Weekend Argus (Saturday Edition) - - PERSONALFINANCE -

National Trea­sury says one of the sig­nif­i­cant prob­lems in deal­ing with the charges that are levied on your re­tire­ment sav­ings is that there is no one stan­dard mea­sure that ac­cu­rately en­ables you to com­pare the ef­fect of charges on dif­fer­ent re­tire­ment prod­ucts.

The prob­lem is ex­ac­er­bated by the fact that there is not al­ways full dis­clo­sure of all charges, and the struc­tures used are com­plex and of­ten mis­lead­ing.

For ex­am­ple, an up­front ini­tial charge of three per­cent of your con­tri­bu­tion may seem much higher than an on­go­ing an­nual charge of one per­cent of your ac­cu­mu­lated sav­ings. In fact, the one-per­cent an­nual charge is go­ing to re­sult in you pay­ing sub­stan­tially more in the end.

Trea­sury points out that there are four cost mea­sure­ment meth­ods in com­mon use. Th­ese are:

Re­duc­tion in Yield (RiY). This is the amount by which your sav­ings could be re­duced an­nu­ally by costs, based on var­i­ous as­sump­tions such as con­tri­bu­tions and in­vest­ment re­turns, which may or may not oc­cur.

Re­duc­tion in Ma­tu­rity Value (RiMV). This is the amount by which your re­tire­ment sav­ings could be re­duced over the full sav­ing pe­riod, again based on var­i­ous as­sump­tions, which may or may not oc­cur.

Ac­count­ing Cost of fund As­sets (ACA). This is sim­i­lar to the To­tal Ex­pense Ra­tio used in the unit trust in­dus­try, which to­tals most (but not all) ac­tual costs charged against a fund.

Ac­count­ing Cost for each Mem­ber (ACM). This is sim­i­lar to the ACA but is cal­cu­lated as a monthly rand amount for each re­tire­ment fund mem­ber.

Trea­sury says all four mea­sures strug­gle to re­flect ac­cu­rately the im­pact of con­di­tional charges such as guar­an­tee charges, per­for­mance fees and sur­ren­der charges. One way around the prob­lem, it sug­gests, is to re­duce com­plex­ity by reg­u­lat­ing the type of fees that may be charged, for ex­am­ple by ban­ning per­for­mance fees, and plac­ing lim­its on cer­tain charges.

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