default annuity strategy - sanlam · 2019. 8. 26. · ⧁features of default annuity strategy •...
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Insurance | Financial Planning | Retirement | Investments | Wealth
DEFAULT ANNUITY STRATEGY
Karen WentzelHead of Annuities: Sanlam Corporate
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CRUCIAL DECISION POINTS
job marriage house children
based on fairly solid assumptions
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CRUCIAL DECISION POINTS
advice recoverlife
lessonfamily &friends
if things don’t go according to plan …
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TRANSITION … INTO RETIREMENT
limitedmeaningful
adviceunfamiliarterritory
decisionsmay be
irreversible
requires crucial decisions – rarely anticipated
family &friends
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CENTRAL … TO ANY PLANNING PROCESS
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WHAT AFFECTS QUALITY OF LIFE … IN RETIREMENT?
lump sumand othersavings
optimalstructureto convert
into income
to create income for rest of life
CHOICE OF ANNUITY?often hard to align to retiree needs
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Regulation 39 of the Pension Funds ActAnnuity strategy must be appropriate and suitable for membersReasonable and competitive fees and chargesReviewed annuallyMay include traditional life annuities and living annuities
being paid from the Fund or
an external provider
Members given access to retirement benefits counsellor at least 3 months before retirement date
TRUSTEE-ENDORSED ANNUITY STRATEGY
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⧁ Features of default annuity strategy
• Longevity protection and an income for life
• Annuity income that keeps pace with inflation.
⧁ Over and above the annuity products, that were important to trustees in appointing a provider for their default strategy were:
• The cost of the product
• The security of the product provider.
From Benchmark Survey
TRUSTEE-ENDORSED ANNUITY STRATEGIES
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⧁ With-profit annuities
⧁ Living annuities
⧁ A combination of different annuities
MOST POPULAR ANNUITY PRODUCTS SELECTED
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RETIREMENT TRILEMMAaccess to
good returns
protectionof risks
access tocapital
no productcan deliver in
all three areas
two at best!
SOURCE: DR DAVID KNOX, PARTNER AT MERCER IN AUSTRALIA
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⧁ In the Benchmark Survey participants indicated that if they wanted to distinguish the trustee-endorsed annuity strategy for different categories of members, applying the following factors would be the most appropriate way to do so:
• Size of the member share
• Demographic profiling (age, income group)
• Employee type (professional, blue collar, specialist).
DISTINGUISH THE TRUSTEE-ENDORSED ANNUITY STRATEGY
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LIFE ANNUITIES
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⧁ Initial pension and annual increases are guaranteed
⧁ Pensioners do not carry any risks
• Longevity
• Investment risk
⧁ Annual increases on policy anniversary as specified upfront
• published inflation: Inflation-linked Annuity
• fixed %: Guaranteed Escalation Annuity
• Investment returns The Complete Picture Pension/With profit annuity
LIFE ANNUITIES
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⧁ Features of life annuities
⧁ Spouse pension after death of main member
⧁ Guaranteed period
⧁ 0/5/10 years
⧁ Thirteenth payment
⧁ Additional payment in December
⧁ Death benefit
⧁ Additional monthly pension after death of the main member
LIFE ANNUITIES
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ProductSpouse %• 50% / 66% / 75% / 100%
Increase date• 1 March
13th chequeGuaranteed period• 0 / 5 / 10 years
Death benefit
TRUSTEE DECISIONS FOR LIFE ANNUITIES
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Unique & innovative quotation programmeE-NNUITY?
WEB Based Access anywhere & at anytime …only browser required
Time-saving & less paperwork
User friendly “Real-time” values Instant quotations at the “push of a button”
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LIVING ANNUITIES
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in a perfect world- personal advice- tailor living annuity
to both accumulatedfunds and lifestyleexpectation
‘
’ advice fee structure
scalable proposition that worksfor the trustees of a large fund
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FSCA released a standard that living annuities have to comply with to be part of a trustee-endorsed annuity strategy
Why is there a need for the standard?Member may deplete retirement capital
Living annuities currently makes up more than 90% of annuity market
Features of the criteriaStringent drawdown criteria
Regular measurement of income sustainability
LIVING ANNUITY CRITERIA
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Stringent drawdown criteria
LIVING ANNUITY CRITERIA
Age Males Females55 4.5% 4.0%60 5.0% 4.5%65 5.5% 5.0%70 5.5% 5.0%75 6.0% 5.5%80 7.0% 6.0%85 8.0% 7.0%
Versus ASISA averages December 2017Average drawdown rate (unweighted) 9.08%Weighted by asset value 6.64%
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⧁ Living annuities in the Fund
⧁ Living annuities from an external provider/insurer
• Basic product 2 portfolios/Regulation 39
• Standard product 4 portfolios/Regulation 39
⧁ Living annuities from an external provider/insurer as additional option
• Standard product >4 portfolios/Non-regulation 39
TRUSTEE ENDORSED LIVING ANNUITIES
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Administration
Advice
Investment
WHAT IS IMPORTANT?
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BASIC OPTION
designer homelow cost housing townhouse
• Administration on the Sanlam platform• Narrower range of investment choices …
- underlying investments into predetermined Sanlam.- institutionally priced investment portfolios (agreed with Funds).
• Drawdown rates limited to rules pre-determined agreement - Fund / Sanlam.• No fees for advice applicable.
- member services by Sanlam retirement counsellors- via Internet and call centre / assist members making own choices / decisions. - counsellors trained to provide information from a pre-selected product range.
cost-effective solution,balanced against limitedmember choice.
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STANDARD OPTION
• All features of Basic option, with the addition of access to Sanlam Advisor or an Independent Financial advisor.
• Two advice options- Retirement Fund adviser (salaried advice)- Capped fee adviser – (‘fixed price building plan’).
A cost effective solution, with a degree of investment choice and the opportunity for all decisions (especially draw down rate calculations), to be guided by expert face-to-face advice, at a capped rate
designer homelow cost housing townhouse
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ANALYSIS OF LIVING ANNUITY MEMBERS
members are invested too conservatively
significantly impactedby the market returns shortly after retirement.
members that do invest in aggressiveportfolios targeting real returns
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Allocation equal to 5 times annual draw down percentage in a protection portfolio (i.e. if drawdown rate = 5%, then 5 x 5% = 25% will be allocated to the protection portfolio)
⧁ Real returns⧁ Short term downside protection⧁ Mitigate sequencing risk
Remaining member value will be allocated to an more aggressive portfolio where member in consultation with counsellor or advisor can choose between three portfolios
⧁ Long term real returns
⧁ Growth over long term for income sustainability
INVESTMENT BUILDING BLOCKS … COST VS SUSTAINABILITY
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INVESTMENT CHOICE?
Protection portfolio: Sanlam Stable Bonus
Aggressive portfolio(s):Single manager active portfoliosSanlam Multi-Manager portfolios
Satrix Passive portfolios
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Basic Standard
Option 1 Option 2 Option 3
Service options Call centre supportNo advice
CounsellingNo advice Salaried advisor Own advisor
<R2m 0.30% 0.40% 0.55% 0.40%
Next R1m 0.25% 0.30% 0.45% 0.35%
Next R4.5m 0.15% 0.20% 0.35% 0.20%
>R7.5m 0.10% 0.10% 0.25% 0.125%
SANLAM FEE – SLIDING SCALE
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⧁ Product
• Basic, Standard
⧁ Investment portfolios
⧁ Drawdown rates
⧁ Counselling/advice
• No advice, salaried advisor, own advisor
TRUSTEE DECISIONS FOR LIVING ANNUITIES FROM PROVIDER
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Living annuityIn-fund trusteed endorsedIn-fund extended range
Life annuityGuaranteed escalation annuity (5%)5 year guaranteed period75% spouse pension
SANLAM UMBRELLA FUND
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80 retirement funds used SEBI Annuity for Trustee-endorsed annuity strategy
Guaranteed Escalation Annuity 33 funds
The Complete Picture Pension 30 funds
Inflation-linked Annuity 15 funds
Level Annuity 3 funds
SEB Living Annuity 32 funds
STANDALONE FUNDS
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Institutional life annuities flows from individuals in 2019
Guaranteed Escalation Annuity 74%
The Complete Picture Pension 1%
Inflation-linked Annuity 18%
Level Annuity 7%
LIFE ANNUITY FLOWS
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ON-GOING ANALYSIS
working group: the Fund and Sanlam team
analyseand refine
straight-forward
costeffective
look foralternatives
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NEVER LOSE SIGHT OF OUR RESPONSIBILITY
to ensure every client, and every fund member is able to accumulate wealth to secure a better quality of life, with flexibility at all times.
‘’
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Sanlam Life Insurance Ltd is an authorised financial services provider.
The material is meant to provide general information only and not intended to constitute accounting, tax, investment, legal or other professional advice or services. Thisinformation should not be acted on without first obtaining appropriate professional advice. The use of this document and the information it contains is at your own risk andneither Sanlam nor any of its subsidiaries shall be responsible or liable for any loss, damage (direct or indirect) or expense of any nature whatsoever and howsoeverarising. While all reasonable attempts are made to ensure the accuracy of the information, neither Sanlam nor any of its subsidiaries makes any express or impliedwarranty as to the accuracy of the information. Past performance is not necessarily a guide to future returns.