![World-renowned chef and healthy eating advocate Jamie Olivier has joined forces with Checkers to endorse its new partnership with Discovery Vitality’s healthy food benefit.Image supplied.](https://biz-file.com/c/2409/749717-64x64.jpg?2)
Subscribe & Follow
Jobs
- Portfolio Manager - Credit Risk Johannesburg
- Junior Cost Estimator Pinetown
- Account Executive - Financial Lines Johannesburg
- Financial Manager Johannesburg
- Junior Bookkeeper and Administrator George
- Sales Associate Secunda
- Accounts Payable Cape Town
- Manufacturing Accountant Cape Town
- Junior Bookkeeper Cape Town
- New Business Insurance Broker Pretoria East
Waiting for an echo of retirement annuities
![Waiting for an echo of retirement annuities](https://biz-file.com/c/1309/144882.jpg)
Yet Sanlam is courting controversy by introducing a bonus in its new range of retirement annuities.
Under its new Cumulus Echo product, the values of retirement annuity portfolios will be increased by a modest 2% for clients who stay for five years, but by more than 100% for those who contribute monthly for 40 years. It is the inverse of an early surrender penalty.
But in the launch of its fund costs money and the national treasury made it clear that it wished to see an end to charges that it considers unfair to clients, such as performance fees off artificially low bases and complex charging structures, including early surrender penalties and loyalty bonuses.
Says treasury retirement expert David McCarthy: "Since RAs enjoy the same tax break as other retirement funds, it may not be unreasonable for them to be required to play by the same rules that are eventually chosen for retirement products." Contributions to RAs are tax deductible up to 15% of income.
The big difference is that pension fund members are obliged to join their funds as a condition of employment. RA customers must be found, one by one, by sales agents, and then be persuaded to sign up. This distribution is expensive. Almost a year's premiums can go to pay commission for a 30-year RA, though some basic financial advice is thrown in when the product is sold.
Interesting features
The Cumulus Echo RA has some interesting features. Jan Steenkamp, head of Sanlam Segment Solutions, says it offers a wide range of the top funds, not just Sanlam funds. And it has the cheapest active fund on the market, the SIM Reg 28 Property Equity fund, which is invested in property and equity, with no cash or bonds, at a 0,3% fee.
For people who have no desire to make choices but who want a spread of fund managers, Sanlam has the lifetime investment option, split between balanced funds run by Allan Gray, Coronation and Sanlam Investment Management, which is similar to the balanced portfolios in many corporate retirement funds, with 60% to 75% in equities. This costs 0,65%/year in charges, well below the 1,25% it would cost to invest directly in these three funds.
Steenkamp argues that, notwithstanding treasury's scepticism, competition is driving down costs. Once the bonus is factored in, Sanlam Echo with in-house Sanlam funds will have a total cost of 2,1%, just below the 2,2% for Momentum and the 2,4% for Liberty and Old Mutual This is based on a R1000 a month contribution over 25 years.
The Sanlam client will see on every policy statement an accumulated bonus. But this is notional. If he stops his policy today he will get only a small portion of this. It is a non-vesting bonus until it matures. But Steenkamp insists that it is real money invested by Sanlam in the same portfolios as the annuity itself.
Steenkamp concedes that there are clients who should not move to the Echo RA: those with fewer than five years to retirement, those who want full portability between insurers or those who want an even more extensive range of funds, who should rather opt for linked investment service providers - sometimes called fund supermarkets - such as Glacier and Investec IMS.
McCarthy says it is not clear whether the main effect of complex charging structures such as early surrender penalties and loyalty bonuses is actually to encourage persistency. It certainly makes price comparability much harder.
As a portion of the client's capital is held back if he does not stay until maturity, life offices are protected from the financial consequences of early product lapses. And since product lapses have a negligible financial effect on the life office business, risk is passed to the client. Both the salesman and the life office make money, whether the policy lapses or not.
Says McCarthy: "It is often inappropriate to sign up self-employed people to an RA and penalise them heavily if they are unable to make scheduled contributions over the next 20 to 30 years."
Source: Financial Mail via I-Net Bridge
Source: I-Net Bridge
![](https://biz-file.com/b/1206/36520.gif?3)
For more than two decades, I-Net Bridge has been one of South Africa’s preferred electronic providers of innovative solutions, data of the highest calibre, reliable platforms and excellent supporting systems. Our products include workstations, web applications and data feeds packaged with in-depth news and powerful analytical tools empowering clients to make meaningful decisions.
We pride ourselves on our wide variety of in-house skills, encompassing multiple platforms and applications. These skills enable us to not only function as a first class facility, but also design, implement and support all our client needs at a level that confirms I-Net Bridge a leader in its field.
Go to: http://www.inet.co.za![](https://cdn.bizcommunity.com/f/2408/Loeries-Tote-bag-competition.gif)
![](/res/img/s.gif)