SIKI MGABADELI: As we normally do every Tuesday, we talk retirement, focusing on living annuities, looking at what they can offer you in your retirement.
We are chatting to the MD for innovation at Liberty, David Lloyd. David, welcome back. We were chatting with David Shapiro about markets and how volatile they are right now and how difficult it is for people to figure our where to save. They come in and say, “What’s happened to my investment?” because the markets have been doing what they have been doing.
DAVID LLOYD: I’m glad I don’t have any money to invest, so I don’t have that problem.
SIKI MGABADELI: So why am I asking you all these questions, then?
DAVID LLOYD: Well, we have lots of customers who do. So I have to find a solution.
SIKI MGABADELI: And this solution is living annuities.
DAVID LLOYD: Well, yes. This is obviously for customers who have either retired or are about to retire. For them actually it’s even harder because if you invest in your thirties, you’ve kind of got a few years to make it right if the markets have a dip in the meantime. But when you get older, you kind of feel like you have less time to recover from such things.
With your living annuity we fond that the customers just find it really difficult to put their money into the higher-performing funds, They feel like they have to invest far more conservatively. And of course the problem with that is risk and reward go hand-in-hand, so we invest more conservatively. And guess what’s going to happen to your retirement lifestyle? It’s going to match those conservative returns. It’s as simple as that.
SIKI MGABADELI: So what is the option then? What’s on the table?
DAVID LLOYD: Until now there were only two options, really, which were to find a tarot reader who could predict the markets or invest conservatively. But luckily we’ve actually now created a third option because we decided that the tarot reader wasn’t really the best option.
SIKI MGABADELI: Probably not.
DAVID LLOYD: What we did was we’ve created a product where you still can choose between literally hundred of funds from over a dozen different asset managers. You can pick any combination you like, and every quarter what we do is we see the performance that your choice of funds has produced and, every time that performance goes up, you effectively get 80% of that as like a minimum return guarantee.
We call it a high water mark, so once that’s been set, the returns then drop back down, they can never go back down below that high water mark.
SIKI MGABADELI: And what are you investing in?
DAVID LLOYD: You can pick whatever you like. I think Coronation has been in the news recently – you can pick Coronation, you can pick Stanlib, you can pick Allan Gray, you can pick Foord. I’ll get into trouble now for all the ones I’ve missed. I think there are about 16 different fund managers and about 200 funds. So, even as your guarantee goes up, you can pick riskier, more high-performing funds. We don’t change the charge, we don’t say you can’t do that. It’s completely flexible.
SIKI MGABADELI: And you can chop and change – because often there is this rigidity?
DAVID LLOYD: For me the big advantage when we started was the fact that you can choose 200 funds from 16 fund managers. So you don’t want to take that away from a customer. And at certain times – because of what your advisors say, how you feel about a market or how your general finances are – you may want to change that and you can’t have a product that restricts that. So full flexibility is really important.
SIKI MGABADELI: And are you finding that retirees are starting to look more closely at living annuities now?
DAVID LLOYD: Well, yes. Part of the reason for that is that with fixed annuities the amount of income you get for every R100 that you’ve to retire with has been actually dropping. It’s been dropping because interest rates have come down and people are living longer. So what we really need is either lots of disease and pestilence so that people don’t live so long, so the fixed annuity rates get better. But until that happens…
SIKI MGABADELI: We are happy with medical technology.
DAVID LLOYD: Until that happens and no one can see that happening shortly, then people almost feel like they have no choice. Some people w\ant to invest in living annuities, where they can keep control of their money and they can use the power of the stock markets.
But, as I say, it’s all well and good to be able to feel like you can use the power of the stock market but, when it actually comes to that decision, it’s been quite tough. The product now has been around for about three or four weeks and we are finding customers are loving it.
SIKI MGABADELI: And if they want to find out more, how do they go about it?
DAVID LLOYD: You must contact your Liberty advisor or broker. I would say it’s really important for a customer to get full advice on the product, fully understand the guarantee and how it works, before making the decision to invest.
SIKI MGABADELI: Certainly. Thanks for your time today. David Lloyd is managing director for innovation at Liberty.
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