA IS A GREAT RE­TIRE­MENT SAV­INGS OP­TION:

1. The Cu­mu­lus Echo RA of­fers tan­gi­ble re­wards for long-term savers San­lam re­wards peo­ple who save for re­tire­ment in this prod­uct with the Echo Bonus amount. The longer peo­ple re­main in­vest- ed in the RA, the higher the bonus. This means that the Cu­mu­lus Echo RA tan­gi­bly re­wards clients who take a long-term view of their sav­ings.

Peo­ple of­ten give up on their re­tire­ment plans and there­fore don’t ex­pe­ri­ence the power of com­pound in­ter­est. The Echo Bonus demon­strates the power of com­pound in­ter­est and helps peo­ple, from the very start, to un­der­stand the long-term growth that they can ex­pect from stay­ing com­mit­ted.

This Echo Bonus is trans­par­ent, with a client be­ing able to ob­tain in­for­ma­tion re­gard­ing the sta­tus of their bonus at any time.

No early ter­mi­na­tion charges ap­ply for peo­ple who, for what­ever rea­son, de­cide to ter­mi­nate their sav­ings early. All clients re­ceive a bonus, even at early ter­mi­na­tion, al­though clients who exit early re­ceive a lower bonus amount be­cause they have con­trib­uted less and have not given com­pound in­ter­est time to de­liver its full power.

2. The Cu­mu­lus Echo RA of­fers highly com­pet­i­tive fees (Re­duc­tion in Yield) San­lam de­signed the fee struc­ture of the prod­uct with the aim of re­ward­ing peo­ple who are com­mit­ted to their re­tire­ment plans and, in fact, en­cour­ag­ing high lev­els of com­mit­ment against com­men­su­rate

lev­els of re­ward and costs.

Clients who in­vest in the prod­uct for the du­ra­tion of their work­ing lives will en­joy among the low­est costs of any re­tire­ment an­nu­ity in SA, across the spec­trum of unit trust and life in­sur­ance RAs. This is in line with in­dus­try-wide ini­tia­tives to re­duce the costs as­so­ci­ated with sav­ing for re­tire­ment.

The costs of re­tire­ment prod­ucts are made up of dif­fer­ent com­po­nents and are not easy to com­pare. In­dus­try play­ers, there­fore, use Re­duc­tion in Yield (RIY) for this pur­pose.

The RIY is a sin­gle num­ber cal­cu­lated over the term of the in­vest­ment un­til re­tire­ment. It is cal­cu­lated by tak­ing into ac­count all fees be­ing charged on the prod­uct, and ex­press­ing it as an an­nual per­cent­age. This is done to en­able com­par­isons be­tween prod­ucts with dif­fer­ent fee struc­tures.

There are only t wo t y pe of fees charged on the Cu­mu­lus Echo RA: As­set man­age­ment fees and a mar­ket­ing and ad­min­is­tra­tion fee. The mar­ket­ing and ad­min­is­tra­tion fee in­cludes an al­lowance for ad­vice fees whereas, with most unit trust RAs, ad­vice fees are an ad­di­tional charge.

It is im­por­tant to note that the Echo Bonus is in­cluded in the cal­cu­la­tion of the RIY.

3. The Cu­mu­lus Echo RA of­fers clients ex­cep­tional in­vest­ment choices The Cu­mu­lus Echo RA of­fers clients ac­cess to an out­stand­ing range of qual­ity in­vest­ment funds from lead­ing as­set man­agers, in­clud­ing San­lam In­vest­ment Man­age­ment, Al­lan Gray, Coro­na­tion, In­vestec and Fo­ord.

In l ine with San­lam’s ob­jec­tive to re­duce the costs as­so­ci­ated with sav­ing for re­tire­ment, the in­vest­ment mix of­fered to clients in­cludes very at­trac­tive ‘seg­re­gated fund’ op­tions that are ac­tively man­aged and priced daily. For ex­am­ple, the Reg­u­la­tion28 Prop­erty Eq­uity f und is an ag­gres­sive and ac­tively man­aged fund that is avail­able at a very low as­set man­age­ment charge of 0.3% per an­num.

San­lam also of­fers a ‘Life Time In­vest­ment Op­tion’ bal­anced f und, which in­vests equally in San­lam In­vest­ment Man­age­ment, Al­lan Gray and Coro­na­tion bal­anced funds at a fee of only 0.65% per an­num dur­ing the ac­cu­mu­la­tion phase. This f und will au­to­mat­i­cally shift clients’ funds into more cau­tious as­set classes when the client nears re­tire­ment to re­duce risk and to bet­ter match t he li­a­bil­ity.

Other ben­e­fits that help to en­sure that the in­vest­ment needs of the ma­jor­ity of clients are met in­clude:

• Clients have the op­tion to switch their money be­tween in­vest­ment funds four times

a year at no cost; and

• Clients have ac­cess to funds with


4. The Cu­mu­lus Echo RA of­fers flex­i­bil­ity The Cu­mu­lus Echo RA was de­signed to re­ward clients who are com­mit­ted to long-term sav­ing and to en­cour­age young peo­ple to start sav­ing for re­tire­ment as early as pos­si­ble. How­ever, San­lam un­der­stands that life hap­pens, and that there may be pe­ri­ods when peo­ple are un­able to make their pre­mium pay­ments.

The Echo RA, there­fore, cur­rently of­fers clients a con­tri­bu­tion ‘ hol­i­day’ of up to 12 months, dur­ing which con­tri­bu­tions need not be paid. The Echo Bonus is cal­cu­lated to ref lect the con­tri­bu­tions the client has ac­tu­ally made. Sim­i­larly, clients can re­duce their pre­mi­ums and the Echo Bonus will then be based on t he act ual amount of con­tri­bu­tions re­ceived.

The Cu­mu­lus Echo RA from San­lam re­sponds to the call of pen­sion­ers who, as part of t he com­pany’s Bench­mark re­search, iden­ti­fied three crit­i­cal pieces of ad­vice for younger peo­ple, namely: “Save from an ear­lier age”, “Start plan­ning for re­tire­ment at an ear­lier age” and “In­vest from an ear­lier age”.

Quite sim­ply, the Cu­mu­lus Echo RA aims to show peo­ple the ben­e­fits of start­ing to save ear­lier and stay­ing com­mit­ted by demon­strat­ing t he value of t heir in­vest­ments through an Echo Bonus.

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