With effect from 1 July 2016, members participating in the default Life Stage Programme are automatically moved through the following two phases as they approach normal retirement age:
- Accumulation Portfolio up to 5 years before normal retirement age
- Consolidation Portfolio – within 5 years before normal retirement age
An enhanced transition period was implemented on 1 July 2020 for members moving from the Accumulation Portfolio to the Consolidation Portfolio.
- The number of transition tranches amounts to 14 tranches over 3.5 years (i.e. quarterly over a period of 3.5 years).
- The conversion from the Accumulation Portfolio to the Consolidation Portfolio commences at age 59.5 years (i.e. 5.5 years before normal retirement age of 65).
- The conversion is processed once every 3 months over a period of 3.5 years (i.e. in 14 tranches). This means that the member share will be fully invested in the Consolidation Portfolio exactly 2 years and 3 months from the member’s normal retirement age (i.e. 3 months before turning age 63).
- All contributions made during the 3.5 years transition period are invested in the Consolidation phase.
The Board of Trustees is of the opinion that increasing the number of transition tranches can decrease the probability of a member being prejudiced by sudden or adverse market movements. This is also very much in line with most of the retail umbrella funds and municipal competitor funds.
The phasing process is automated and is handled by the Fund Administrator, so no actions are required from members.
How the life stage investment strategy works
The strategy sees to it that your member share is automatically invested according to how many years you have left until your normal retirement age. The younger you are, the longer you have to invest until retirement. As a result, your investment can be exposed to more risk and is placed in more aggressive strategies in an effort to earn higher returns. The older and closer to retirement you are, the more protection your retirement savings need. As such, your investment is shifted to less risky strategies, which may deliver lower growth, but will also keep your capital safe.
The life stage investment strategy automatically moves you through these phases – from a more aggressive investment approach (accumulation phase) with a focus on long-term capital growth when you are younger than 60 to a more protection-focused approach (consolidation phase) as you near retirement age.
Importantly, this strategy ensures your easy transition at retirement, enabling you to choose to have your retirement savings automatically invested in a living annuity in the fund when you retire. The in-fund living annuity will provide you with a pension income during your retirement years.
The transition through the two phases of the life stage portfolio are illustrated in the diagram below:
Below are some of the benefits that life stage investing gives you:
- Cost effectiveness and simplicity of design that requires minimal intervention from you
- Protection of your retirement benefits against the effects of inflation
- Enhanced or optimal returns during your pre-retirement cycle or protected returns during the transition phase close to your retirement
- Acceptable risk levels given your time horizon to retirement
- Access to funds managed by top investment managers
- Easy and seamless transition of your member share into a living annuity when you retire.
To prevent you from being prejudiced by sudden or adverse market movements, your member share when being switched from the accumulation phase to the consolidation phase will be transferred in two tranches:
- 50% of your exposure at the beginning of the month following your attainment of age 59.5 years and
- 100% of your remaining exposure at the end of the month in which you attain the age of 60 years
All contributions made during the 6 months transitional period will be channelled to the consolidation phase. At the end of the second tranche, you will be fully invested in the consolidation phase.
This strategy is the fund’s default investment strategy which means that if you do not elect an investment option on joining the fund, your total contributions will be invested in the appropriate phase of the Life Stage strategy.
Alternatives to the Life Stage investment strategy
While the life stage strategy is the default investment approach for the LA Retirement Fund you are allowed to choose not to invest in it and you can instead invest in any of the two underlying phases, namely the accumulation (aggressive) phase or the consolidation (moderate) phase. In addition to making use of one or both of these two life stage phases as stand-alone investment options, you also have an option to invest in a conservative, low-risk option known as the preservation portfolio with a focus on capital preservation and the cash plus option. The cash plus option addresses capital risk and may be considered by members who are very close to retirement and who do not wish to be exposed to negative returns in the short period leading up to their retirement and may be considered by members planning to take a large part of their benefit as a cash lump sum. The Shari’ah portfolio complies with Islamic investment principles and the investment managers satisfying the guidelines and standards as set from time to time by the Islamic Accounting and Auditing Organisation.
Changing your investment
You can change your investment selection while you are a fund member. You are allowed a maximum of two switches per fund year (i.e. between 1 July and 30 June) and the first of these switches is free. A switching fee of R350 (incl VAT) is charged for the second switch. This fee is taken from your member share being switched. It is recommended that you speak to a financial adviser before making the decision to switch your retirement investments.
About the in-fund living annuity
As a member of the fund, you have the option of moving a portion of or all your retirement savings into a living annuity provided by the fund when you retire. Investing in this living annuity is effectively the same as ‘buying’ a pension.
At retirement when you invest in the in-fund living annuity, you select one of two options which will determine the investment of your retirement capital and the amount of your monthly pension:
- Default Trustee endorsed option: This means that your savings are invested for you in the consolidation phase of the fund. The amount of money you can take (draw down) from your retirement capital as a pension income is a fixed percentage of your retirement capital. This percentage then increases every five years.
- Customised option: You can choose to invest in any one or more of the LA Retirement Fund’s three investment options (i.e. the accumulation, consolidation or preservation phases). This flexibility also allows you to choose the investment option from where your monthly income must be paid. In addition, you are required to select your draw down rate from a range applicable to your age band. This effectively allows you to choose the percentage of your total retirement savings you can access as your pension income. You can then adjust this draw down rate every year by selecting the appropriate rate to meet your needs from the range provided.
As an in-fund living annuitant, you may elect to switch from the default Trustee endorsed option to the customised option and vice versa once a year on 1 July.
Of course, you don’t have to invest your retirement savings in the LA Retirement Fund living annuity when you retire. You also have the option of investing your savings in any other annuity you choose, or taking some, or all, of your savings in cash.