7 March 2019
Verusha Ramlakhan, Head of Business Solutions at Sanlam, provides some valuable insight into this topic.
As a client with a Sanlam Smoothed Bonus Fund RA, you enjoy steady 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 so forth – 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.
You could incur early termination charges, which would diminish the pot of wealth you’ve built up for retirement. You could also lose any risk benefits that have been added to the policy as a rider benefit.
However, as someone with a few decades to go until retirement, you may feel that you have enough time to recover these costs and losses. Depending on your risk profile, you may also be willing to more direct exposure to the market via a new generation RA, rather than earning smoothed returns with your old generation RA.
You could convert into a Sanlam Cumulus Echo product without exposing your retirement savings to any termination charges. However, you do need to consider the fact that this is a pure savings product with no additional risk benefits associated with it. 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.
Secondly, you could choose to convert to a Glacier RA product. The Glacier Retirement Annuity, which is growth-centred, o¬ffers 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.