Are overly complex investment products impeding savings?

Anil Thakersee from PPS Investments discusses ways to ensure you have a nest egg from which to draw income after retirement.

CIARAN RYAN: When you look at the savings habits of South Africans, a number of things jump out. One, South Africans are terrible savers in general. Two, Covid may have changed that with the national savings rate climbing from around 14% to 18% by the first quarter of 2021. That’s according to the Reserve Bank. Research has also shown a key reason for the traditionally poor savings rate in the country is that products are seen by people as overly complex.

Well, PPS Investments may have come up with some interesting solutions to these problems. Joining us is Anil Thakersee, head of marketing and business development at PPS Investments. Hi Anil, thanks for your time. Would you agree with the assessment that one reason for the poor savings rate in South Africa is that products are being offered that are seen as overly complex?

ANIL THAKERSEE: Hi Ciaran, I guess to some extent that is true. I think for the investor to navigate the myriad choices and options that are out there for one can be challenging at times. However, I think it’s very important to go back to first principles, and the starting point should really be that saving for retirement is really about you [being] in a phase of accumulating capital. Obviously once you enter the workforce or start your own business, you’ve got those three decades or perhaps four decades where you are really in a capital-accumulation phase. So at one level it’s very simple, which is that while you’ve got an income and you’ve got a growing business, your focus is really about accumulating capital. So, when you get to the point of retirement, you’ve gathered together a nest egg from which you draw an income.

However, I’ve got to agree that, certainly from a simplicity point of view, we as an industry can certainly do more to perhaps make that journey a little bit easier. This is why we think it’s critical to be able to get good financial advice as you are planning your retirement savings. That will help you navigate or perhaps avoid some of the pitfalls, but also be able to find that solution that is the most appropriate for what you are trying to achieve and the outcomes you are looking to achieve with your retirement savings.

So I guess a bit of both.

CIARAN RYAN: Okay, given the complexity of an individual trying to navigate something like that by himself or herself, how is PPS Investments going about solving this problem?

ANIL THAKERSEE: Ciaran, as you would know, PPS Investments and PPS Group to some extent are quite unique in the sense that we offer what is called a profit-share account. How that works is, as you become a member of the PPS Group – and that’s available to graduate professionals – you then qualify for what we call a profit-share account.

Now where that’s different from your typical company is that all profits that the PPS Group produces are then reallocated back to members. So, as you get to a later part of your life you are then able to access that profit-share account. That profit-share account can then be used as an asset to complement your retirement savings and provide you the opportunity to draw additional income. So I would say that’s certainly the biggest and probably most profound difference or uniqueness that the PPS group is able to offer to its graduate professionals.

CIARAN RYAN: Okay. There is an opportunity for South Africans to maximise their tax savings before the end of February this year. Tell us a little bit about that.

ANIL THAKERSEE: Yes. We are certainly approaching the end of the tax year, which is on February 28, 2022. If you think about your traditional retirement annuity, you can contribute monthly or you can contribute a lump sum at the end of each tax year. But that’s of course subject to certain limits that have been set by Sars. In the current tax year, you can contribute up to 27.5% of your annual taxable income. Now that’s subject to a maximum tax deduction limit of R350 000 per annum. This tax deduction limit applies to the cumulative annual retirement contributions. That’s regardless of whether you are saving in an retirement annuity or a pension fund or a provident fund.

This can be quite a powerful opportunity – and we’ve crunched some numbers on this: topping up over a period of 15 years and reinvesting those tax savings, can significantly bolster your savings, compared to a scenario where you are not topping up.

Of course another opportunity is the tax-free investment account, which offers you investment options with zero tax on investment income or growth, and no dividend-withholding tax. So essentially you can invest up to R36 000 per annum until you reach a lifetime limit of R500 000. We certainly see these as significant opportunities which, if you are able consistently over a long period of time to take advantage of, you are able to significantly boost your retirement savings.

CIARAN RYAN: That’s tax savings. Now looking at the broader universe of investments, unit trusts – is that something that you offer and why would I go through PPS to access them rather than someone else?

ANIL THAKERSEE: Ciaran, we do offer a range of unit trusts, and these unit trusts are specifically designed to meet client outcomes. They vary across the risk spectrum and they are able to give you a combination of exposure to different asset classes. So if you look at our multi-manager range, the typical multi-manager fund would give you a blend of local cash, local bonds, perhaps a little bit of local property, and then of course equities. But, in addition to that, you’re also able to access offshore assets, whether that’s offshore equity or offshore property.

So really, when you look at it, you are essentially getting through one fund or a multi-manager fund … access [to] quite a wide spectrum of assets that provide not just the opportunity to generate good long-term returns, but also manage the risk and the volatility of that. That’s been our primary focus: how do we deliver a single solution to a client that’s able to not only offer the diversification to meet the client’s risk-return parameters, but also something that is a long-term sustainable solution to them?

CIARAN RYAN: I guess the same question goes for retirement annuities, which are available through many different providers. Why would I choose to invest with PPS Investments rather than somebody else?

ANIL THAKERSEE: I would say the biggest advantage would obviously be the profit-share account, and the ability to essentially reap the benefits as a member of the Professional Provident Society. You then are able to access the profit allocation that comes out of the central group structure. That’s clearly the one big advantage. I think we are part of a holistic financial services group, which means we are able to look at your total financial planning process across all your needs, and across the various financial products.

We’ve got numerous solutions and value-added benefits. One additional benefit you’re able to achieve at the PPS Group is something we call ‘family networks’ or ‘family linking’. In other words, what we are able to do is link your investment, or look at the value of your investment as well as … your immediate family members, and price that on a tiered scale as if you were coming to us with that consolidated amount. That over the long term does generate significant savings.

The focus on that for us was really about reducing costs.

There are two critical components that contribute towards the final return you achieve on your investment. One is obviously the return that the investments or the markets provide, but the other is about cost management.

Certainly we’ve been in favour of reducing costs and delivering greater value to members. In terms of the family networks and various other enhancements we have available, we are definitely able to significantly reduce fees.

CIARAN RYAN: There’s a lot of discussion about flexibility and transparency, particularly when we are talking about new-generation retirement annuities. Just explain to our listeners, what do we mean by that?

ANIL THAKERSEE: I think as an industry, we’ve come a long way over the last few decades. If you had to go back and look at the previous generation of products, there was limited flexibility and limited transparency, whereas today you are able to, in a new-generation retirement annuity, access a unit trust-based investment.

What that does is, firstly, it gives you more flexibility to be able to access a wider spectrum of investment options. It also is much more competitive on a pricing perspective, and of course you’ve got a lot more transparency. If one went back to the old-generation products, you perhaps got a statement once a year, and that was it. Today you are able to access your values live [in real] time on a daily basis. You are able to switch between different investment options – and that gives you the flexibility. So as your circumstances change, or perhaps if you are reviewing your strategy, you are able, in a much more nimble and active way, to implement those changes and ensure that your portfolio is always designed to meet your investment outcomes as well as your risk profile.

CIARAN RYAN: Anil Thakersee, head of marketing and business development at PPS Investments, we’re going to leave it there. Thanks very much for those insights.

ANIL THAKERSEE: Thank you, Ciaran.

Brought to you by PPS Investments.

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