Weekend Argus (Saturday Edition)
FAIRHEADS OFFERS TRACING SERVICE TO RETIREMENT FUNDS
STRESS testing of the largest South African banks has shown they are expected to remain resilient through the Covid-19 crisis, even under severe-stress scenarios.
Financial stress testing involves the assessment of modelled outcomes under a range of adverse economic scenarios (called “stress scenarios”) – typically, mild, medium and severe.
The high-level stress testing was done as part of postgraduate research by Corné Conradie, actuary and PwC partner in PwC’s actuarial, risk and quantitative team. It was done in collaboration with Professor Conrad Beyers, Absa chairperson in Actuarial Science at the University of Pretoria.
The largest full-service banks, which include Absa, FirstRand, Standard Bank, Nedbank and Investec, were assessed. These banks account for 91% of bank deposits and 94% of loans granted by South African banks.
Beyers said although it may be unrealistic to make reliable forecasts about the spread of the virus based on epidemiological models, it is, however, possible to use financial modelling to form a view on the impact on the banking sector, which forms the backbone of the financial system.
“It is clear that banks will experience significant strain, but the financial system appears to be stable for the foreseeable future,” Beyers said.
The research shows that banks are expected to experience significant credit losses. These will be driven by defaults on residential home loans, company loans and retail unsecured loans. It is also expected that bank deposits will drop, as a result of lower interest rates, lower economic growth, lower stock market returns and lower household disposable income.
Despite these stresses, banks are sufficiently capitalised to withstand the shocks, Conradie’s study found.
FAIRHEADS Benefit Services, an administrator of beneficiary funds and umbrella trusts, now offers tracing services – which involve tracing missing beneficiaries – to the broader retirement fund industry. Nikki Jacobs, operations manager at Fairheads, says the tracing service is a logical progression from the tracing it has always done as part of its administration work. “Our fiduciary duty is to keep in touch with members or beneficiaries. It often happens that people change address or phone numbers and then we have gone out of our way to trace them, acting on a mandate from the board of trustees of the fund in question,” she says. “We go beyond the traditional ways of finding members, having gained a solid understanding of the community and employer networks. In addition to our own field agents, we are sourcing appropriately placed providers, including small, often singleperson micro-enterprises, in the communities where they live. This is a win-win solution: tracing members and creating jobs,” Jacobs says. | Supplied
WE’RE living through a crisis – there’s no way to sugarcoat it.
The coronavirus lockdown has hammered the economy, stateowned enterprises are as wonky as ever, and our government seems incapable of doing anything to sort out the mess.
And that’s just South Africa. The US is battling political incompetence and rising social unrest, China is reverting to increasingly authoritarian control, and in the UK it’s minister scandal after minister scandal. Don’t even get me started on climate change.
With all that in mind, it’s tempting to cash out, put your money in a suitcase and live on a farm in the Karoo, as far away from everything as possible. I hear you, but experience has taught me that it pays to keep your emotions in check during a period of upheaval. Here are some tips to ride out the storm.
STOP OBSESSING ABOUT THE NEWS
The media is a business that relies on clicks and views to drive sales. It’s their job to sensationalise things and to prey on our internal fears.
MORE THAN a month after Finance Minister Tito Mboweni said that pensioners with living annuities would temporarily be able to adjust their drawdown rates during the Covid-19 crisis, the National Treasury has given the go-ahead for annuitants to make the changes with their providers.
In covering the minister’s announcement, Personal Finance incorrectly stated that the measures would be effective immediately (“Living annuitants can up drawdown immediately”, Personal Finance, May 2). However, on approaching their annuity providers, readers found this not to be the case. In fact, it has taken six weeks for the measures to take effect.
Under normal circumstances, pensioners with living annuities may change their annual drawdown rate – the percentage of their capital they can withdraw annually as income, which can be paid out monthly – once a year, typically on the anniversary of the inception of the policy. The rate they choose must be in the 2.5% to 17.5% range, but in order for the annuity to be sustainable, the rate needs to be towards the lower end of this range.
This week, the Treasury amended
Take a step back. And stop scrolling endlessly on social media, becoming outraged at comments made by anonymous strangers. Fear breeds panic, and the last thing you want to do is panic because that’s when mistakes are made.
You can’t control what Donald Trump says, so rather focus on the things you can control, such as your spending. Start small with things, such as debit orders – do you need all the services you’re paying for? Check the fine print of your cellphone contract and see if you can get a better deal.
Go through your insurance the regulations, allowing living annuity policyholders temporarily to adjust their annual drawdown rate, instead of waiting for their next contract anniversary date. The range has also been temporarily extended, to a minimum of 0.5% and a maximum of 20%.
In a press release detailing the measures, the Association for Savings and Investment SA (Asisa) says: “In terms of amendments to Government Notice 290, issued under the Income Tax Act, living annuity policyholders will be able to amend their drawdown rates between June 1 and September 30 this year.”
This means if you’re a living annuity pensioner, you can increase or decrease your monthly income payments (according to the adjusted annual drawdown rate) for June to September, but will have to revert to your original annual rate for your October income payment.
The Treasury has also increased the threshold (known as the “de minimis” amount) below which the capital of a living annuity may be taken as a lump sum, from R50 000 to R125 000. “This is a permanent increase and does not revert back to R50 000 after September 30,” Asisa says.
Jenny Gordon, head of technical advice for investments, product and schedules with a fine-tooth comb and weed out all the non-essentials. You’ll be amazed at how much money you can save each month.
Review your investment goals at the same time. If your short-term goal had been to travel overseas, which is now impossible, reinvest the money. Or plan a cheaper, localis-lekker holiday for after lockdown and bank the savings.
If you’re worried about retirement but you’re a decade or more away from retirement, relax: there’s plenty of time for the market to recover and for your investments to bounce back.
LOOK AFTER YOURSELF SO YOU CAN HELP OTHERS
It’s easy to confuse anxiety about your health with financial anxiety, but don’t let the former influence the latter. In other words, don’t make rash changes to your portfolio to prepare for a fictitious, worst-case health scenario. You obviously need to have the right medical and life policies in place, but don’t overinvest in health out of fear.
Instead, during this crisis period, prioritise practical health solutions enablement at Alexander Forbes, points out that if your anniversary date falls within the four-month relief period, and you have changed your drawdown rate for temporary relief, you must also select a drawdown rate that will apply on termination of the relief period.
“This will also apply to new living annuities starting within the relief period. The rate that shall apply after the relief period must fall within the percentages 2.5% to 17.5%. In all cases, the drawdown amounts must be calculated based on the value of the assets (net of costs) at inception of the contract or at the last contract anniversary, whichever is the later date,” Gordon says.
Rosemary Lightbody, Asisa’s senior policy adviser, says the measures are aimed at assisting such as exercise and sensible eating – and physical distancing. Physical health has a tremendous influence on mental health. If you look after yourself, your stress levels will be reduced and you’ll have more capacity to help others around you. It’s like when the air hostess does the pre-flight safety demo: put on your own oxygen mask, then assist the person next to you.
DON’T BE TEMPTED TO GAMBLE
If you’re lucky enough to have some cash in hand during this period, it’s very tempting to try to time the market when it’s in a dip, or to invest in some weird and wonderful scheme promising enormous returns. Don’t be sucked in; stick to your plan. Remember, you’re in it for the long haul.
CHECK YOUR FEES
This is a great time to investigate whether your money is working hard enough. Do you feel that you’re not getting value from the professionals who are managing your portfolio? Communicate. Ask them to justify the fees they’re charging, retired people who may have seen a significant drop in the value of their underlying investment portfolios as a result of extreme volatility in financial markets triggered by the Covid-19 pandemic.
She says the lowering of the minimum drawdown level to 0.5% is good news for living annuity policyholders with high equity exposure in their underlying investment portfolios, as it enables them to reduce their income to prevent it from eating into their capital base.
“Our concern is for those living annuity investors who opt to increase their drawdown rates, as this is likely to erode a capital base already under severe strain due to the market volatility. Withdrawing a larger portion of your retirement capital should be an absolute last and whether your investments are diversified enough. Implement a long-term, analytical, data-driven strategy so that you’re smartly invested during the next upturn, to maximise your gains during the market’s best-performing days.
That’s not to say you shouldn’t consult a Certified Financial Planner. A trusted professional can add enormous value – he or she will be able to bring experience to the table, offer objective advice, act as a sounding board, and suggest innovative structures and investment solutions that might not have occurred to you.
Most importantly, try to remain positive. Creativity is stimulated during tough times, and adversity can breed opportunity – but only if you’re open to it. It’s hard to find a silver lining right now, I know, but keep things simple, look after yourself, and I’ll see you again on the other side. resort, which is implemented only once you have completed a full analysis with your financial adviser to assess the long-term impact on your retirement capital.”
Earl van Zyl, head of product development at Allan Gray, has welcomed the amendments.
“The more relaxed regulations will allow many retirees to make short-term adjustments to their income, and provide their families with relief during this extremely uncertain time,” he says. “However, flexibility can be a double-edged sword, and there are many pitfalls of using this flexibility inappropriately.”
One such pitfall is that if pensioners do not adopt these measures in a sustainable manner, the changes made may place them at greater risk of outliving their savings, Van Zyl says.