Right of Reply
New Sanlam RA incentivises diligent retirement saving
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.