Insurance | Financial Planning | Retirement | Investments | Wealth

DEFAULT ANNUITY STRATEGY

Karen WentzelHead of Annuities: Sanlam Corporate

CRUCIAL DECISION POINTS

job marriage house children

based on fairly solid assumptions

CRUCIAL DECISION POINTS

advice recoverlife

lessonfamily &friends

if things don’t go according to plan …

TRANSITION … INTO RETIREMENT

limitedmeaningful

adviceunfamiliarterritory

decisionsmay be

irreversible

requires crucial decisions – rarely anticipated

family &friends

CENTRAL … TO ANY PLANNING PROCESS

WHAT AFFECTS QUALITY OF LIFE … IN RETIREMENT?

lump sumand othersavings

optimalstructureto convert

into income

to create income for rest of life

CHOICE OF ANNUITY?often hard to align to retiree needs

Regulation 39 of the Pension Funds ActAnnuity strategy must be appropriate and suitable for membersReasonable and competitive fees and chargesReviewed annuallyMay include traditional life annuities and living annuities

being paid from the Fund or

an external provider

Members given access to retirement benefits counsellor at least 3 months before retirement date

TRUSTEE-ENDORSED ANNUITY STRATEGY

⧁ Features of default annuity strategy

• Longevity protection and an income for life

• Annuity income that keeps pace with inflation.

⧁ Over and above the annuity products, that were important to trustees in appointing a provider for their default strategy were:

• The cost of the product

• The security of the product provider.

From Benchmark Survey

TRUSTEE-ENDORSED ANNUITY STRATEGIES

⧁ With-profit annuities

⧁ Living annuities

⧁ A combination of different annuities

MOST POPULAR ANNUITY PRODUCTS SELECTED

RETIREMENT TRILEMMAaccess to

good returns

protectionof risks

access tocapital

no productcan deliver in

all three areas

two at best!

SOURCE: DR DAVID KNOX, PARTNER AT MERCER IN AUSTRALIA

⧁ In the Benchmark Survey participants indicated that if they wanted to distinguish the trustee-endorsed annuity strategy for different categories of members, applying the following factors would be the most appropriate way to do so:

• Size of the member share

• Demographic profiling (age, income group)

• Employee type (professional, blue collar, specialist).

DISTINGUISH THE TRUSTEE-ENDORSED ANNUITY STRATEGY

LIFE ANNUITIES

⧁ Initial pension and annual increases are guaranteed

⧁ Pensioners do not carry any risks

• Longevity

• Investment risk

⧁ Annual increases on policy anniversary as specified upfront

• published inflation: Inflation-linked Annuity

• fixed %: Guaranteed Escalation Annuity

• Investment returns The Complete Picture Pension/With profit annuity

LIFE ANNUITIES

⧁ Features of life annuities

⧁ Spouse pension after death of main member

⧁ Guaranteed period

⧁ 0/5/10 years

⧁ Thirteenth payment

⧁ Additional payment in December

⧁ Death benefit

⧁ Additional monthly pension after death of the main member

LIFE ANNUITIES

ProductSpouse %• 50% / 66% / 75% / 100%

Increase date• 1 March

13th chequeGuaranteed period• 0 / 5 / 10 years

Death benefit

TRUSTEE DECISIONS FOR LIFE ANNUITIES

Unique & innovative quotation programmeE-NNUITY?

WEB Based Access anywhere & at anytime …only browser required

Time-saving & less paperwork

User friendly “Real-time” values Instant quotations at the “push of a button”

LIVING ANNUITIES

in a perfect world- personal advice- tailor living annuity

to both accumulatedfunds and lifestyleexpectation

‘

’ advice fee structure

scalable proposition that worksfor the trustees of a large fund

FSCA released a standard that living annuities have to comply with to be part of a trustee-endorsed annuity strategy

Why is there a need for the standard?Member may deplete retirement capital

Living annuities currently makes up more than 90% of annuity market

Features of the criteriaStringent drawdown criteria

Regular measurement of income sustainability

LIVING ANNUITY CRITERIA

Stringent drawdown criteria

LIVING ANNUITY CRITERIA

Age Males Females55 4.5% 4.0%60 5.0% 4.5%65 5.5% 5.0%70 5.5% 5.0%75 6.0% 5.5%80 7.0% 6.0%85 8.0% 7.0%

Versus ASISA averages December 2017Average drawdown rate (unweighted) 9.08%Weighted by asset value 6.64%

⧁ Living annuities in the Fund

⧁ Living annuities from an external provider/insurer

• Basic product 2 portfolios/Regulation 39

• Standard product 4 portfolios/Regulation 39

⧁ Living annuities from an external provider/insurer as additional option

• Standard product >4 portfolios/Non-regulation 39

TRUSTEE ENDORSED LIVING ANNUITIES

Administration

Advice

Investment

WHAT IS IMPORTANT?

BASIC OPTION

designer homelow cost housing townhouse

• Administration on the Sanlam platform• Narrower range of investment choices …

- underlying investments into predetermined Sanlam.- institutionally priced investment portfolios (agreed with Funds).

• Drawdown rates limited to rules pre-determined agreement - Fund / Sanlam.• No fees for advice applicable.

- member services by Sanlam retirement counsellors- via Internet and call centre / assist members making own choices / decisions. - counsellors trained to provide information from a pre-selected product range.

cost-effective solution,balanced against limitedmember choice.

STANDARD OPTION

• All features of Basic option, with the addition of access to Sanlam Advisor or an Independent Financial advisor.

• Two advice options- Retirement Fund adviser (salaried advice)- Capped fee adviser – (‘fixed price building plan’).

A cost effective solution, with a degree of investment choice and the opportunity for all decisions (especially draw down rate calculations), to be guided by expert face-to-face advice, at a capped rate

designer homelow cost housing townhouse

ANALYSIS OF LIVING ANNUITY MEMBERS

members are invested too conservatively

significantly impactedby the market returns shortly after retirement.

members that do invest in aggressiveportfolios targeting real returns

Allocation equal to 5 times annual draw down percentage in a protection portfolio (i.e. if drawdown rate = 5%, then 5 x 5% = 25% will be allocated to the protection portfolio)

⧁ Real returns⧁ Short term downside protection⧁ Mitigate sequencing risk

Remaining member value will be allocated to an more aggressive portfolio where member in consultation with counsellor or advisor can choose between three portfolios

⧁ Long term real returns

⧁ Growth over long term for income sustainability

INVESTMENT BUILDING BLOCKS … COST VS SUSTAINABILITY

INVESTMENT CHOICE?

Protection portfolio: Sanlam Stable Bonus

Aggressive portfolio(s):Single manager active portfoliosSanlam Multi-Manager portfolios

Satrix Passive portfolios

Basic Standard

Option 1 Option 2 Option 3

Service options Call centre supportNo advice

CounsellingNo advice Salaried advisor Own advisor

<R2m 0.30% 0.40% 0.55% 0.40%

Next R1m 0.25% 0.30% 0.45% 0.35%

Next R4.5m 0.15% 0.20% 0.35% 0.20%

>R7.5m 0.10% 0.10% 0.25% 0.125%

SANLAM FEE – SLIDING SCALE

⧁ Product

• Basic, Standard

⧁ Investment portfolios

⧁ Drawdown rates

⧁ Counselling/advice

• No advice, salaried advisor, own advisor

TRUSTEE DECISIONS FOR LIVING ANNUITIES FROM PROVIDER

Living annuityIn-fund trusteed endorsedIn-fund extended range

Life annuityGuaranteed escalation annuity (5%)5 year guaranteed period75% spouse pension

SANLAM UMBRELLA FUND

80 retirement funds used SEBI Annuity for Trustee-endorsed annuity strategy

Guaranteed Escalation Annuity 33 funds

The Complete Picture Pension 30 funds

Inflation-linked Annuity 15 funds

Level Annuity 3 funds

SEB Living Annuity 32 funds

STANDALONE FUNDS

Institutional life annuities flows from individuals in 2019

Guaranteed Escalation Annuity 74%

The Complete Picture Pension 1%

Inflation-linked Annuity 18%

Level Annuity 7%

LIFE ANNUITY FLOWS

ON-GOING ANALYSIS

working group: the Fund and Sanlam team

analyseand refine

straight-forward

costeffective

look foralternatives

NEVER LOSE SIGHT OF OUR RESPONSIBILITY

to ensure every client, and every fund member is able to accumulate wealth to secure a better quality of life, with flexibility at all times.

‘’

Sanlam Life Insurance Ltd is an authorised financial services provider.

The material is meant to provide general information only and not intended to constitute accounting, tax, investment, legal or other professional advice or services. Thisinformation should not be acted on without first obtaining appropriate professional advice. The use of this document and the information it contains is at your own risk andneither Sanlam nor any of its subsidiaries shall be responsible or liable for any loss, damage (direct or indirect) or expense of any nature whatsoever and howsoeverarising. While all reasonable attempts are made to ensure the accuracy of the information, neither Sanlam nor any of its subsidiaries makes any express or impliedwarranty as to the accuracy of the information. Past performance is not necessarily a guide to future returns.