7 March 2019
Verusha Ramlakhan, Head of Business Solutions at Sanlam, answers some important questions.
Yes, it’s definitely worth staying invested. There’s a perception that old generation RAs do not provide value for money. However, this is not necessarily the case with your old generation Sanlam RA. As a client with a Sanlam Smoothed Bonus Fund RA, you enjoy a smoothed investment growth, no matter the market conditions. Your old generation Sanlam RA is designed to reduce your exposure to short-term market volatility, because Sanlam takes a portion of the returns earned during times of strong market growth and sets these aside for periods of weak market growth.
In addition to the bonuses already declared on the policy, there may also be built-in investment guarantees, which deliver exceptional value when your RA matures. You could lose out on these benefits if you switch out of your current RA before the contractual term ends.
Furthermore, you may have risk benefits – such as death, disability and accident cover if you selected these at inception of the policy. Replacing these benefits when you are older can be expensive.
And, as with any RA, you enjoy tax savings benefits, because you can deduct your contributions to an RA from your taxable income, up to a specified limit.
If you only have a few years left in the workforce and limited time to prepare for retirement, you may not want to make any decisions that negatively affect the pot of money you have built up to date. You may have insufficient time to recover any losses incurred during a transfer.
It’s advisable to carefully weigh up your options, taking into consideration the smoothed returns that your old generation RA offers. You also need to think about the claim or terminal bonuses you may receive when the policy matures – money you’ll lose should you switch to another plan. Termination charges may also apply if you transfer out of the current policy, which will reduce the value of your retirement savings.
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 evaluate the pros and cons.
One option is to consolidate and convert your RA savings into a Sanlam Cumulus Echo policy. While this won’t incur termination fees, you do stand to lose the additional risk benefits that maybe attached to your old generation RA. 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.
Alternatively, you could choose to consolidate and convert your RA savings into a Glacier product. In this case, however, you would incur a termination penalty, because this belongs to a different retirement fund.
In either situation, you’d also need to be sure that a new generation RA suits your risk profile, so it’s best to consult your intermediary. Typically, newer generation products offer you mutual funds and hence, more direct market exposure. Watching an RA fund balance fluctuating daily may not be ideal when you are closer to retirement.
If a smooth ride into retirement suits your risk profile better, stay invested in your old generation Sanlam RA. You’ve stayed the course so long – and you’re almost at the finish line!
If you’re a conservative investor, you may not want to take the risk of transferring all your savings to a new generation RA with more direct exposure to the market. With your old generation RA, you have a smoothed investment return, which means you don’t have to worry about short- term market fluctuations.
Of course, should you have additional money to invest, you could speak to a financial adviser about bolstering your retirement savings and diversifying your portfolio with the addition of a new generation policy.