Financial services company Sanlam has expanded its Stratus product range to include a low-cost, flexible retirement annuity (RA) with dramatically reduced penalties if you stop paying the premiums.
Sanlam's new product is the latest move by the life assurance industry to bring you more user-friendly retirement savings products in the face of mounting government criticism and investor anger over products that disadvantage investors.
The defining feature of the Stratus As-and-When Retirement Annuity is that commissions are not paid upfront to financial advisers, but only "as and when" you pay premiums.
How it works
The main features of the new product are:
- A minimum investment amount of R2 500 or recurring premiums of R100 a month.
- You can reduce or stop paying the premiums at any time for a transaction cost of R300. This means that a person who can no longer afford the premiums is not faced with confiscatory penalty charges. Last year, Personal Finance reported on the case of a Sanlam policyholder who lost his job and could no longer afford paying premiums of R1 000 a month. Penalties wiped out the entire R30 000 invested in his RA.
- You do not pay a transaction fee if you increase the premiums.
- Commissions are negotiable up to a maximum of five percent of your premium. In other words, you could negotiate the commission down to zero. A fair commission is three percent of premiums - the prevailing rate in the unit trust industry.
- Between 97.5 and 102.5 percent of your premiums are invested, depending on the commission you agree to pay. If you agree to a commission of three percent, 99.5 percent of your premiums will be invested. Sanlam recovers the extra 2.5 percent from its annual charges against your accumulated savings.
- The annual fund management and service charges range from 1.1 to 2.5 percent of your accumulated assets, depending on the underlying investments.
- You can choose from a wide range of underlying investment funds - both local and offshore - that are offered to all Stratus investors.
- You are allowed to switch between underlying investment funds for free twice a year.
- You may invest as little as R50 a month in any underlying investment fund, as long as the total amount you invest meets the product's minimum investment amount.
Eugene Kruger, the actuary for the Stratus product, says the other benefits, protection of your retirement savings against claims by creditors and conditions attached to RAs apply to the product, such as tax deductibility of premiums and a minimum maturity age of 55.
The new product will meet the needs of people whose incomes vary, Kruger says.