With Momentum Wealth’s living annuity, clients can invest up to 100% of their investment assets offshore, but should they?

By: Martiens Barnard, Marketing Actuary at Momentum Investments

Many living annuity providers across South Africa can no longer offer unlimited offshore exposure to their clients when they retire. That is because investment companies may not in aggregate invest more than 45% of their assets under management offshore. Once they have reached that limit, which many have, they can only allow individual clients to invest up to 45% of their assets in rand- denominated offshore funds to ensure they stay, on aggregate, within the limit. This limit does not only apply to living annuities, but also to products like endowments and certain tax-free savings investments.

At present, we are comfortable that we won’t have to restrict our client’s offshore exposure, and that we won’t have any limit challenges in the foreseeable future based on the offshore exposure on the balance sheet of Momentum Metropolitan Holdings.

Yet, even though clients can invest all their assets offshore, the question is: Should they invest that much offshore?

For some clients there is no question – it is a definite yes. Some examples are clients who are using the bulk of their living annuity income to pay for offshore expenses such as an offshore property or other expenses priced in foreign currency. For others, the decision of how much to invest offshore is not that clear-cut. In this case, ask why do you want to invest that much offshore? Do you believe that offshore asset classes will consistently outperform the local market, either due to the rand weakening or due to our local investment options not being able to provide the required return?

If that is the case, the Momentum Retirement Income Option is the option you could consider. We offer a local investment component that guarantees a rand-based income for as long as your client lives, and one that can deliver a total return in excess of 14% per year when a client lives to an advanced age (see below).

Our solution, the Retirement Income Option, features the Guaranteed Annuity Portfolio (GAP). The GAP can be selected as any other investment fund or component in our living annuity that offers the same features as a life annuity, i.e. a guaranteed income for life.

For clients that live to an advanced age, the like-for-like total return they would need from an asset to match this guaranteed income stream can be calculated by looking at the present value of all income payments made from the GAP into the living annuity at each age and the total return profile looks as follows:

This income is not affected by exchange rate movements and may be the perfect fit for your clients’ retirement income needs, especially as these expenses are rand based.

The GAP can, of course, be selected with as much of the remainder of the portfolio as needed allocated to offshore assets. This gives clients the opportunity to build an investment portfolio within their Momentum Retirement Income Option that suits their personal needs and preferences, one with a guaranteed income for life and no restrictions on their offshore allocation.

While the allure of offshore investments is undeniable, careful deliberation is essential. By leveraging the diverse offerings of Momentum Wealth, clients can craft a resilient and balanced investment strategy, with the aim to safeguard their financial well-being in retirement.

The information in this article is for general information purposes and not an invitation or solicitation to invest. The information is not intended to be accounting, tax, investment, legal or other professional advice or services as set out in the Financial Advisory and Intermediary Services Act 37 of 2002 (FAIS), or otherwise. The information in this article, including opinions expressed, is derived from proprietary and non-proprietary sources that Momentum deems reliable. It is not necessarily all-inclusive but is accurate at the publication date. While we make all reasonable attempts to ensure the accuracy of the information in this article, neither Momentum Wealth (Pty) Ltd, Momentum Metropolitan Life Limited, nor any of their respective subsidiaries or affiliates make any express or implied warranty about the accuracy of the information in this article. Past performance is not necessarily a guide to future returns. Financial advisers should conduct a suitability analysis and due diligence with clients on the investments mentioned in this article as part of their investment mandate and investment advice process. Terms apply. Available from your financial adviser and Momentum.

The Retirement Income Option and Guaranteed Annuity Portfolio are life insurance products, underwritten by Momentum Metropolitan Life Limited, a licensed life insurer under the Insurance Act.

Momentum Wealth (Pty) Ltd is part of Momentum Metropolitan Life Limited, an authorised financial services (FSP 6406) and registered credit provider. Momentum Wealth (Pty) Ltd is an authorised financial services provider (FSP 657) and part of Momentum Metropolitan Holdings Limited.