In this post I will be giving an overview of Living Annuity Platforms and comparing them from a South African perspective.
What is a Living Annuity?
A living annuity is an investment product that usally takes a single big contribution once as a lumpsum, usually from the proceed of the death of a family member or when you retire from your retirement annuity or similar product.
It must pay you an income in the form of monthly payments from 2.5% to 17.5% of the total value each year.
It is important to choose a living annuity provider service provider platform that has low fees and the ability to invest in many different funds - if you want to ensure your wealth grows.
What are Living Annuity Platforms?
A living annuity lets the owner choose where to invest the money inside it.
The money will be deposited into a living annuity platform, which is usually a website or portal that you can use to view and manage your investments inside the living annuity. Often people that are not too savvy with money and financial matters will use a financial planner or asset manager to set up and control the funds.
The correct terminology is a LISP, a Linked Investment Service Provider. These financial intermediaries provide access to a range of funds from different management companies. There is a lot more information on LISP's and what they are on the Asisa website.
The Pitfalls of Letting a Fund Manager Control your Living Annuity
Most people think they can just leave the management of their money to a financial planner or asset manager to grow the money in their fund. These people will pay a fee for the advice and investment choices are left up to the advisor. Then everything will be fine until retirement...in theory.
This is not how it works in reality.
In life things are rarely this easy.
Asset Management companies are for profit, they will look to maximise their profit through fees and are not your friends that are going to be looking out for youand your life.
Why you should manage your living annuity fund yourself:
- The EAC (Effective Annual Cost) of the whole investment including the investment management fee, advice, administration and other costs make up the Effective annual cost. This can be as high as 4- 5%. Which means if youare drawing the minimumof 2.5% per annum your fund manager is taking (stealing) more than you are each month.
- Fund Managers and Advisors will recommend and sometimes lock you into using their funds, even though other funds are of a higher quality, have had better returns and may be better suited for your portfolio. You will be using under performing funds simply because the fees on this fund go to the company of the person advising you. For example if you use PSG asset managers they will advise you/manage your investment to be fully invested in PSG funds. Which means they get 100% of the fees.
- The highly specialised buying and selling of assets is not a highly specialised thing. Most people trading on financial markets do not know the future. They are simply investing in a diversified set of companies, portperties and bonds which usually track an index. The amateur investing in a market / passive fund tracker like an ETF outperforms active investment management professionals on average. Warren buffet $1m for a charity with this call.
- The number 1 reason is that it is your money, you should be responsible for it and understand exactly why, what and how things are happening the way they are. You can't simply believe the tricks of fund managers showing you fake predictions for the future. Most of these don't take into account the reality that markets sometimes do badly.
- Fees are constant, your returns are variable. Whether you make lots or little you will be paying a fixed amount of fees each year that can wither away the value of your living annuity.
Living Annuity Platform Comparisons
I have looked around the web and there aren't many comparisons of Living Annuity Providers / LISP's (Linked Investment Service Provider). There providers are usually part of the asset manager themselves and seem to only offer funds from their own stable. Nonetheless, I have searched for the different paltforms and will show you the comparison in fees and eligible funds below.
| Platform Name | Min Platform Admin Fee | Fees on Local Funds | Fees on external Funds | Number of Funds Available | Expense ratio on R10m (external) | Notes |
|---|---|---|---|---|---|---|
| Sygnia Alchemy | 0 | 0% | 0.5% | 62 | 0.25% | Fee on external funds over R2m is 0.2% |
| Glacier by Sanlam (Partner of Satrix) | R64 | 0.84% | 0.84% | 927 | 0.275% | 0- R350k: 0.84% R350k - R800k: 0.56% R800k - R1.05M: 0.39% R1.05M - R5.05M: 0.28% Above: 0.22% Inclusive |
| Allan Gray Platform | 0 | 0.2% | 0.5% | 67 | 0.238% | 0.5% on the first R1.5m invested, 0.2% on the next R3.5m and 0.1% on the balance over R5m. For any investments in Allan Gray unit trusts we charge a flat annual administration fee of 0.2% (excl. VAT). |
| OPN/PPS LIVING ANNUITY | 0 | 0.5% | 0.5% | ? | 0.238% | On the first R 1,500,000: 0.5% Thereafter: 0.2% |
| PSG Wealth | 0 | 0.350% | 0.575% | 460 | 0.217% | 0 - R1.5M: 0.575% (0.350% on local) R1.5M - R6M: 0.23% Above: -0.115% |
| Absa Linked Investments (AIMS) | R228 | 0.75% | 0.75% | ? | 0 - R250k: 0.75% 250k - 750k: 0.5% Above: 0.25% |
|
| Ashburton Investments | 0 | 0% | 0.46% | 97 | 0.261% | R1m:0.45% R2m: 0.35% Above R3m: 0.22% |
| Coronation Fund Managers Living Annuity | 0 | 0 | N/A | 23 (Only Coronation Funds) | 0% | Locked in to only using Coronation Funds |
| Alexander Forbes Global Platform | 0 | 0.7% | 0.7% | 10 - 20 | 0.7% | |
| Capricorn Asset Management | ||||||
| Cidel | ||||||
| Discovert Invest | ||||||
| INN8 Offshore | ||||||
| INN8 Onshore | 0 | 0.5% | 0.5% | https://inn8.co.za/offshore/#our-proposition | ||
| Liberty Bold | 1% | 0.5% | 0.5% | 190 | 0.25% | 0.5% for investments up to R1 million, - 0.35% for investments greater than R1 million, - And 0.25% for investments greater than R3 million. |
| Nedbank Private Wealth Focus | ||||||
| Wealthport | R20 | 0.5% | 0.5% | |||
