Corporate and Investment Banking. Absa Retirement Annuity Fund: Core Portfolio. Keeping you financially fit for retirement prosperity

Transcription

1 Corporate and Investment Banking Absa Retirement Annuity Fund: Core Portfolio Keeping you financially fit for retirement prosperity

2 Contents Absa Retirement Annuity Fund: Core Portfolio 3 About the Core Retirement Annuity 3 The Core Retirement Annuity is ideal if 3 Benefits 3 Significant tax advantages 5 How the Core Retirement Annuity works 5 Annual review 7 Costs matter 7 Minimum investment amount 8 Fees 8 Accessing your Core Retirement Annuity 8 How to invest 8 Appendix Absa Retirement Annuity Fund: Core Portfolio

3 Absa Retirement Annuity Fund: Core Portfolio Absa Retirement Annuity Fund: Core Portfolio (the Core Retirement Annuity ) is a uniquely designed low cost retirement annuity ( RA ) solution, based on so-called life stage investment philosophy. Life stage investing is based on the observation that investors risk appetites generally decline as they near their retirement date. In the Core Retirement Annuity, your exposure to risky assets is automatically reduced as you near retirement (visit for more details about the investment methodology). About the Core Retirement Annuity The Core Retirement Annuity provides diversified exposure to various asset classes (domestic and international equity, property, fixed income and cash), subject to overall limits imposed by Regulation 28 of the Pension Funds Act. The portfolio uses passive building blocks (exchange traded funds) to reduce investment costs. The portfolio is rebalanced every six months. The Core Retirement Annuity is ideal if You want to top-up your pension or provident fund You re self-employed Your employer does not provide a pension or provident fund You wish to reduce your tax liability You are looking for a low cost retirement solution. You invest in yourself everyday. Why not invest in your future too? Benefits Simplicity and convenience: Your portfolio is automatically adjusted each year so that your risk reduces as you get closer to retirement Easy to transact and manage: Simple online application process, investment tools, statements on demand, and recommended annual investment reviews Low investment costs: The Core Retirement Annuity uses passive building blocks (exchange traded funds) to reduce investment costs Full transparency as to where your money is invested Offered through the Absa Retirement Annuity Account: See Appendix 1 for additional benefits. Absa Retirement Annuity Fund: Core Portfolio 3

4 4 Absa Retirement Annuity Fund: Core Portfolio

5 Your RA will automatically be adjusted every year in line with the asset allocation that corresponds with your retirement age. Significant tax advantages Your contributions to a RA are tax deductible by up to 15% of your non-pensionable income During the term of the investment, the return on investment earned on your RA is tax-free And, at retirement, a significant portion of the cash lump sum may be tax-free. How the Core Retirement Annuity works You will be placed into an asset allocation that is based on your remaining years to retirement (life stage), according to information you provide such as your current age and expected retirement age. If you are still far off from retirement, you will be placed in a portfolio with greater allocation to shares (equity) In the long run, this asset class typically produces higher returns and should recoup any short-term losses incurred by the higher risk. The opposite is true, the closer you are to retirement as the emphasis now is to protect your retirement nest egg Your RA will automatically be adjusted every year to be in line with the asset allocation that corresponds with your remaining years to retirement portfolio. For illustration purposes figure 1 below shows the movement from higher to lower equity exposure as you approach retirement and figure 2 the detailed holdings per life stage. Figure 1 Asset Allocation % 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% Years to Retirement Equity (Domestic and International) Other Asset Classes Absa Retirement Annuity Fund: Core Portfolio 5

6 Figure 2: Fund holdings and total expense ratios Fund Asset Class Years to retirement NewFunds S&P GIVI SA Top 50 ETF NewFunds Equity Momentum ETF NewFunds SWIX 40 ETF db x-trackers MSCI World Index ETF STANLIB SA Property ETF NewFunds GOVI ETF NewFunds ILBI ETF Domestic Equity 21.23% 21.23% 21.23% 21.23% 19.83% 18.42% 14.17% 9.88% Domestic Equity 21.23% 21.23% 21.23% 21.23% 19.83% 18.42% 14.17% 9.88% Domestic Equity 21.23% 21.23% 21.23% 21.23% 19.83% 18.42% 14.17% 9.88% International Equity 11.31% 11.31% 11.31% 11.31% 10.50% 9.75% 7.50% 5.35% Property 1.21% 1.21% 1.21% 1.21% 2.12% 2.23% 1.87% 2.03% Fixed Income 11.89% 11.89% 11.89% 11.89% 13.94% 16.39% 17.85% 13.12% Fixed Income 11.04% 11.04% 11.04% 11.04% 9.58% 12.60% 24.66% 18.36% NewFunds TRACI Cash 0.85% 0.85% 0.85% 0.85% 4.36% 3.78% 5.62% 31.48% ETF Consolidated Total Expense Ratio* 0.31% 0.31% 0.31% 0.31% 0.31% 0.31% 0.30% 0.27% Source: Absa 31 January 2015 ¹ The consolidated total expense ratio (TER) is a measure of the weighted average total expense ratios of the ETFs that make up each years to retirement category. The TER is a measure of the ETFs assets that have been sacrificed as payment for services rendered (allowable charges per prescribed industry standards) in the management of the ETF(the TER excludes brokerage and transactional costs), expressed as a percentage of the daily average value of the portfolio and calculated over a 12 month rolling period. A higher TER does not necessarily imply a poor return, nor does a low TER imply a good return. The current TER cannot be regarded as an indication of future TERs. 6 Absa Retirement Annuity Fund: Core Portfolio

7 Annual review Annually, you are encouraged to review your current situation to determine if you would like to make changes to your stipulated retirement age and contribution level. If no action is taken you will remain in the existing asset allocation until your remaining years to retirement change, whereby you are automatically re-allocated to the next asset allocation category. Costs matter South Africa has one of the highest cost bases for retirement savings in the world. Layers of administration fees, management and platform fees eat up a significant portion of your investment returns. The importance of all these fees is often overlooked as it is difficult to visualise a difference one percent of additional fees can make during the life of the investment especially important for the long-term investments such as those for retirement. In figure 3 on the next page the National Treasury of South Africa* highlights the potential effect that different annual fees might have on an individual s final retirement benefit over a period of 40 years. Annual fees vary from zero to five per cent along the horizontal axis. The vertical axis shows the final retirement benefit, re-scaled so that, in the case of no annual fees the benefit equals 100. For instance, if the recurring charges deducted from the fund account of a regular saver are reduced from 2.5% to 0.5% of assets each year, he or she would receive a benefit 60% greater at retirement after 40 years, all else being equal. Alternatively, the saver could get the same retirement benefit by making contributions over his or her lifetime that are around 40% lower. Absa Retirement Annuity Fund: Core Portfolio 7

8 Figure 3: Effect of recurring charges on retirement fund accumulations 100 Contributions Growth fees *Source: Treasury of South Africa (2013) Charges in South African retirement funds, [Online], Available: in%20south%20african%20retirement%20funds.pdf [11 July 2013]. Note: These results assume regular contributions increasing at 6 per cent per year for 40 years. Although investment returns were assumed to be 10 per cent each year. Retirement benefit % 0.5% 1.0% 1.5% 2.0% 2.5% 3.0% 3.5% 4.0% 4.5% 5.0% Annual charge Minimum investment amount Lump sum investment: R Recurring investment (debit orders): R500 per month Additional lump sum investment: R5 000 Fees Annual administration fee * : 0.228% Consolidated total expense ratio: 0.28% % An additional retirement fund cost of approximately R34 per annum will be deducted. This fee would cover fund expenses such as annual auditing fees, fidelity insurance cover and trustee remuneration There is no asset management fee charged All fees quoted above are inclusive of VAT, which will be levied where applicable. *The annual administration fee is calculated on the market value of the units held in the fund. Any financial advisory, initial and annual review fees are negotiable between you and your financial advisor, if applicable. This product aims to offer you a low cost retirement annuity and the fees are well below the industry average. Accessing your Core Retirement Annuity The Core Retirement Annuity is accessible at the correct retirement age. Despite early retirement, the earliest age is still 55. However, if you emigrate or suffer ill health, you will be able to access your RA before you retire. How to invest Application is directly online by visiting or logging on to Absa internet banking ( Follow these four simple steps once logged on to Absa internet banking: Click on the Apply button on the top row of the screen Select Exchange Traded Products Select Retirement Annuity Click Apply button. New clients have to first register for Absa internet banking access. Transfers from other registered funds Tax-free transfers from other approved Pension, Provident or Retirement Annuity Funds into the Core Retirement Annuity are allowed. Transfers can be done by filling out a manual transfer form downloadable under the how to invest page or the Core Retirement Annuity product page on Please note: Due to the price of each underlying ETFs making up the asset allocation being priced as full units, smaller investments may not achieve the targeted asset allocation in the first few months of the investment and the remaining cash will be placed in the cash account until it is sufficient to purchase additional full units. 8 Absa Retirement Annuity Fund: Core Portfolio

9 Appendix 1: Absa Retirement Annuity Account The Absa Core Retirement Annuity Fund offers members a versatile and tax effective vehicle through which they can make the necessary provision for their retirement years in a flexible manner. Ideal investor The Absa Core Retirement Annuity Fund is suitable for individuals who: Are self-employed and do not belong to a pension or provident fund Receive a salary and wish to make additional provision for their retirement years Wish to reduce their tax liability Seek to invest in a flexible retirement savings vehicle Wish to make lump sum investments and/or recurring contributions to a retirement fund. Salient features The salient features of the Core Retirement Annuity Fund are: Flexibility in terms of contributions and portfolio adjustments Transparency related to fees, investment terms and underlying investment holdings Regular reporting on portfolio holdings, investment values and transactions No penalties related to aspects such as minimum investment term or if one stops making contributions Simplicity in terms of product features, fee structures and administrative processes Investment term dependent on the selected retirement age, which may not be prior to the age of 55 Easy transition to a post-retirement income solution on the Absa Investment Management Services platform Tax-free transfers from approved pension, provident, preservation or other retirement annuity funds Special arrangements in the event of death or disability Choice that allows for the construction of a diversified portfolio from a comprehensive range of funds within Prudential Investment Guidelines Withdrawals prior to retirement are allowed where the total retirement benefit of the Retirement Annuity Fund is less than R The withdrawal will be seen as a retirement fund lump sum withdrawal benefit (withdrawal benefit) and will be taxed according to the relevant tax tables. It is important to note that the effective tax rate on withdrawal benefits is significantly higher than the effective tax rate on retirement lump sums and in addition, taking a withdrawal benefit will also reduce the tax benefit of your retirement benefits which you may receive from any other retirement funds upon your retirement Full withdrawals are allowed where the member is emigrating from the Republic of South Africa. Proceeds will be subject to tax. Benefits Retirement Benefits Upon retirement a cash lump sum of up to onethird of the retirement benefit may be taken, the remaining two-thirds of the retirement benefit is used to purchase a compulsory annuity. In the event that the total retirement benefit on retirement is equal to or less than R , the full retirement benefit may be taken as a cash lump sum subject to tax. Death Benefits In the event of the death of the member prior to retirement date, the benefit will be paid to the member s dependants or nominated beneficiaries in such proportions as the trustees deem equitable or failing such persons, the member s estate. The dependants have the following options subject to the trustees decision: Convert to a cash lump sum equal to one-third of the value of the investment and use the remaining balance to purchase a compulsory annuity The dependents may elect to receive the full benefit as a cash lump sum, subject to tax. Disability Benefits In the event of a member becoming permanently disabled prior to age 55, the member may apply to the trustees of the fund to be allowed to retire early on the basis of disability. The member may, subject to income tax, convert to a cash lump sum equal to one-third of the value of the benefit or may elect to receive the full benefit as a cash lump sum where the benefit is equal to or less than R75 000, such lump sum will be taxed as a retirement benefit. Tax implications In terms of current legislation, members are entitled to deduct their contributions from taxable income or gross remuneration, within certain limits. On retirement the member may take up to one-third of the retirement benefit proceeds available in cash, of which a portion may be received tax-free. In addition to this any contributions that the member may have made in the past that did not rank for deduction may increase the tax-free portion. The balance of the retirement benefit proceeds must be used to purchase a compulsory annuity. The income from this annuity is subject to normal tax. During the term of the investment no tax is levied on any interest income, net rental income and/or foreign dividends earned, within the fund. Absa Retirement Annuity Fund: Core Portfolio 9

10 Contact information Administrator Absa Investment Management Services (AIMS) Tel: +27(0) or +27(0) Product Supplier Absa Corporate and Investment Banking Website: FAIS Act Notice and Disclaimer Absa Bank Limited, registration number 1986/004794/06 (ABSA) is an authorised financial services provider in terms of the Financial Advisory and Intermediary Services Act 37 of 2002 (FAIS). This product is supplied by Absa Bank Limited and administered by Absa Investment Management Services (Pty) Ltd (collectively referred to as Absa). The information contained herein is not advice as defined and contemplated in the FAIS Act. No information contained herein is to be used or construed by you as an offer to sell and/or a solicitation of an offer to buy securities and/or any other financial product ( products ) of any nature. The information contained herein including all research, opinions or other content is not intended to and does not constitute financial, accounting, tax, legal, investment or other professional advice. Absa does not act in any way as a financial advisor and does not hold itself out to be such. Investors are encouraged to obtain independent professional investment advice before investing in any of Absa s products. Please note that merits of any investment should be carefully considered together with the investor s specific risk profile and investment objectives. Prior to investing or transacting, you should fully understand the products and any risks and issues related to or associated with them. The products may involve a high degree of risk including, but not limited to, the risk of low or no investment returns, capital loss, adverse or unanticipated financial market fluctuations, inflation and currency exchange. Retirement Annuities are long term investments. The value of the underlying solution may go down as well as up and past performance is not generally a guide to the future. The information, views and opinions expressed herein are based on third party sources believed by Absa to be reliable and are therefore expressed in good faith. Illustrations are not guaranteed but are for illustrative purposes only. All views and estimates are given as of the date hereof and may change without notice. Absa may not request or induce in any manner a client to waive any right or benefit conferred on the client by or in terms of any provision of the FAIS General Code of Conduct, or recognise, accept or act on any such waiver by the client. Neither Absa, its affiliates, holding company, subsidiaries or directors, shareholders, agents, consultants or employees shall be liable for any damages or losses suffered by you resulting from your use of this document or the information contained therein, including without limitation any indirect, special or consequential losses whether arising out of contract, delict or equity. Absa expressly disclaims any liability for any damage or loss as a result of errors or omissions. This document is for information purposes only and may be amended without notice. Absa holds adequate professional indemnity and fidelity insurance cover to meet its contractual obligations. The Conflict of Interest Management Policy and the Complaints Resolution Policy and Procedure may be accessed on or may be requested from the Compliance Department. Product Supplier Absa Bank Limited Registration Number 1986/004794/06 Authorised Financial Services Provider with FSP number 292 and Registered Credit Provider Reg No NCRCP7. Registered address 7 th Floor, Barclays Towers West, 15 Troye Street, Johannesburg, 2001, Postal address 15 Alice Lane, Sandton, Box 7735, Johannesburg, 2023,Internet address Administrator Absa Investment Management Services (Pty) Ltd (AIMS) Registration Number 1980/002425/07, Authorised Financial Services Provider with FSP number 524, approved benefit administrator in terms of section 13B of the Pension Funds Act with registration number 24/246, Registered address, Absa Investments Campus, Block D/E, 61 Empire Road, Parktown, 2193, Postal address, PO Box 974, Johannesburg, 2000 Telephone number , Fax number , Internet address