Income for life makes retirement carefree

Retirement is a time that people should be looking forward to. However, because of South Africa’s poor savings culture, retirement is increasingly giving the public sleepless nights as they are fearful of the challenges that their golden years will present.

Glacier by Sanlam addressed one of these challenges by launching a new product called the Investment-Linked Lifetime Income Plan.

Providing peace of mind

Providing a retiree with certainty that they will have an income for life presents a significant challenge in today’s financial climate. However, Jaco-Chris Koorts, Product Manager at Glacier by Sanlam, tells FAnews that Glacier’s new retirement income solution was designed to address this very need.

He adds that the solution provides an income in the form of a fixed number of retirement income units guaranteed for life. The value of each unit starts at R1 and thereafter moves in line with the performance of the client’s underlying investment portfolio, minus the fees. This means that clients can potentially grow their income through exposure to real asset classes, whilst still enjoying longevity protection. Over time, the client will benefit from the compound effect of the increase in the income growth.

“The biggest advantage of the Investment-Linked Lifetime Income Plan is that clients are guaranteed an annual number of retirement income units, which are payable for the rest of their life. Due to the income level being market-linked, the client will benefit from the ability to create an investment portfolio consisting of asset classes that will enable the client’s income to keep up with the eroding effect of inflation over the long term. They therefore do not sacrifice investment choice. The financial adviser can also continue to give advice on the selection of underlying unit trust funds,” says Koorts.

He adds that this product is the first of its kind in South Africa, combining features of both the guaranteed life annuity and the investment-linked living annuity (ILLA). “Up to now, no product has offered both longevity protection and market-linked investment choice. For the past few years National Treasury and the financial services industry have been looking at the issues around retirement, with the provision of an income for life being the central point of concern. It was with this in mind that the Investment-Linked Lifetime Income Plan was developed,” he says.

A unique value proposition

The South African intermediated market has a rich history and tradition, and is filled with a number of financial advisers who offer top of the range retirement products to clients in order to secure a comfortable retirement. Communicating a unique value proposition is a way in which advisers can set themselves apart from the rest of the pack.

“Even in times where markets are performing well, as they did between 2009 and 2014, it can be noted that smaller ILLAs, especially those less than R1m, reduce in real value. We believe that these clients will be better off in the Investment-Linked Lifetime Income Plan. There would be no risk of them outliving their capital and there would be less of a worry about their income losing its buying power. Clients would still be able to benefit from market returns through the selection of the underlying unit trust funds,” says Koorts.

Providing industry flexibility

There is a wide range of underlying investment options available. These include rand- denominated unit trusts, wrap-funds and fund-of-funds, as well as guaranteed funds that enable clients to construct an investment portfolio with downside protection.

“There are also options available at inception. The client can, for example, make provision for a spouse to receive an income by opting for the units (or a reduced number of units) to be paid as a regular, lifelong income to the spouse or other specified beneficiaries after their death,” says Koorts. He adds that clients who still have dependents at retirement age, can also add a guaranteed income payment term.

Through this solution, clients have a better understanding of their retirement planning and can have a greater influence on how they want their future to be planned.