Don’t stay where you aren’t happy

You can transfer your retirement annuity to a different product provider by doing a Section 14 transfer.

Have you ever been in a position where you’re unhappy with your retirement annuity’s performance? It might be due to limited fund exposure or low investment returns. Well, you would be delighted to know that you can transfer your retirement annuity to a different product provider by doing a Section 14 transfer.

The Pension Funds Act defines a Section 14 transfer as the movement of retirement fund benefits from one product provider to another.

Before going through with a Section 14 transfer the following needs to be considered:

  • Costs: You want to pay fees that are as low as possible. This way you have more capital to grow your retirement fund. One should compare the effective annual cost (EAC) of the retirement fund they currently have to the recommended retirement fund. This allows you to compare the fees between funds as well as the impact the fees might have on your returns.
  • Flexibility: This is about having the ability to select funds from different fund managers, thereby allowing you to switch between funds.
  • Investment term: If you must pay Section14 transfer penalties, you will need time in the market to recover these expenses. Thus, the break-even point must be taken into consideration as this is the point where you will have recovered from the initial penalty. There may be a risk of death or disability before the break-even point, however, this can be dealt with by having risk assurance in place.
  • Potential investment return: You would need to look at the potential investment return of the recommended fund. Many factors will contribute to this like portfolio composition and macroeconomic conditions. Your financial advisor should also take these factors into consideration.

When a Section 14 transfer is done there is no tax payable. However, early termination of a retirement annuity may result in a penalty being charged. Before deciding to go through with a Section 14 transfer find out if your service provider will penalise you for early termination. Some penalties are ridiculously high and might not be worth it. If penalties are hindering the growth of your retirement annuity, consider switching the underlying funds invested in the retirement annuity.

Most retirement annuities have debit orders. If an investor has a debit order facility on their current retirement annuity and chooses to do a Section 14 transfer, the investor will have to stop all contributions to the retirement annuity, and then it will be transferred. The client will then have to open a new retirement annuity with a new debit order.

Something else to look out for when transferring your retirement annuity is ensuring that the funds you select are Regulation 28 compliant. Regulation 28 restricts the allocation of retirement savings to certain asset classes.

Once the transfer is done, an initial fee will not be charged. However as previously mentioned, fees are payable on your retirement annuity, therefore an advisor fee that is renewable annually will be charged. The reason why it is renewable is that legislation requires confirmation of the ongoing relationship between your advisor and yourself.

One of the benefits of a Section 14 transfer is fund manager exposure. If the product provider you’re transferring your retirement annuity to has a variety of funds, you can invest in funds that would benefit you as a retired member. Some companies only have a limited number of funds which limits the investor’s ability to invest in a diverse portfolio.

Section 14 transfers are great for people who seek better returns and a diverse portfolio. However, there are many things to consider before deciding to transfer your retirement annuity. It is always a smart idea to keep your options open and to enquire before deciding to transfer.

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Michael Haldane

Global & Local The Investment Experts


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