Moving your RA

[whatwhat]

Hello

What are the penalties that one can look at when you move your RA from one provider to another? Was thinking of moving my one RA from Liberty to Allan Gray but Liberty want to charge me around 100K for early termination.

Is that the going rate when moving RA or is this just a scare tactic?

 

[LazyLion]

I just moved mine from Liberty to Discovery.
The Liberty one was a legacy product and the fees were horrendous.
It will take me 3 years to recover, but after 10 years it will be worth more than twice as much.
Where are you based, I can refer you to the same broker if you want.
I think my penalty was about R60K in the end.

 

[daniemare]

Hi

Unfortunately there is no "going rate" for moving you RA.

RA's from life insurance companies structured in the traditional way basically contracted 2 things with you for which you actually agreed to (read your contract)
1 - You agreed that all the commission payable to your broker be paid out during the early part of your investment period. What this means is that the company paid the total comission (as defined in your contract normally as a percentage) within the first 2 - 5 years on your behalf. They "lent" the money to you which they subsequently reciver from you over the lifetime of the agreement, including "finance charges" of course. If you early terminate, they recover the outstanding amount from you as a "penalty"
2 - You also agreed to guarantee them a certain part of their service fee which in turn is again spread out over the term of your contract. If you cancel, you again are liable for the outstanding amount of this agreement

Now, let's not debate the ethics of this predatory and unfair practices. It is what it is and you technically agreed to it, whether you understood what you have read or not. It should be clear that your cancellation amount is dependant on 3 things
1 - the committed contributions plus increases agreed over the total period of your contract
2 - the commission and services fees agreed
3 - the period already elapsed

My advice is to
1 - Ask for a full reconciliation of the fee and what it's sub components are
2 - How it links with each paragraph in you original contract
3 - The original payments and how it amortised to the current penalty fee
If they cannot give this to you or any number appears inexplicable, then maybe you have a case to take up eith the onbudsman

Another piece of advice. If you have longer to go than the time elapsed, it is probably better to cut your losses. I would however strongly advise you to question whether you understand if Allan Gray, it's most recent performance and them being some of the most expensive modern Unit trust based RA's are the answer, or just another wolf in sheeps clothing.

First understand active vs passive management. The impact of management fees etc before deciding your manager of choice

And lastly, if a broker is not willing to charge you per hour but rather commission, move along because it's more of the same.

 

[mintydroid]

Yeesh, R100k is steep. I must remember to check cancellation clauses before I take mine.

 

[midnightcaller]

And this is why I never bought an RA.......

 

[TheTwo]

So guys feel that an RA is a bad investment? What about the tax benefit? And if this isn't a good investment, what would a better investment be?

 

[mintydroid]

So guys feel that an RA is a bad investment? What about the tax benefit? And if this isn't a good investment, what would a better investment be?

RA is pension grade investment so don't expect more than that out of them. There are more stable to market disruptions than full equity exposure.

There is a place and need for them.

 

[LazyLion]

So guys feel that an RA is a bad investment? What about the tax benefit? And if this isn't a good investment, what would a better investment be?

I spread my risk between both an RA and a Pension Fund.

 

[daniemare]

Understanding Cost of product, risk profile of investment, asset class allocation and tax structure of vehicle are all items that you need to consider.

RA's and pension funds are very similar. Difference is mostly pensions are mandated through employer and RA's are privately elected
Both allow your contribution to be deducted (with limits) from income. Both allow for tax free growth. Both are subject to regulation 28.

3 Vehicles to save
1 RA/Pension fund
- tax deductible
- tax free income and growth
- taxable when drawing from it one day
- Asset allocation mandated through Regulation 28 (specifically maximum exposures)
- Inflexible access to savings before retirement
- Not a lot of low cost options
- Have to use service provider and cannot self direct

2 Tax Free savings account
- Not tax deductable contributions
- Contributions limited to R30 000 per year
- Tax Free Growth and Income
- Tax free withdrawels some day
- No asset class allocation limita
- No limitations on accesss to savings
- Must use service provider but self ditect options exists
- More low cost options
- cannot invest in single shares

3 Non-registered
- Most flexible when it comes to options and investment types
- Taxed income and growth
- Low cost possible but not guaranteed

 

[Hendrix]

I moved my RA from Liberty to Coronation, they hit me with the maximum penalty of 25% of my capital.

I learnt an expensive lesson, but it was worth it, I'm out of their grips.

Coronation do not have penalty fees

 

[Hendrix]

And this is why I never bought an RA.......

RA's have many advantages, eg: its tax free within the investment, no dividend tax, you also get tax refunds on it each year, and it cannot be attached by creditors.

Only time you will start paying tax is when you start with drawing one day