INVESTMENT GUIDE BPSA Provident Fund
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Investing your fund contributions for a better future
By investing your contributions to the BPSA Provident Fund in professionally managed, risk controlled portfolios, your chances of achieving the retirement outcomes you want are maximized.
Of course, as with any investment, it is essential that you fully understand the options available
to you as a BPSA Provident Fund member, and that you choose the investment/s that best
match your personal risk preferences and your money growth objectives.
What’s more, since this is money that you are putting away for your retirement, it is important
that you periodically assess your investment choices and adapt them, if necessary to match
your changing risk and return requirements as you get nearer to your retirement age. The good
news is that the BPSA Provident Fund offers you investment solutions that can do this for you
automatically over time, but more about that later in this guide.
For now, let’s dive in and make sure that when it comes to understanding what investments
actually are, we’re all on the same page.
It’s a proven fact that a well-considered investment plan can help you create the financial security and freedom you desire in the future.
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What is an investment, and what types are there?
There are many kinds of these market-based investments, ranging from equities and bonds
to properties and cash instruments. It is the job of the BPSA Provident Fund to make sure that,
as a member you have access to the best possible combination of these investment assets,
combined and managed by proven experts, so that you have the best chance of growing
your retirement money without putting it at undue risk.
Investing is essentially the act of committing your money to something (in this case an investment fund) with the purpose of growing that money or getting back more than you put in. That means an investment could be anything you buy that grows in value over time, like good art or a house. Of course, when it comes to growing your retirement money, the investments used are more along the traditional lines of shares, funds and other market-linked opportunities.
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What makes a good investment?Every person is different and has different objectives and preferences when it comes to investing. That said, any good investment will do two basic things. Firstly, it will offer the best possible opportunity to grow the money you have invested over time. Secondly, it will manage the risk your money is exposed to and minimize that risk in line with your preferences as an investor. So, for example, you may have some money that you are prepared to lose, but that you want to invest for the most growth possible. In that instance, it would be alright to invest the money in a high risk, high growth investment. Maybe that could be funding a business venture or buying a piece of art from an upcoming new artist. But if you are approaching retirement, you probably want to protect your money more than you need to grow it. In that example a low-risk investment that offers the possibility of some growth, but also minimizes the chances that you will lose any of your capital, would be the best choice. In the end, then, a good investment is one that meets your growth needs while also offering you the protection you want against losing money.
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To deliver on its responsibility to grow and protect its members’ retirement money, the BPSA Provident Fund offers three investment options as follows:
1. The BP LifeStage Model for cash or with-
profit annuity (Fund default option).
2. The BP LifeStage Model for a living annuity.
3. A customized investment strategy that
includes a range of approved portfolios.
All these investment portfolios are offered and
managed by Sygnia Asset Management,
which is a leading multimanager investment
management company in South Africa.
So, what are your investment options?
Deciding which of these options to choose
can be a daunting and confusing affair,
but given that this is your retirement we’re
talking about, it’s very important that you
make the right choice. That’s why we have
unpacked all three investment options, in
simple detail, on the following pages. A word
of caution though: While the information in
this guide will give you a good idea of what
each investment option involves, it’s always
a good idea to discuss your options with a
qualified financial adviser before you make
a final investment decision.
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But what is actually getting invested?
Your entire Fund Credit is invested in order to grow over the long term and help you achieve the retirement you deserve. This is effectively the total amount that you have in your Fund ‘account’ at any time. It is made up as follows:
T he total amount contributed to your Fund by BPSA and you (if applicable) for the full time
you have been working for BPSA;
PLUS
Any growth that has been earned through the investment of the contributions;
PLUS
Any amount that was transferred into the BPSA Provident Fund from a previous employer’s
retirement fund that you contributed to (if applicable).
LESS
Any costs or expenses.
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Every month, the Fund contributions made by BPSA on your behalf, as well as any additional contributions you may make, are also invested in whatever investment portfolio you have chosen. Over time, these contributions, plus the investment growth they earn, steadily accumulate so that you can use all the money to buy a pension when you are ready to retire.
This investment model has been designed to
offer you a LifeStage approach to investing
for retirement. What this means is that as you
go through various stages in your life, your
investment will be adjusted to match your
changing growth needs and risk preferences.
This model has two main objectives:
1. To help you secure a reasonable retirement
lump sum that represents an acceptable
replacement ratio at retirement. The
replacement ratio is the percentage of
your salary in the year before you retire
that your pension represents. So, if you
were earning R20 000 in month before
you retired and your pension income after
retirement is R15 000, your replacement
ratio would be 75%.
2. To manage and minimise the impact of any
short-term market movements (volatility)
on your investment capital when you get
near to retirement. The las thing you need
is for the investment amount you’ve built
up over the years to be reduced by a
market downturn just before you retire. This
LifeStage portfolio minimizes the chances
that this will happen.
About with-profit annuities
The BP LifeStage Model for cash or with-
profit annuity is designed to meet the
investment needs of Fund members who
will most likely buy a with-profit annuity
and/or take some or all of their benefit in
cash when they retire. A with-profit annuity
is a product you buy from an insurer with
your Fund Benefit. That insurer then pays
you a monthly pension that is guaranteed
for the rest of your life. The insurer decides
how much monthly pension you start with
and then you get increases every year,
in line with the investment performance
of the money you gave the insurer. This
means that if the markets do badly, you
may not get a pension increase some
years, or it could be lower than inflation.
But you will never get a pension that is
lower than your starting amount.
For more info about your annuity options
at retirement, read the RETIREMENT
GUIDE.
A CLOSER LOOK AT YOUR INVESTMENT OPTIONSOPTION 1: THE BP LIFESTAGE MODEL FOR CASH OR WITH-PROFIT ANNUITY
NOTE: This is the default investment portfolio of the BPSA Provident Fund. If you don’t let the Fund know that you want to invest in one of the other options, your Fund Credit and contributions will automatically be invested in this option.
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The portfolios making up this investment
option are as follows:
How the LifeStage Model worksThe LifeStage approach means that when
you are a younger Fund member, you will
have your Fund Credit invested in the Long
Term portfolio. This is to maximise the growth
potential of your invested money. Then,
when you reach the age where you have
just over six years left until your retirement,
your investment is phased out of these riskier,
high-growth assets into more conservative
portfolios. This is to protect the money you
have built up from any losses near to your
retirement.
The diagram below gives a visual idea of
how this phased LifeStage approach to
investment works.
The final asset allocation is the same as that
recommended for a retiring fund member
who is buying a with-profit annuity. This means
that the transition from retirement investor to
pensioner will be relatively seamless.
Investment Portfolio
Underlying Investment Portfolio
Long Term Portfolio Signature 70
Stable Portfolio Signature 40
Income Protection
PortfolioMoney Market
100% 100%
80%
60%
40%40%
20%
60%
75%
25%
75% 75%
25%25%
100%
80%
60%
40%
20%
0
Long Term
Stable
Income protection
BP LifeStage Model funding for cash
Term to retirement (years)>8 7 6 5 4 3 2 1
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Like Option 1 explained earlier, the BP
LifeStage Model for a living annuity also
invests according to your growth and risk
management needs as you progress through
your life towards your retirement. When you
are younger, the model invests your money in
higher risk portfolios that target high returns.
However, as you get closer to retirement,
your investments are adjusted to prioritise
the protection of your capital over growth.
At age 53, your Fund Credit will be phased
into a more conservative investment position
over a period of months. This transition is
gradual, with some of your portfolio being
transitioned each quarter until you are 54.25
years old. By that time, your investment
will primarily be in the conservative Stable
Portfolio.
The diagram below illustrates this phased
LifeStage Model funding for a living annuity.
It shows the percentage investment in each
portfolio linked to the age of the Fund
member.
OPTION 2: THE BP LIFESTAGE MODEL FOR A LIVING ANNUITY
100% 100% 100%90%
80%70%
60%50%
10%
40%50%
20%30%
100%
80%
60%
40%
20%
0
Long Term
Stable
BP LifeStage Model funding for a living annuity
Term to retirement (years)>8 7 6 5 4 3 2 1
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About living annuities
The asset allocation of this model in the final year before your retirement is the same as
what BPSA Provident Fund recommends for anyone who wants to buy a living annuity
when they retire. A living annuity is a product that you buy from an insurer with your
retirement benefit when you retire. In return, the insurer pays you an agreed pension
every month. Unlike a guaranteed or with-profit annuity, you can choose where your
retirement benefit money gets invested and how much you would like to get as a
pension (as a percentage of your total investment). This means you are not guaranteed a
pension for life because if you get a pension that is more than the returns your investment
makes every month, eventually your money can run out. For more information about
your annuity options, read the RETIREMENT GUIDE.
The investment returns you get under this LifeStage Model can be more volatile than under
Option 1 and you will have slightly less risk protection because the investments target more
growth.
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Where will your money be invested?A diverse investment portfolio with exposure to various types of assets classes is not only the best way to manage risk, but also to ensure that your money has the best possible chance of growing steadily over time. Both of the BP LifeStage models follow such a diversified investment approach, with portfolios mainly made up of a combination of the following types of investments (asset classes):
• SA Equities – These are shares of companies
listed on a securities exchange, like the
JSE. The various fund managers charged
with managing your investments may
have different equity investment styles, but
they are all given specific mandates, or
instructions, aimed at growing the money
entrusted to them through active equity
share selection.
• SA Bonds – These are what are known as
fixed-interest instruments. Bonds are issued
by governments or corporate entities
and can provide an investor with higher
investment returns than cash.
• SA Inflation-linked bonds - Inflation-linked
bonds are issued by the SA government.
These differ from conventional bonds
in that the capital amount increases
with inflation. Investors therefore receive
income in real terms and an inflation-
adjusted capital amount on redemption
of the bond
• Cash – Money-market instruments are
investment vehicles that simulate cash,
but often give a higher return than you
would get just by putting your money in
a bank account. They are a good way of
ensuring the liquidity (quick access to the
money by the manager) of the portfolio
and protecting your capital from risk.
• SA Property - This covers a wide variety of
real estate investments, from office blocks
to property funds. This is a medium- to high-
risk asset class which is directly linked to
movements in the South African industrial,
commercial, retail and residential property
markets.
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If you are confident about your knowledge and understanding of investments, you can choose to tailor make your Fund investment strategy. To do this, you can choose any combination of the following portfolios that have been approved by the Fund Trustees:
• One or more of the investment portfolios
from the BP LifeStage Model. This includes:
- Signature 70 (Long-term portfolio)
- Signature 40 (Stable portfolio) and
- Money Market (Income protection
portfolio)
• The Islamic Balanced Fund (the Shari’ah
compliant portfolio)
Important note: Even if you are familiar with
investments, you are strongly advised to
work with a qualified financial adviser or
investment planner to design your tailored
investment portfolio. It is also recommended
that you revisit this strategy at least once a
year to make sure that it is still in line with
your long-term retirement objectives and risk
preferences.
Option 3: a custom investment portfolio
A bit about fees and charges
The BPSA Provident Fund makes every effort
to keep the costs of investment as low as
possible for members to ensure that as much
of their money as possible can be invested
towards meeting their retirement needs. That
said, there are a few fees that need to be
paid, one of which is an investment fee that
is levied by Sygnia Asset Management for
their professional management of the Fund’s
investment portfolios.
These investment fees are worked out as
a percentage of the total value of assets
managed by Sygnia on behalf of the Fund
and its members. Each portfolio has its own
sliding scale of fees, which is then applied
to the Fund’s total assets. What this means,
in effect, is that the more money that is
invested by all the Fund’s members, the
lower the average investment fee that each
member will need to pay.
You can find out more about the investment
fees and other costs for each of the portfolios
at www.bpsaprovidentfund.co.za
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A note about switching: While there are many legitimate reasons why you may need to switch your investment portfolio, it is never a good idea to switch too often. Your investments need time to grow effectively, so switching in and out of portfolios, especially if it is being done to try and ‘chase’ better returns, can actually end up losing you money Remember, retirement planning and investing is a long-term strategy. There will be ups and downs in the performance of every portfolio, but over longer time periods, these are usually smoothed out if you leave your invested money to grow.
Switching between portfoliosThe BPSA Provident Fund is committed to making sure that its members enjoy as much choice as possible when it comes to where their retirement money is invested. We understand that your circumstances
and objectives can change over time,
which is why we allow you to switch from
one investment portfolio to another if you
need to.
You can ask to switch between investment
portfolios at any time and the switch
will be made within five working days of
your request. You are allowed one free
investment switch per calendar year. If you
want to switch again in the same calendar
year, you will be charged a switching fee of
R375 (excluding VAT). This cost will be taken
from your Fund Credit.
If you need to switch, you can download the
Switch Request Form the fund website or get
it from your HR Manager.
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Ready to invest? Ask yourself these questions
Choosing an investment portfolio can be
daunting. Here are five questions you can
ask yourself to help you with your decision of
where to put your retirement money:
1. How much do you know about
investments and markets? If you have
a lot of experience in the investment
world then you may feel confident
enough to create your own investment
strategy. If you are not comfortable
with investing, you will need to do a lot
of research and/or speak to a financial
adviser for guidance. The best approach,
however, may be to stick with the default
investment option that has been chose
by the Trustees.
2. How long do you have to invest?
The money you are investing is your
retirement savings. That means you
should be planning on investing it until the
date you retire. Your choice of investment
option will, however, be guided by how
close you are to retirement. If you are still
young, you can probably choose ‘riskier’
high growth investments. But if you are
nearing retirement, it’s better to choose
conservative investments that protect
your capital.
3. What do you plan on doing with your
retirement benefit when you retire (or
leave BPSA)? The two BP LifeStage
Models are designed to suit specific at-
retirement annuities. You should think
about what type of annuity (pension) you
want to buy when you retire, and invest
in the options most appropriate to that
choice. A professional financial adviser
will provide valuable assistance here.
4. How much risk can you tolerate? In
the context of retirement savings, ‘risk’
essentially means negative returns. The
higher the exposure of an investment to
equities, the higher the chance that it
could deliver negative returns in the short
term. However, equities also have the
potential to generate better returns than
other asset classes over time. If you are
willing to take more risk in exchange for
a chance of better returns, you need to
invest accordingly. Your investment risk
profile is also determined by other factors,
like your personal preferences, how
much you have saved for retirement,
your health, how many dependents you
have, and how you want to live after
retirement.
While these questions are useful to guide you in your investment choices, the decision of where to invest your retirement savings is a big one. If you have any doubts or questions about your choice, speak to an accredited financial adviser.
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