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SEB introduces Inflation Annuity Tracker to assist retirees

26 November 2013 Sanlam Employee Benefits (SEB)
Danie van Zyl, head of guaranteed investments at Sanlam Employee Benefits (SEB)

Danie van Zyl, head of guaranteed investments at Sanlam Employee Benefits (SEB)

Sanlam Employee Benefits has launched an investment portfolio which assists members approaching retirement with converting their defined contribution lump sum into an income for retirement. The Inflation Annuity Tracker portfolio tracks changes in the relative cost of an inflation-linked annuity caused by changes in interest rates and is an attempt by Sanlam to improve the prospects of South Africa’s retirees, more than half of whom cannot make ends meet (source: Sanlam Benchmark Survey 2013).


Danie van Zyl, head of guaranteed investments at Sanlam Employee Benefits (SEB), says South Africans often approach retirement savings with the goal of saving a certain rand amount by the time they retire. "However, most of us do not take into account that interest rates have a major impact on the cost of a guaranteed, inflation-linked retirement annuity, and we cannot foresee what interest rates will be on the day we retire and how this will impact on our retirement income.”

The Inflation Annuity Tracker portfolio aims to closely match movements in its benchmark index, the Sanlam Asset Liability Index (SALI) Real. In the same way the All Share Index (ALSI) tracks the change in value of the stocks on the Johannesburg Stock Exchange over time, so the SALI Real tracks the changes in the cost of an inflation-linked annuity caused by changes in real interest rates. As real interest rates move up and down and the cost of an inflation-linked annuity decreases or increases, so the index will change to reflect this change in cost. The Inflation Annuity Tracker portfolio thus aims to preserve retirement fund members’ ability to purchase a guaranteed inflation-linked annuity.

"If the interest rate used in calculating an annuity income for life reduces by 1%, it can lead to a reduction in your initial income of 10% at retirement. The SEB Inflation Annuity Tracker will assist retirement fund members to buy an annuity that protects them against increases in the cost of living.” Van Zyl says retirement fund members who are within five years of retirement, want greater certainty regarding their final retirement income, and wish to link their income to inflation should consider the SEB Inflation Annuity Tracker.

He adds that the introduction of the tracker is closely aligned to the retirement reform discussions currently taking place at national level. "National Treasury has called on retirement funds to put a default annuity strategy in place for their members.”

Van Zyl says the SEB Inflation Annuity Tracker will help retirement fund members to make better investment decisions. "Most importantly, these decisions will be aligned with the pension a member aims to buy at retirement,” he concludes.

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