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Retirement Planning
Tuesday, February 16, 2016 - 03:16
Staying in

The Sanlam Umbrella Fund has become the first major commercial umbrella fund in South Africa to allow members to stay in the fund into retirement, removing the need to exit the fund and purchase a living annuity. The fund’s new In-Fund Living Annuity offers members access to a range of institutionally-priced investment portfolios within its trustee-approved investment menu.

David Gluckman, head of special projects at Sanlam Employee Benefits, says the benefit is consistent with the direction of the industry proposed by National Treasury. “The world of retirement is currently going through an intense period of change aimed at giving South Africans a better outcome in retirement. The changes to our fund have been designed to support the principles of these retirement industry changes.”

He said the fund amendments were a first in the industry. “Our aim is to provide a simple pre- to post- retirement path by offering a living annuity without the need to exit the fund and purchase a new product. All our In-Fund Living Annuity and In-Fund Preservation Members benefit from internationally competitive administration fees, with only the first R1.5m assets attracting a fee of 0.10% per annum exclusive of VAT,  with zero fees applying above this amount.”

He said that excessive drawdown rates (i.e.  taking an unsustainably high percentage of one’s retirement capital as a monthly pension) were often one of the main criticisms of living annuities, so the fund had elected to only allow drawdown rates of between 2.5% and 7.5%. “Although current South African Income Tax legislation provides for drawdown rates between 2.5% and 17.5% the trustees believe that a cap of 7.5% is necessary to ensure sustainable pensions. This is a protection strategy that helps ensure that pensioners do not outlive their money, especially in these days with increased life expectancy. The fund also offers extremely competitive administration and institutionally priced asset management fees.”

Members can review their investment choices at any time and no investment switch fees are applicable. “We believe the comfort of being able to keep the identical investment strategy pre and post retirement will be of significant benefit and comfort to our retiring members”.

In-Fund Living annuitants can elect to transfer their entire member share at any time to another compulsory annuity offered by other registered providers of such products (including purchasing a guaranteed pension from an insurance company). “The trustees will also monitor the sustainability of pensions, and provide guidance and support to assist In-Fund Living annuitants to periodically consider the available alternatives.”

The fund also makes it easy for members to preserve during their working years, as they don’t have to go through the hassle of transferring their member share to a preservation fund or to their new employer’s fund, and can simply continue with existing investment strategies.

“In-Fund Preservation members also benefit from low administration fees and continue to enjoy institutionally priced asset management fees, as was the case when they were active members of the Fund. And, of course, all the options that are normally available to members of preservation funds are also available to these members,” concludes Gluckman.

Copyright © Insurance Times and Investments® Vol:29.2 1st February, 2016
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