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Selling tax-breaks no longer enough in RA market – Absa Investments

27 January 2010 Absa Investments

‘Selling tax-breaks’ is no longer enough in a retirement annuity (RA) market that is increasingly driven by a new generation of smart investors who demand more from their financial advisers.

RA tax efficiency is a powerful “attention-getter”, but generic product features can’t guarantee a growing book of business in a competitive field, says Johan Gouws, an executive director at Absa Investments.

Absa Investments regards RAs and products to encourage timely retirement provision as an important growth market now that early withdrawal or transfer from traditional products is less onerous on consumers.

Gouws adds: “Tax-breaks have become a ‘given’ for pre-retirees who also expect cost savings, flexibility, broad choice and the ability to control their own destiny at all stages of pre- and post-retirement.”

The good news for advisers, says Gouws, is that legislative change to cap penalties has prompted a review by potential investors. New business opportunities for linked RAs could therefore proliferate.

He notes: “We don’t foresee a sudden boom as the norm is unfortunately still no or low savings towards retirement. Retirement provision often starts too late, but legislative change encourages a new generation of pre-retirees to take full advantage of increased scope for smart, flexible and cost-efficient planning.

“Tax savings are crucial, but are common to all RAs. Further product benefits are needed to clinch the deal.

“Linked product providers such as Absa Investment Management Services (AIMS) have already detected the new mood and have tracked an increase in transfers into its new-generation solutions.”

AIMS anticipates continuing growth on the back of increasing consumer awareness. Broad choice is already proving a key product benefit.

Those investing in retirement and living annuities on the AIMS platform can pick from the full range of funds offered by local asset managers. There is no initial administration fee. Ongoing admin fees are on a sliding scale governed by investment size.

The platform allows both lump sum payments and regular contributions. The size of monthly contributions can be varied or even halted for a period without penalty.

Asset allocations can be periodically re-aligned to meet changing objectives and investment horizons. Changes in risk appetite are easy to accommodate.

The AIMS platform allows for a transition approach to retirement planning. This capability enables clients to move from pre-retirement to actual retirement without the steep costs that sometimes faced retirees who exited an old-style pension fund and re-committed funds to an annuity.

Investors also avoid the need to make significant adjustments to their investments strategies as they move into retirement and can better manage the risks relating to timing the market.

“Pre-planned transition means zero transaction fees and other cost savings,” says Gouws. “It’s just one of the smart solutions offered by Absa Investments.

“The advantage of a more compelling retirement solution for advisers is that it encourages relationship-building, increased trust and a more satisfied client.

“We believe these developments contribute to a major area of opportunity for the adviser.”

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