7 March 2019
Verusha Ramlakhan, Head of Business Solutions at Sanlam, provides some valuable insight into 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 savings features as well as risk cover. Depending on the way you structured the policy, you could have access to death, disability and accident cover, and so forth. If you initiated the policy when you were younger, you would have secured these risk benefits at a favourable rate – because these premiums are generally more expensive the older you are.
Transferring your retirement savings to another fund before your RA matures could expose you to termination charges. You would also stand to lose some of the risk benefits built into the current policy, as well as any guarantees attached to the policy’s maturity. Realising these charges and losses would leave you with a smaller pot of wealth. You’d therefore need to carefully consider where to invest the remaining portion of your savings – and whether any associated market turbulence could make it difficult for you to recover from the losses incurred.
You could convert into a Sanlam Cumulus Echo product without exposing your retirement savings to termination charges. However, you do need to consider the fact that this is a pure savings product with no risk benefits attached. 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 – but only with a limited degree of underwriting, which could increase your premiums.
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 is not dependent on your health status or the 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, 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.
If you still have some time to go before you retire, it’s easy to take short-term view and chop and change your products. However, in order to get maximum value from any RA, it’s best to take the long-term view – find the best RA for your needs and stay committed. The more time you spend investing in your retirement, the more you benefit from compound interest, which really maximises your future wealth.