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SPONSORED FEATURE

LAURA DU PREEZ

Younger South Africans who spenttime with retirees as part of theGlacier by Sanlam #FutureFWDcampaign have contemplated theeffects of inflation on the cost of liv-ing in retirement.

In the project, Thoban Jappie, 42,a social media businessman, waspaired with retired doctor TommyBlake, 65, Bailey Schneider, 32, aradio and television presenter, withSarah Ravenhill, 56, who formerlyran her own tourism business, andCandice Bresler, 29, a public rela-tions executive, with former restau-rateur, Michael Olivier, 69.

On a shopping trip with Blakeand his wife Sakina, Sakina toldJappie that when she started buyingostrich steak 20 years ago, it costR6.99 a kilogram. It now costs overR60 a kilogram.

“This exercise made me starklyaware of the cost of living and theimpact of rising inflation. My imme-diate thoughts are: what will thecost of food be in my retirement,and will I have saved enough to sus-tain my standard of living?” Jappiewrites in an Instagram post.

Inflation is an important factor toconsider when you plan your retire-ment, but you need to focus less onhow many times the cost of yourgrocery basket will increase over

your working life, and more on howyour savings match your retirementneeds and grow at an inflation-beating return.

The earlier you start to save, thebetter your chances are of your sav-ings meeting your retirement needs.

As you save for retirement, your

aim should be to save enough togenerate a decent income, and youwill typically achieve this by target-ing a certain income replacementratio, which is your pension as a percentage of your final salary.

Employer-sponsored retirementfunds aim for target income replace-ment ratios of between 60 and80 percent if you save for between 30and 40 years. But there are problemswith these targets, and self-emplo-yed people need to create their owntargets. For these reasons, youshould regularly check that whatyou are saving (your contributions)and the growth on your savings areon track to deliver your incomeneeds in retirement.

Here are the things you, or yourfinancial adviser, should regularlycheck and consider:

u What percentage of yourincome you will need to live on in

retirement. Give some thought to:q What you want to do in retire-

ment (see “Retirement can be fun”);q Your potential medical needs; q Who you will be supporting.

The younger #FutureFWD partici-pants discovered that retirees oftensupport dependants – Ravenhill supports a sister with Down’s syn-drome and Blake supports his 95-year-old mother.

u How your retirement incomewill increase. Considering how longyou may live, especially with increa-sing longevity, your income must atleast keep up with inflation. Provid-ing for an income that increaseswith inflation will require moresavings than providing for a levelincome. The inflation you experi-ence in retirement will differ fromthat which you experience as aworking South African (see below).

u What you will accumulate at

your current savings rate. Checkthat your savings returns are beat-ing inflation by a sufficient margin.

u The income your savings willprovide at retirement. If you are noton track, there are only three thingsyou can do to improve matters:

q Save more;q Save for longer (delay your

retirement); orq Take more risk by exposing

your savings to a higher level ofgrowth assets, such as listed equi-ties. But bear in mind your own tol-erance for risk, the prudentialguidelines in the Pension Funds Actfor retirement savings (Regulation28) and the fact that exposure tohigher-risk assets is a long-termstrategy and may work against youin the short term.

RETIREMENT INFLATIONThe inflation you are exposed to inretirement may differ from that inyour working life. According toGlacier, the reasons are:

u The older you are, the morecomprehensive your medical cover

needs to be. Comprehensive covercosts more, will consume a largerportion of your budget and willincrease each year at a higher ratethan inflation – on average, four per-centage points above inflation.

u You may be less affected bytransportation costs, as you areunlikely to commute as much assomeone who is working.

u You may be less affected by theprices of electronic goods, take-away foods and other luxuries, aspensioners typically spend less onthese goods.

u You should ideally have paidoff your home loan and vehicle and other asset finance, whichmeans you shouldn’t be exposed to changes in lending rates.

u As a pensioner, you will mostlikely spend a larger portion of yourbudget on electricity – and be af-fected by increases in energy costs.

u Go to www.glacier.co.za/personal/retirement for more on the#FutureFWD campaign and forlinks to the participants’ blog sites.

Don’t put your head in the sandand refuse to think aboutretirement because you view it as a sad time of life for old people.This is a key lesson the threeyounger participants in Glacier bySanlam’s #FutureFWD campaignhave learnt.

In fact, they have realised thatplanning for retirement can ensureyou have enough money to makeretirement the time you do all thethings you never had time to dowhen you were working.

“Chatting to Michael [Olivier] –and seeing how busy his diary is –has changed my idea ofretirement. It’s not just staring outof the window or polishing golfclubs. I can well believe thatMichael is busier now than he waswhile he was ‘working’,” CandiceBresler says. “Michael’s winecollection has inspired me. WhenI’m 69 I would love to have a goodfew hundred bottles stored athome. He kindly showed me somebottles from 2011 – the year heretired. I wonder which vintage I’llretire in!”

Thoban Jappie and ThomasBlake attended Blake’s church, artclasses and Grandparents’ Day atBlake’s grandson’s school duringtheir time together.

“Tommy is amazing! He’s veryactive – working within his churchcommunity, as an online doctordispensing medical advice, andhe’s very involved with his familyand grandkids, plus doing thingsaround the house. He’s made merealise that retirement is the start ofa great period of your life, whereyou’ll be able to do things on yourterms,” Jappie says.

After witnessing SarahRavenhill’s active life, and sharing aparagliding experience together,Bailey Schneider comments:“Sarah has absolutely opened myeyes to a world after work. I’m socareer focused, but I’m alsolooking forward to that chapter …I’ll only be able to look forward to itif I plan financially. I’ve stoppedspending frivolously and now,more than ever, I want to investwisely and really save properly. I’vealso looked at my health from afresh perspective. For so long itwas about losing weight … butnow it’s about being healthy and fitso that I can hopefully do all thethings I want to as I get older.”

Candice Bresler says she has realisedher current spending habits andfinancial health need a rethink: “I tendto sometimes live outside my means inorder to maintain the lifestyle I enjoy.”

She realises she needs to divertmoney to saving for retirement: “Notonly will my retirement be moreexpensive, but it will possibly last for adecade longer than previousgenerations.”

Thoban Jappie has also realised heneeds to reassess his spending, asTommy Blake has always led a frugallifestyle, which now enables him to livecomfortably in retirement without

cutting back. “In comparison, mytreats seem rather extravagant. Lastyear I bought myself an old motorbike,and this year a new camera,” Jappiesays.

Summing up the lessons he haslearned, he says he has two key take-home messages: “Start exercising –good health is the best investment!

And I’ve just started actually putting afixed amount aside to contributetowards my retirement, in an accountthat will remain untouched.”

Bailey Schneider admits#FutureFWD forced her to think aboutretirement for the first time. “I’mdefinitely not being an ostrich anymoreand sticking my head in the sand. I

have set up a proper savings accountthat earns better interest. I am lookinginto retirement annuities and I’d reallylove to invest in property. I feel proud ofmyself for being adult about myfinances – it’s a great sense ofachievement and accomplishment.I’ve also upped my exercise regime.I’m looking at exercise in a whole newlight now. I want to be fit and healthyforever ... not just when I’m young.

“I’m really excited for retirement,”she says, adding that she will “spendtime with my husband, future childrenand even grandchildren, as well as findtime to travel or take up hobbies.”

u Tommy Blake: Devote moretime to the things that really matter– family and personal well-being.

u Michael Olivier: Save more and,as Candice Bresler puts it, “cutdown on frills”.

u Sarah Ravenhill: Most of thechallenges I encountered camefrom inadequate financial andinvestment knowledge. Meet witha financial planner who is not out tomake a quick buck. Learn abouthow retirement funding is based onfinancial calculations. Learn aboutinflation. Make sure you have goodmedical cover and that you canafford the increases.

Retirementcan be fun

Beware impact of inflation onretirement costs

Lessons learned from #FutureFWD

Advice retireeswould have giventheir younger selves

Retired physician Tommy Blake stocks up on groceries. Food fundi Michael Olivier selects a 2011 vintage, the year in which he retired.

Glacier by Sanlam provides financial solutionsto the affluent market, in partnership withfinancial intermediaries. Endorsed by Sanlam,the company offers a wide range of financialsolutions, designed to assist clients to createand preserve their wealth throughout theirlifetime. These solutions include local andinternational investments, stockbroking, as well as comprehensive short-terminsurance and risk cover for both personal and business assurance. Forretirement, Glacier provides solutions to save for retirement, to preserveretirement benefits and to provide a retirement income. For more information,please visit www.glacier.co.za or contact your financial adviser.

ANNUITY RATES TO 6/11/2015These rates for a level annuity are based on a compulsorypurchase price of R100 000 for people born on 01/01/1955payable monthly in arrears, guaranteed for 10 years.

These rates are based on a voluntary purchase price of R100 000.

These rates are valid on a daily basis. E&OESource: Computerised Pension Bureau. Telephone 011 482 3625

MaleDiscovery . . . . . . . . . R733.63Liberty Life . . . . . . . . R774.80Metropolitan. . . . . . . R823.18Momentum . . . . . . . R801.04Old Mutual . . . . . . . . R802.48Sanlam . . . . . . . . . . R808.61

FemaleDiscovery . . . . . . . . . R695.46Liberty Life . . . . . . . . R723.94Metropolitan. . . . . . . R759.03Momentum . . . . . . . R760.02Old Mutual . . . . . . . . R751.24Sanlam . . . . . . . . . . R761.47

MaleDiscovery . . . . . . . . . R733.63Liberty Life . . . . . . . . R774.80Metropolitan. . . . . . . R778.30Momentum . . . . . . . R791.37Old Mutual . . . . . . . . R802.48Sanlam . . . . . . . . . . R808.61

FemaleDiscovery . . . . . . . . . R695.46Liberty Life . . . . . . . . R723.94Metropolitan. . . . . . . R724.07Momentum . . . . . . . R752.22Old Mutual . . . . . . . . R751.24Sanlam . . . . . . . . . . R761.77

Nedgroup Investments has droppedRE:CM as the manager of its massivelyunder-performing Managed Fund andawarded the contract to Truffle AssetManagement.

Nedgroup Investments says it intendsto merge – subject to regulatory and unit-holder approval – the Managed Fundwith the Truffle MET Balanced Fundafter the Truffle fund has been trans-ferred to Nedgroup Investments.

Nedgroup has a “best of breed”approach to fund management: it out-sources the management of its funds tomanagers that it believes will producethe best performance over the long term.

The Managed Fund has been theworst performer in the South Africanmulti-asset high-equity sub-categoryover various periods to September 30.According to ProfileData, the fundreturned minus 12.37 percent over threemonths, minus 21.34 percent over a year,minus 0.53 percent over three years,2.23 percent over five years, 5.4 percentover seven years and seven percent over10 years (returns are annualised).

The average returns of the fund’speers were: minus 0.84 percent over threemonths, 6.34 percent over a year, 12.6 per-cent over three years, 11.88 percent overfive years, 11.59 percent over seven yearsand 11.47 percent over 10 years.

The fund’s under-performance ispartly the result of the deep-value, con-trarian investment style of its manager,Piet Viljoen, the founder and chairmanof RE:CM.

A value, or valuation-based, managerselects shares that are priced below thevalue of the company, as determined bythe manager, in the belief that the shareprice will return to fair value. A deep-value manager follows the same prin-ciples as a value manager, but looks forthe cheapest shares and holds them forlong periods. A contrarian manager goesagainst the trends in the market, buyingassets that are not liked by the marketand selling them when they are popular.

Viljoen’s investment style has seenthe fund investing heavily in commodity

shares: its top three holdings at Septem-ber 30 were Impala Platinum (5.4 per-cent), Anglo Platinum (4.8 percent) andAnglo American (4.5 percent). Over thepast year, Impala’s share price has fallenby 51 percent, Anglo Platinum’s by31 percent and Anglo American’s by49 percent, according to ProfileData.

The Managed Fund is the only fund of

Nedgroup’s 19 funds that qualify for aPlexCrown rating to receive the lowestrating of one PlexCrown in the ratings tothe end of September.

Nedgroup was rated the top managerof both South African-domiciled fundsand offshore funds in the third quarter,based on the risk-adjusted performanceof its funds as assessed by PlexCrownFund Ratings, and 12 of its 19 fundsreceived an above-average rating of fouror more PlexCrowns.

Nic Andrew, the head of NedgroupInvestments, says the decision to replaceRE:CM was a difficult one. He says Ned-group assesses a manager’s perform-ance over the full investment cycle and inrelation to a fund’s long-term objectives.It has made a judgment call based onwhat it believes are the long-term inter-ests of its clients, Andrew says.

Nedgroup communicated regularlywith investors and financial advisers inthe run-up to the decision, he says.

Nedgroup Investments recognisedthat RE:CM’s investment philosophywould result in periods of under-per-formance, and it has stood by RE:CM formore than 10 years. However, it did notexpect the Managed Fund to under-per-form, in relative and absolute terms, tothe extent that it has, he says.

As a result of under-performance andoutflows, the assets under managementin the fund have halved over the past twoyears, Andrew says. According to thefund’s fact sheet, it had a market value ofR2.95 million at September 30.

The fund’s under-performance wasonly partly the result of RE:CM’s invest-ment style; RE:CM had also make invest-ment mistakes, Andrew says.

The resignation of RE:CM’s chiefinvestment officer, Daniel Malan, inMarch also influenced Nedgroup’s deci-sion, Andrew says.

RE:CM’S STYLE ‘WON’T CHANGE’Viljoen says he was “disappointed” byNedgroup’s decision, which he said wasa business decision, not an investmentone. However, the loss of the Managed

Fund will definitely not result in RE:CMchanging its investment process or style.

The decision will have a “fairly substantial” impact on the company, but, as a result of its conservative business approach, RE:CM will with-stand the loss, and there is no need forinvestors to be concerned about thefuture of RE:CM.

In a letter to investors in March,RE:CM said the main reason its fundshave under-performed is that “SouthAfrican markets have been driven higherby expensive assets becoming even moreexpensive, whereas the attractivelypriced assets keep getting cheaper. Thisis typical of the late stages of a bull mar-ket, as we’ve had for the past six years.”

It says past market cycles have shownthat “a disciplined strategy of consis-tently avoiding over-priced assets andinvesting in those trading at far less thanthey’re worth will ultimately delivergood returns over the full cycle. However,the evidence of this has not yet comethrough in the current cycle.”

In the equity portfolios it manages,“the resources sector – to which we havesignificant exposure – has lagged and thefinancial and industrial sectors havecontinued to out-perform, despite start-ing from already high valuations. Webelieve that this is precisely the time tocapitalise on one of the most extrememarket dislocations in history and allocate capital to a value manager ...We’re confident under-performance will be recovered and our investmentphilosophy will prove itself again over

time,” the RE:CM newsletter says.Cape Town-based financial adviser

Gregg Sneddon told Personal Financethat he was bitterly disappointed by Ned-group’s decision to replace RE:CM. Itwas known that Viljoen was a contrarianmanager and he has been buying cheap,under-performing shares, including com-modities, for some time. Sneddon said hehad advised his clients to stay in the funduntil the market cycle turned – as itinevitably will — because their losseswere only on paper.

However, the decision by NedgroupInvestments to change managers willresult in investors realising their losses,he says, because the new manager willsell out of the cheap, under-performingshares and buy expensive shares that areperforming better. Effectively, Nedgrouphas done what investors are told never todo: sell out of under-performing shareswhen they are cheap.

Andrew says the assumption that thefund will automatically sell all its cheap,under-performing assets is incorrect.Truffle’s mandate is to position the fundto reflect where it assesses greatest valuegoing forward, taking into considerationcurrent valuations.

Andrew says Truffle was chosen tomanage the fund because it exhibits thequalities that Nedgroup looks for in amanager. In particular, it has a “robust”investment process that focuses on down-side risk, portfolio construction and risk management.

q For a longer version of this article,visit www.persfin.co.za

Wouter Fourie, the chief executive ofAscor Independent Wealth Managersand the 2015 Financial Planner of theYear, says the biggest mistake investorsmake is to select a fund solely on itslatest returns, without understanding therisk the fund manager takes to achievethose returns.

When investing, it is important tohave a thorough understanding of afund’s mandate, its consistency ofreturns, and the philosophy andinvestment style adopted by themanager. This is why it is in yourinterests to consult a qualified financialadviser who has insight into how amanager works.

He says Ascor has never offered theManaged Fund to its clients, because ofthe fund’s level of volatility. However, hesays, if the fund were still managedaccording to RE:CM’s investment style,it could have been a good buy now –when the shares favoured by RE:CM arevery cheap – provided you wereprepared to wait for possibly five yearsbefore the market cycle turned.

Fourie says he believes Nedgroup’sdecision to replace RE:CM wasinfluenced by the need to protect itsbrand and its position as the leadingfund manager. The Managed Fund’sPlexCrown rating of one has been adrag on Nedgroup’s overall rating.

TAKE CARE WHENCHOOSING A FUND

Nedgroup dumps balanced fund manager

Insurance brokerscensured in reportShort-term insurance brokers who recommend youswitch your policy to one with a cheaper premiumwithout considering whether the new policy issuitable are one of the main sources of complaints tothe financial advice ombud.

“There is still a belief that providers of short-term insurance do not need to provide advice to theirclients,” Noluntu Bam, the Ombud for FinancialServices Providers, says in her annual report for theyear to March 31, which was released this week.

As in previous years, short-term insurancetopped the list of complaints sent to Bam’s office,comprising 2 940 of the 9 003 complaints submitted.

Bam says that, when recommending that a clientchanges policies, many brokers focus only on thecost of the premium, but fail to disclose how a higherexcess, more stringent conditions or enhancedexclusions may affect claims.

There has also been an increase in complaintsabout commercial insurance policies, often wherebrokers have not properly understood the nature oftheir client’s business.

Other trends highlighted by Bam in thecomplaints her office received in 2014/15 were:

u Disability products. The number ofcomplaints about disability insurance is growing. Insome cases, there is “clear evidence” that consumersare being sold cover they do not need, Bam says.

u Funeral assistance. Bam says there has been“an unrelenting” increase in complaints aboutfuneral businesses, adding that the many complaintsreflect a “clear unwillingness” by providers tocomply with the law.

u Post-retirement planning. Advisers do notadequately advise clients of their post-retirementproduct options and how essential it is that theypreserve their capital so that it can generate anannuity for life, Bam says. – Mark Bechard.

q For a longer version of this article, visitwww.persfin.co.za

PPEERRSSOONNAALLFFIINNAANNCCEE SATURDAY STAR November 7 2015 3

After standing by RE:CM and its contrarian deep-value investment approach for more than a decade,Nedgroup Investments found the losses in its Managed Fund too much to bear, writes MMaarrkk BBeecchhaarrdd.