Should I make any changes to my savings and investment plans?
As one can expect, COVID-19 is currently having a negative impact on global financial markets, and the disruption caused will probably continue for a few more months. However, after being impacted by global turmoil previously, the markets have always recovered and will do so again – it may just take some time. It is now more important than ever that you remain level-headed and continue to stay the course on your savings and investment journeys. Making changes to your investment strategy at this stage can result in you not benefiting from investment returns when the market turns upwards again. Please consult with a financial planner before you take any action regarding your savings and investments
Should I rather stop my monthly contributions now and reinstate them again when the markets have recovered?
No. You should not stop any recurring contributions you are making to any savings product. The best way to take advantage of volatile markets is with a recurring contribution product, because with lower average unit prices over a period of time when the market is down, you will be able to buy more units compared to when the market is up. This is referred to as rand-cost averaging. History has shown us that the market will rise and fall over time, so instead of shying away from investing when the market experiences downturns, rather keep making recurring payments to benefit from rand-cost averaging to really get ahead when things improve again. Please consult with a financial planner for more details about this and the options available to you if you cannot temporarily afford your current savings contributions.
Do I have an option to temporarily stop my monthly contributions?
Sanlam Life offers a payment holiday or bridging period on qualifying savings plans to accommodate clients who are experiencing a temporary lack of income and help them retain their plans. This refers to the period of time that we will allow recurring payments to be missed, provided that our requirements at that time are met. It is not necessary for the missed recurring payments to be paid after the payment holiday period has ended. Irrespective of whether a plan qualifies for a payment holiday period or not, reducing the recurring payment amount to an affordable amount is always an option. You can then always increase the payment to the current level (or higher) when you can afford to do so again versus having to reinstate the plan within 12 months (if the plan doesn’t qualify for a payment holiday period). We strongly urge you to speak to a financial planner about your options or send an email to our Client Care Centre (CCC) at life@sanlam.co.za. Please be aware that during this time, response time may be slower than normal due to the fact that the CCC is operating with reduced staff, but rest assured that they will definitely respond in due course.
I am worried about suffering further losses. What should I do?
We understand that clients may be scared as they want to protect their savings and not suffer any further losses. History taught us that markets recover from short-term fluctuations, such as the current conditions. Making changes to your investment strategy at this stage can result in you not benefiting from investment returns when the market starts to recover. Unfortunately, we cannot predict when this will happen, but it should be emphasised that saving for retirement is a long-term strategy requiring patience and persistence. Now more than ever, “it is not about timing the market, but about time in the market” is true. Please consult with a financial planner before you take any action regarding your savings and investment plans.
How will my savings be affected by COVID-19?
If you are invested in market-linked portfolios, over the short term, you will most likely experience negative returns. However, history shows it is not uncommon for markets to react negatively and then to recover over the medium to long term. History has also taught us that, in time, there will be a recovery in the financial markets. As one can expect, the current negative impact on global financial markets and the disruption caused will probably continue for many more months. Please consult with a financial planner before you take any action regarding your savings and investment plans.
Is my retirement savings protected against market uncertainties such as that caused by COVID-19?
Retirement fund portfolios are not only invested in equities but are spread across various asset classes – such as bonds, property, cash and international assets – to reduce underlying risk. Your retirement savings are also protected (but not guaranteed) by the limitations of exposure to asset classes enforced by Regulation 28 of the Pension Funds Act if you are invested in funds that are Regulation 28 compliant. Even if you invest in portfolios which are non-Regulation 28 compliant, it is still a requirement that your portfolio as a whole needs to be Regulation 28 compliant. If you are invested in a lifetime investment option, your monies are moved from high-risk portfolios to lower-risk portfolios as from six years before your normal retirement date. Lower-risk portfolios have less equity exposure, which reduces the impact of the falling markets. The lifetime investment option is constructed using reliable investment principles, which are based on a long-term investment approach. Whether you are invested in a lifetime investment option or have specifically chosen your own investment portfolios, we strongly urge you to consult with a financial adviser, for more details about your current portfolio.
What is Regulation 28 of the Pension Funds Act?
Regulation 28 gives effect to Section 36(1)(bB) of the Pension Funds Act, which limits the extent to which Retirement Funds (like retirement annuity funds) may be invested in particular kinds or categories of assets by limiting the maximum exposure to more aggressive asset classes when investment fund selections are done. It plays a vital role in trying to ensure that members’ retirement savings provide them with sufficient income in their retirement. The most important Regulation 28 asset class limits are as follows:
- Equity 75%
- Listed Property 25%
- Offshore Assets 30%*
- Hedge funds 10%
*As prescribed by the South African Reserve Bank.
We urge you to consult with a financial planner for advice and assistance to determine the most appropriate investment strategy and portfolio for your retirement savings and your planned post-retirement income strategy.
Must I switch my money to another portfolio to reduce the risk exposure to equity markets?
It is very important not to make any hasty decisions in the moment, based on fear. Switching to a lower-risk portfolio can lead to “locking in losses”. Remember, cashing in at a low point makes a paper loss a real loss. The best way to deal with uncertainty is through proper financial planning, together with patience and persistence with your investment strategy. Making emotional decisions, based on short-term market fluctuations, may result in more harm than good and destroy the long-term value to your savings. If you have a retirement savings plan and you are invested in a lifetime investment option, your monies are moved from high-risk portfolios to lower-risk portfolios as from six years before your normal retirement date. Lower-risk portfolios have less equity exposure, which reduces the impact of the falling markets. The lifetime investment option is constructed using reliable investment principles, which are based on a long-term investment approach. Whether you are invested in a lifetime investment option for retirement savings or have specifically chosen your own investment portfolios for any of your savings and investment plans, we strongly urge you to consult with a financial planner, if you have not done so already, so that you make sound financial decisions.
How will my retirement savings be affected if I am close to retirement?
The best way to deal with uncertainty is through proper financial planning – this means an appropriate investment strategy and portfolio for your retirement savings which is aligned with your planned post-retirement income strategy. Discuss the options that are available to you with a financial planner, before you make any changes to your investment portfolio selection or your planned retirement date. If you are invested in a lifetime investment option, your monies are moved from high-risk portfolios to lower-risk portfolios as from six years before your normal retirement date. Lower-risk portfolios have less equity exposure, which reduces the impact of the falling markets. The lifetime investment option is constructed using reliable investment principles, which are based on a long-term investment approach. Whether you are invested in a lifetime investment option or have specifically chosen your own investment portfolios, we strongly urge you to consult with a financial planner, if you have not done so already, so that you make sound financial decisions which are aligned to your retirement plan.
What will the impact be if I choose to retire in the very near future?
We strongly urge you to consult with a financial planner, if you have not done so already, for reliable assistance. One of the options that you can discuss is to leave your retirement savings (with or without further contributions) until such time that the markets have recovered and you are ready to buy a pension. This means you postpone the payment of your retirement benefit in order to try to leverage from any gains when the market recovers. Unfortunately, we cannot predict when this will happen but as one can expect, the current negative impact on global financial markets and the disruption caused will probably continue for many more months.
Is my portfolio guaranteed if I am currently investing in Sanlam Escalating funds?
If you are investing in Sanlam Escalating funds, your savings are protected but not guaranteed. What this means is that a Sanlam Escalating fund invests in a combination of cash and the corresponding unit trust. The allocation between cash and the corresponding unit trust is not fixed – it varies according to market conditions. Due to the significant decline in financial markets, the cash component of a number of Sanlam Escalating funds significantly increased over the past few weeks. From this point, should the market value of the corresponding unit trust increase, clients who are invested in the Sanlam Escalating equivalent will participate in a proportion of the growth only. The proportion will depend on the amount allocated to the corresponding unit trust. Alternatively, from this point, should the market value of the corresponding unit trust decrease further, the fund value of clients invested in the Sanlam Escalating equivalent will decrease by a smaller amount because of the low exposure to the corresponding unit trust. Please consult with a financial planner for advice and assistance to determine the most appropriate investment strategy and portfolio for your savings.
What is the impact on the bonuses if I am investing in the Vesting Bonus Fund?
The growth in the Vesting Bonus Fund is smoothed out over the term as the fund aims for moderate growth over the longer term. It targets inflation-beating returns over the long term. The negative impact on global financial markets due to COVID-19 also affects the assets in the Vesting Bonus Fund and its investment performance. Investments in the fund grow through bonuses that Sanlam declares. During periods of where the chosen investment assets perform well, a portion of the fund’s growth is not declared as bonuses. Instead, it’s held back so that in times of poor investment performance Sanlam can declare bonuses that wouldn’t otherwise have been possible. From time to time, and especially in extreme market conditions, this smoothing process can result in significant surpluses or deficits in the investment portfolio.