7 March 2019
Verusha Ramlakhan, Head of Business Solutions at Sanlam, addresses the questions that are most frequently asked in relation to this topic.
As with any RA, there are tax savings benefits, because you can deduct your contributions to an RA from your taxable income, up to a specified limit.
Beyond this, your old generation RA is a unique combined product, which offers the benefits of a savings feature as well as optional risk benefits. Depending on the options you selected at inception of the policy, you could have access to death, disability and accident cover, and so forth. Typically, adding these benefits to the policy when you were younger means that you’ve most likely secured these risk benefits at a favourable rate.
Therefore, in addition to the wealth you’re accumulating, you have the risk benefits attached to your old generation RA.
If you only have a few years left in the workforce, you need to consider a transfer very carefully, because there’s only a short time left to recover any losses you may incur as a result of such a move.
If you transfer to another retirement fund at this point in time, you would be exposed to potential termination charges. You would also lose out on the benefits of the product, such as your current risk benefits and any guarantees that apply to the policy. Realising these charges and losses would leave you with a smaller pot of money.
While rolling all your RA savings into one fund can help you to make a smoother transition into a post-retirement product, you need to carefully consider the pros and cons.
Sanlam gives you two options. Firstly, you could consolidate and convert your RA(s) into a Sanlam Cumulus Echo policy without incurring early termination charges. If the risk benefits you have combined into your current old generation RA are important to you, Sanlam does have options for you to convert these with a limited degree of underwriting.
The Cumulus Echo Retirement Plan boosts your retirement savings with an Echo Bonus. This is paid at retirement, and the amount is dependent on how long you save for and how many contributions you make. It’s not dependent on your health status or life cover policy. You have the option to remain invested during retirement and grow your Echo Bonus while you draw an income. If the plan is cancelled or paid up, you will receive a portion of the Echo Bonus.
Secondly, you could choose to convert to a Glacier RA product. The Glacier Retirement Annuity, which is growth-centred, offers flexibility and provides a convenient way to invest in the market. This provides access to the widest range of well-researched funds, collective investments and wrap funds. There is an almost infinite number of combinations available, and portfolios can be structured around your needs. Because this belongs to a different retirement fund, you would incur a termination penalty on the existing RA. This loss may be difficult to recover in time for retirement.