A Fin24 user writes:
Is a Section 14 transfer from a life insurance company to a unit trust company/linked investment service provider (Lisp) a sensible decision?
My broker has advised me to make the transfer at no cost and commission. The life company says that such a transfer would be most detrimental to my portfolio. I have not experienced any exciting growth within my retirement annuity (RA) with the life insurance company.
Bouwer du Plessis, market specialist for senior market advice at Sanlam, responds:
Before we continue with the discussion, let’s quickly lay out what a Section 14 transfer is.
This type of transfer is the moving of assets funding a member’s benefits in an approved fund to another approved fund or to any other person.
Whether this would be a sensible decision depends on a few factors.
1. Cost: if you are currently contributing to your RA on a monthly basis, you will incur a penalty if you stop the RA and transfer to a Lisp.
In most cases this would not be advisable.
2. Reduction in yield (RIY) is the impact of all costs on your investment return. For example, if the RIY is 3% and your investment has performed at 13%, your part of the return will be 10%.
If you have an RA that has already been paid up or matured, a Section 14 transfer to a Lisp can be considered. The test here is RIY: will my total cost to invest be more or less than on the life platform?
To establish this, you need to compare the same funds on the life platform with the same funds on the Lisp platform and calculate reduction in yield. (In other words, compare apples with apples.)
The transfer has to be done at no cost and no commission; do, however, be wary of making an existing RA paid up, as this will incur penalties.
There can be various reasons why your RA has not grown, and the following does need to be kept in mind: an RA is the vehicle that we use to invest into investment funds which, based on certain criteria, provides a tax deduction on contributions.
Growth in the RA is 100% dependent on the investment funds selected as underlying assets and their performance.
Most life platforms allow for the underlying funds to be changed, at no cost.
If your RA has not performed, review the funds first before considering a Section 14 transfer - you will most likely find that to be the reason for your lack of performance.
A simple fund switch could address this problem and re-position the RA as opposed to a Section 14 transfer.
If you have been invested in an offshore portfolio the growth over the past two years would not have been the same as, for example, a local equity portfolio.
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