I was recently asked by the editor of Finweek what I thought of Sanlam’s “new” RA. Here is my response:
“On a level, Sanlam could be applauded for trying to encourage saving for retirement in SA. However, it is my belief that anyone that can offer me a “bonus” or “reward” at some stage in the future (over and above my normal investment return) is either exposing me to more risk than I should be or else is charging me too much upfront. In the case of the new Sanlam RA I believe the latter to be the case. There is no way that the product has been designed to cost Sanlam money or that Sanlam would just pay investors a bonus out of the “goodness of their hearts” – the shareholders would not allow that.
In short there are 2 major problems with the new product:
- It is too expensive – they claim to have “Unparalleled value for money with among the lowest reductions in yield in the market” and yet their annual marketing and admin fee alone starts @4% pa (on the first R500k and decreases to 3.5% pa on amounts greater than R2m) When reading through a quote from them it is also just about impossible to determine what the total and actual costs will be – it is too opaque and is “typical” insurance company in that respect.
- It is a contractually based form of saving and when (not if) you need to change your premium or the term (because of stuff out of your control) you are going to pay a penalty – even though they claim that these have been reduced, the actual penalty is a function of the much higher cost that you are paying for the “promise” of a bonus. The following quote is directly from their website “It is not appropriate for clients whose variable incomes will not enable them to keep paying their monthly contributions” – statistically, that excludes just about everyone in the world!
For my money I would either go with a unit trust RA or an index tracker RA – the recent paper by National Treasury recognises the latter to be the cheapest option in SA at the moment and the returns from this option have surpassed most of the so-called “best managers”.
Keep it simple”
