Retirement annuities are, without a doubt, the very best way to save for retirement. They are, however, extremely long-term investments.
You might, as a 25-year-old, take one out in 2015 from, for example, Coronation. Who is to say that Coronation (or Citadel, or whatever asset manager you chose) will be around in the year 2045, the earliest possible date you’re allowed to cash out?
A lot of things can happen in 30 years; what happens to your retirement kitty if they go bust?
Nothing. That’s what. You’re investments are safe. Here’s why…
Your Retirement Annuity is merely a “wrapper” containing various investments. The fund manager manages this “wrapper”.
You are not investing in Liberty (or Allan Gray, or any other fund manager) if you take out a Retirement Annuity with them. Your investments are in the companies the fund manager chose to invest in on your behalf. In other words, you’re investing in Naspers, SABMiller, MTN, etc. You are not investing in Liberty, Citadel, Nedgroup Investments, etc.
Because you’re not investing in the fund manager (you’re simply paying them to manage your investments) it really doesn’t matter all that much if they go under. Another one will simply take over the funds under their management.
Legislation to protect your Retirement Annuity
Companies that manage funds on behalf of investors must be licenced by the Financial Services Board.
Regulations forbid fund managers to hold investors’ funds on their balance sheets. Your funds are therefore safe no matter the financial state of the company you chose to manage your Retirement Annuity.
The Financial Services Board ensures the enforcement of the “The Collective Investment Schemes Act” which compels fund managers to make use of a separate trust with independent trustees and auditors.
Your Retirement Annuity will not be affected if your fund manager goes bankrupt and the manager’s creditors will have no claim against your investment.