I AM less than two years away from retirement and have four different RA investments - all quite old - the youngest being about 15 years.
My investment adviser recommends that I consolidate my RAs into a single new RA via a Section 14 transfer.
This probably has a commission benefit for him, but what exactly could the benefit be to me? Are there benefits to be gained from the newer RA products on the market?
Yolande H Reynecke, a certified financial planner (CFP®) at Hereford Group, Bryanston responds:
This is rather an undefined question to answer as I do not know which retirement annuities you are contributing to at the moment, what their values are, which underlying portfolios they are invested in, etc as well as the reasoning behind the financial adviser's advice.
Ask your adviser to draw up a quote for you, compare the quote to the policy documentation and specifications of your other RAs, and also look at the underlying portfolios.
Look at any charges and penalties applicable (if any). You don't necessarily have to move your RA, you can switch between portfolios if that option is beneficial to you.
There are different types of RAs: collective investment scheme (unit trust) RAs and life assurance RAs, and I do not know where your adviser would like to consolidate you to. Each has its own rules/guidelines.
These products mainly limit you to a small range of investments, usually centred on stable bonus portfolios with full or partial capital guarantees or a market-linked balanced portfolio with a commitment to contractual payments, with penalties if you do not keep contributing.
Unit trust RAs
These are the simplest and most cost-effective arrangement issued by a collective investment scheme that restricts you to investments in its underlying suite of unit trust funds.
They are flexible, allowing you to make lump-sum and/or recurring (debit order) contributions and to stop or increase or decrease the amounts you contribute, taking into account the minimum investment.
You are usually allowed to switch between the unit trust funds of a single management company, without incurring charges. The choice of underlying unit trust funds is up to you.
The majority of management companies offer what is referred to as prudential asset allocation funds, which reduce your investment decisions. These funds come with different levels of risk, mainly reducing volatility by being higher in cash but also decreasing potential upside.
The minimum investments are often relatively high.
RAs offered by linked investment service providers (Lisps) offer you underlying investment products and the ability to switch between the products of many different asset management companies.
When you select a guaranteed product there may be contractual conditions that commit you to recurring premiums for a certain time period, normally a minimum of five years.
The Lisp products come in two main products: life assurance products and non-life products.
The life assurance products will offer you the same range of underlying investments but with the possible downside of a lack of flexibility on investments, with penalties if you do not maintain contributions.
The upside of the life assurance products is that they offer underlying investments in guaranteed investments. The guarantees are normally on the total or part of your capital, with the cost linked to the guarantee chosen.
My advice is to get your adviser's quote, read through it, compare it, find out about costs and charges, look at penalties (if applicable), and ask as many questions as you like to get clarification.
Then, when you are happy and feel that you can make an informed decision, go for it.
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