Sanlam has launched a retirement annuity (RA) that ditches the confiscatory penalties which plague life assurance savings products.
Instead, Sanlam is offering an RA that will pay you a bonus if you keep contributing for a pre-determined term.
If you do not maintain your contributions, you lose out on the bonus you will receive.
Until now, the life industry has based most of its savings products on a structure whereby penalties are levied on your accumulated savings if you stop or reduce your contributions. The penalties are applied even if you can no longer afford the contributions – say, if you are retrenched and have no income. Against this, unit trust RAs allow you to reduce or stop paying contributions, with no penalties applied.
Anton Gildenhuys, Sanlam’s chief executive of actuarial, says that, with its new Cumulus Echo RA, Sanlam has dropped the controversial penalties in favour of a bonus structure, which he believes is fairer and will encourage you to save for the long term.
He claims that the bonus structure makes the RA one of the most cost-effective on the market.
Gildenhuys rejects any argument that the reduction in the bonus if you do not stick to your savings plan is simply another way of applying a penalty – even though you still receive less money at retirement, as you would if a penalty were applied.
He says that, in the case of a penalty, the deduction is a percentage of your total savings. With the Echo product, on the other hand, your capital is not affected if you stop paying; the bonus is only reduced.
When you take out the RA, you decide on the savings period. If you start saving at age 20, you will receive a bonus of 110 percent of your accumulated savings plus returns at the end of the 40 years.
If your savings period is 10 years, the bonus is 10 percent; and if you save for 25 years, you receive a bonus of 50 percent of your accumulated savings.
If you don’t make all your contributions, your bonus is reduced proportionally. For example, if you make only half your payments, your bonus for any period would reduce by 50 percent. You can retire from the fund at any time from age 55, and the bonus will be calculated according to the duration of your membership.
The RA comes with two investment choices:
* Core option. You can invest from R200 a month in a lifestage investment portfolio in which the investment risk is reduced the closer you get to retirement by reducing the exposure to equities; or
* Comprehensive option. You can invest from R250 a month, but you can choose from a number of risk-adjusted investment portfolios.