How often do we sit and worry about our retirement? We purchase retirement products in the hope that it will one day provide us with enough capital to have a comfortable retirement, but how often is this the case in the current environment?
This is a significant problem in the South African market that is largely dictated by the performance of the local currency against international heavy hitters such as the Dollar, the Pound and the Euro. When the Rand is down, the market reacts negatively and this affects investments.
Bring on agility
A growing trend in the South African financial services industry is the fact that clients want to have more control over their investments, especially when it comes to retirement.
They have expressed a desire for companies to design flexible products where money can be dedicated to investments and a dedicated savings account as the markets change.
This is at the core of Liberty Agile. With the Agile retirement range, a client has a dedicated savings fund, dubbed the Exact Income Fund, and a fund where the cash is sued to make investments.
The Exact Income Fund is the cash clients allocate towards a guaranteed income and guarantees the amount of money they will have in retirement. The other fund is used to make investments and does not result in any level of guaranteed income. However, by having a certain amount of capital in the Exact Income Fund, a client is then free to make investments as they like.
Scaling the mountain
The same concept is used with the Agile range. Lapedus points out that below the age of 35, 100% of cash in the Agile range should be dedicated to portfolio growth. Between the ages of 35 and 39, 97.5% of cash should be dedicated towards portfolio growth while 2.5% should be put in the Exact Income Fund. Between the ages of 40 to 44 the split increases between 95% portfolio growth and 5% in the Exact Income Fund.
From the age of 45 to retirement, the split becomes more serious. Between the ages of 45 and 49, the split is 80% towards portfolio growth and 20% in the Exact Income Fund. From age 50 to age 54, the split is 60% towards portfolio growth and 40% towards the Exact Income Fund. From ages 55 and above, 50% of cash is dedicated towards portfolio growth while 50% of cash is dedicated towards the Exact Income Fund.
Digging deeper for clarity
As with all new products, there are certain questions that will be on the mind of clients when the adviser suggests products like these to them.
One if the most important questions that will be on the top of the list is the concern over whether the Exact Income Fund takes inflation into account. The Exact Income Fund does not take inflation into account. The income that a client will receive on retirement will be calculated in today’s Rand value (or the Rand value when they take the policy out).
While the guidelines provided by Liberty are the ideal guidelines for splitting client’s investments between the Exact Income Fund and portfolio growth, clients may want to adjust this to personalise the growth they receive.
Switching between portfolios
Investments in the Exact Income Fund can be switched to another portfolio. However, clients should approach this with caution. If they switch out before retirement, they will need to go through an underwriting process and will lose their guarantee on the monthly amount that is payable in retirement.
Uncertainty is not something that is conducive to the retirement industry. We believe that our market first product is a step in the right direction towards a retirement industry that is treating customers fairly.