Retirement income solutions - advising your clients

By Janice Roberts

Waldette Stoffberg

By Waldette Stoffberg, business development manager at Glacier by Sanlam.

Upon reaching retirement after a lifetime of saving, clients – together with their financial intermediaries – need to select the most suitable retirement income option for their needs.  People are living longer and it is crucial that they take into account their health and personal circumstances to ensure the solution they select will provide a sustainable income for the rest of their lives.

Ensuring a sustainable retirement income was behind National Treasury’s introduction of the Default Regulations to the Pension Funds Act, which became effective on 1 March 2019.

 Recap of the regulations

Essentially, the following was introduced:

  • Retirement funds now have to offer a default preservation fund for those who resign before retirement.
  • Trustees need to offer a default investment portfolio for members of the fund who don’t wish to select their own funds.
  • Retirement funds need to offer a default retirement income option for members who retire.  Once again, members may select another income or annuity option.  In addition, the trustees need to provide counselling and advice for members who don’t have an adviser.

In many instances, the default option may appear to be the easiest and most cost-effective option.  But consideration needs to be given to the client’s circumstances as well as the benefits and choices offered by each of the different solutions.

Considerations when selecting a retirement income solution

Glacier offers a range of retirement income solutions to cater for different needs. Some clients may still need to grow their capital aggressively into retirement, whereas others may be seeking more certainty and a guaranteed income to last throughout their retirement.  Glacier’s offering includes the Investment-Linked Living Annuity and the Investment-Linked Lifetime Income Plan, as well as the Sanlam Life Annuity – or even a combination of these.  Glacier’s Retirement Income Planner web-based tool lets intermediaries compare these retirement income solutions, or combinations thereof, and view income in both real and nominal terms – customised to a specific risk profile.

At Glacier we encourage all clients to seek advice from a qualified financial intermediary, before making any decisions.  Findings from the latest Sanlam BENCHMARK Survey show a 20% improvement in preservation rates for fund members who received counselling, compared with those who did not.

Looking at all the options

The need for financial advice becomes even more pertinent as the complexity of a member’s estate and financial planning needs increases.  When selecting an income solution, considerations should include a person’s expected longevity, level of savings, medical needs, whether their spouse needs an income and whether they still require a high level of capital growth.  In many instances, combining different solutions provides the best outcome, with the guaranteed portion covering living expenses, and the market-linked portion providing growth and a potential legacy.

Benefits of the Investment-Linked Living Annuity

Some of the reasons clients may benefit from selecting an Investment-Linked Living Annuity (ILLA) include the following:

  • ILLA’s offer a wide fund choice as clients can select from a universe of unit trusts as well as other underlying investment options – to cater for different risk profiles and how much growth the client is seeking.
  • Regulation 28 of the Pension Funds Act is typically recommended with post-retirement solutions, but is not enforced.  This means that those clients seeking more capital growth or offshore exposure have more flexibility around their asset class exposure.
  • Section 37C is not applicable to ILLAs.  This means that when the client passes away the trustees are not compelled to determine who the true beneficiaries are – the funds will be paid over to the named heirs.
  • Clients can choose an income of between 2.5% and 17.5% of the capital amount.  This percentage can be revised once a year.  Although there are no prescribed withdrawal levels, there are recommended tables to ensure a sustainable income.
  • Clients can combine money from their occupational retirement fund, retirement annuity or preservation fund into an ILLA.
  • Clients who select an ILLA could possibly leave a legacy for their dependents, if there is remaining underlying capital in the product at the time of death.

Peace of mind

Clients in Glacier’s ILLA have peace of mind knowing the policy is underwritten by Sanlam Life Insurance Limited and forms part of the Sanlam balance sheet.  Glacier is appointed by Sanlam as the administrator for the living annuity and the assets are therefore owned and monitored by Sanlam Life.

Retirement income strategies

Glacier allows clients to combine various retirement income options.  This often provides the optimum solution in terms of guaranteeing a monthly income that covers basic living needs, and a growth portion to facilitate capital growth.

Glacier Financial Solutions (Pty) Ltd and Sanlam Life Insurance Ltd are licensed financial services providers

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