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Best Retirement Annuity (RA) in South Africa?

Retirement

Best Retirement Annuity (RA) in South Africa?

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While searching for the best retirement annuity (RA) in South Africa, you would have heard about the new flexible type of RA. That’s the one you want. And about avoiding the older types that charge you so much for ‘breaking up’ with it, it feels like you’re joining finances with a divorce lawyer. If you’re a fan of passive investing, you’ll also be happy to hear that you now have the option to choose one of these low-cost index trackers as the underlying fund for your new RA. Just keep in mind that you can’t touch your money before age 55, but the long wait is worth the tax benefits of an RA. Now where do you go for the best passive retirement annuity in South Africa?

For this ’Best RA in South Africa’ comparison, I’ve looked at the main RA providers that:

  • Allow you to stop-start your contributions with no penalty
  • Allow you to transfer your RA to another company with no penalty
  • Have at least one low-cost passive fund – an index tracker – to choose from their underlying fund range
  • Are geared towards direct investors and can service them well

These are the results.

Retirement annuity comparison for a lump sum investment

Allan GrayEasy EquitiesOutVestSatrixSygnia10x
Minimum amount neededR20 000 lump sum or R500 per monthUnconfirmed by Easy EquitiesR5 000 lump sumR10 000 lump sum or R500 per monthR20 000 lump sum or R500 per monthR12 000 lump sum or R500 per month
Platform/ admin fee (incl VAT)0.58% p.a. for amounts up to R1.5m and 0.23% on portion above R1.5m but less than R5m; 0.12% on portion above R5m0.63%1.5% up to R315 000; thereafter fixed at R4 725 p.a. and stays fixed until the total investment is worth more than R2 362 500. You’re then only charged 0.2% of the value of your investment.
0.58% p.a.0% if you choose Sygnia underlying fund; 0.46% p/a for an external fund for amounts up to R2m and 0.23% on portion above R2m1.035% for amounts up to R1m and 0.81% on portion above R1m but less than R5m; 0.58% on portion above R5m
Most popular Reg 28 (balanced) passive fundNedgroup Investments Core Diversified FundSatrix Balanced Index FundOUTmoderate index fundSatrix Balanced Index FundSygnia Skeleton Balanced 70 unit trust fund10x will risk profile you and allocate one of their funds. Fees are for the 10x High Equity Fund
Total Investment cost of above fund (incl VAT)
0.42% p.a.EAC fee breakdown unconfirmedSponsored by the all-in product fee above0.33% p.a.0.71% 0.46% p.a.0.135% p.a.
Combined total platform + total fund fee (incl VAT) on above fund choice1% p.a. for amounts up to R1.5m and 0.65% on portion above R1.5m but less than R5m; 0.54% on portion above R5mEAC for this fund choice unconfirmed but we know that the minimum total cost for an EE RA is 1.035% p.a.1.5% up to R315 000; thereafter fixed at R4 725 p.a. and stays fixed until the total investment is worth more than R2 362 500. You’re then only charged 0.2% of the value of your investment.
0.91% p.a.0.71% 0.46% p.a.1.17% for amounts up to R1m and 0.945% on portion above R1m but less than R5m; 0.715% on portion above R5m
Size of fund rangeFew passive funds but large active range (Allan Gray + several external fund managers)
Substantial passive and active range of balanced unit trusts and bundled ETFsRange of four OUTvest risk profiled fundsTwo Satrix Reg 28 passive fundsSubstantial passive and active range (Sygnia + many external fund managers)Own risk-profiled lifestage funds only
Service channels and qualityLatecomer to social media, but excellent service across all other channels.By far the slowest response time of all RA providers listed hereAvailable across traditional channels like telephone as well as digital channelsAvailable across traditional channels like telephone as well as digital channelsA Big improvement on email responses since a year ago. Also very quick to respond on TwitterExcellent response time and quality of interaction. Available across traditional channels like telephone as well as digital channels.

Source: Allan Gray | Easy Equities | Outvest | Satrix | Sygnia | 10X | gofreedom.co.za

The only reliable fees: ask for a full effective annual cost (EAC) breakdown

What struck me while gathering the fee data, is that you can’t always rely only on the fees you see quoted online. It’s vital to contact each provider and ask for a full effective annual cost (EAC) breakdown inclusive of VAT, specifically for the amount you’re investing and the underlying fund you’re selecting.

Here are the links to some of the fees online (but the quote you receive in your inbox is the one you should be able to rely on):

No reason to pay more than 1.2% in fees per year

Overall, it makes me really happy to see that with the majority of the above options you won’t pay more than 1.2% in fees per year. That’s a considerable improvement compared to what was available in the industry 15-20 years ago, when most RA products’ EAC was closer to 3%. (This is still the ball park figure for the more traditional RAs for sale today.)

For investment values below +/- R1 027 000, Sygnia with the Skeleton Balanced 70 unit trust fund currently has the lowest fees. For amounts above R1 027 000 Outvest beats its competitors.

If you’re interested in the Skeleton Balanced 70 fund and only concerned about fees, remember to ask for the unit trust fund (0.46%) and not the life pooled version of it, as the latter has the higher charge of 0.71%. The life pooled fund can invest in more interesting assets, though, which may sweeten returns.

The verdict: the best retirement annuity in South Africa

‘Best RA’ is about more than just the lowest fees. The fees keep on changing anyway as the transaction and other costs on the underlying fund vary from quarter to quarter. Make sure you’re happy with the level of service, and the digital slickness and payment process of your RA provider. Specifically, make sure that it will be quick and easy for you to add money to your retirement annuity in future. The ‘best’ retirement annuity in South Africa is as much about your actions as an investor and how often you invest as it is about the product. In the end, the best RA is the one to which you’ll be contributing as much as you can, as often as you can, at a low fee, and in the underlying fund that’s appropriate for the number of years you’ll be invested.

Article reposted with permission from Go Freedom.



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Comments

I’m Lizelle and I have no intention to retire from a working life. Only from my corporate life. I’ve been down many paths over the past 25 years: actuarial technician; investment performance analyst; product manager; hedge fund manager; client experience designer; finance forum owner; communication specialist; coffee stall owner; and Nia teacher (much fun). And I've been on a few sabbaticals, being a strong believer in proper breaks. I’ve been a salaried worker and a freelancer, and definitely prefer the latter. So, my next goal is to up-skill, cross-skill, invest in how I see my future self and save up some reserves, so I can return to the freedom of flexible work – for good. To me, financial freedom is a process; it's not an absolute destination.

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