I have a question with regards to my retirement annuities.
I have two annuities through Sanlam, the one investing in the Allan Gray Balanced fund and the other investing in the SIM General Equity Fund.
These are the old school RA's as both were started around 2006.
I am thinking of moving these to the 10X fund, which is low cost and index based, but I have also recently seen that Sanlam is offering the new Cumulus Echo RA.
With the Sanlam offering they will add 2% to my yearly contribution and depending on the term of the RA, will add another percentage onto the total of what my RA is worth at retirement. After 30 years, they claim to add another 40% to your fund.
This almost sounds too good to be true. Which of these two would you recommend?
Some more info on myself, I am 32 years old, and consider my risk profile to be aggressive, since retirement is so far off.
Tiaan Fourie, a Sanlam product actuary, responds:
You are asking for a recommendation between two product options. We may unfortunately not give advice and can merely provide information.
However, for the individual to make an informed decision we suggest that he contacts a Sanlam financial adviser or accredited broker.
Traditional retirement annuity policies offer excellent value for money.
If the contributions are paid until retirement, the retirement proceeds are similar (and in some cases even better) than those offered by retirement annuity unit trust products.
However, should you opt to transfer these policies to another retirement annuity fund, such a transfer normally implies that an early termination charge may apply.
For this type of transfer to be worthwhile, the individual will have to look towards lower administration charges over the remaining term of the product in order to make up for the early termination charges.
To justify the transfer, the new product will, to a large extent, have to be cheap enough in order to “make up” the early termination charge as well as deliver additional investment performance.
Sanlam offers a new retirement annuity, the Cumulus Echo RA, with a unique Echo Bonus.
Sanlam plans, towards the end of next year, to offer a conversion option for Sanlam Stratus Retirement Annuities to the Cumulus Echo Retirement Annuity.
The conversion option will ensure that value for money will be maintained during the conversion process and thereafter.
The Echo Bonus is an additional amount of money that Sanlam will add to the Cumulus Echo Retirement Annuity.
The Echo Bonus aims to reward clients for paying as many as possible, if not all, of their contributions from inception to retirement and to motivate them to invest their money for as long as possible, preferably until they retire.
Generally, the longer the period during which they make contributions, and the higher the amount of their contributions over the term of the plan, the larger the Echo Bonus will be.
The aim of the Echo Bonus is to give clients a real sense of the amazing power of compound interest.
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