Cashing in on retirement funds

In Minister of Finance, Enoch Godongwana’s maiden budget speech yesterday (23 February 2022), he spoke about government’s proposal to fundamental change the retirement system which will allow partial access to their funds.

Said Godongwana, “Part of this proposal includes the possibility of short-term access, which would be dependent on the approval by trustees of each fund. Consultations are proceeding following the release of a discussion paper last year and the draft legislation on these amendments will be published for comment in the middle of the year”.

“While many South Africans may access the funds to settle debt or for living expenses, there are many that could consider using access to the funds to invest the money in financial products into products that could offer higher returns,” said Dwayne De Waal, COO from diversified asset and fund management firm, Aluma Capital Investments.

De Waal says that depending on the risk profile of the portfolio, a retirement product offered may earn a limited return, but other investment products have the potential to offer higher returns.

One option is to look at multi-asset global notes.

“What makes offshore investing so attractive is that no matter where the Rand stands against the dollar or how it fluctuates, investors are still able to look at a conservative 8% year-on-year dollar based return,” says De Waal.

He adds that even though the Rand has a tumultuous relationship with the US dollar, that offshore investments, especially if they come with capital protection, often present a better investment opportunity. The rand was at 13,40 to the dollar 5 years ago and now it’s at 15,40 to the dollar. That’s a 15% devaluation over the last years on the currency alone.

He does warn though that when drawing a portion of retirement savings that policy holders need to take care to protect the capital. “Don’t put the money in the bank where inflation and costs will eat away at its value,” he said.

“Multi-asset global notes can also be paired with the ability to give a client a gearing with a bank guarantee they can potentially earn returns north of 20% with no capital risk,” said De Waal.

Van Niekerk is interested to see which retirement funds will make use of the proposed changed in legislation. “The decision as to whether investors can access a partial portion of their investment savings will be at the discretion of the trustees of the fund,” he said.

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