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NMG Umbrella SmartFund – Annuity strategy update

Author
NMG Benefits
Category
Date
18 September 2023
5 min read

Background

The “Default Regulations” for retirement funds came into effect on 1 March 2019. The aim was to help members make informed decisions about their savings, bring down costs and ensure clear and meaningful communication.

From this date, funds were required to put an annuity strategy in place for retiring members who either don’t want to choose their own annuity or don’t have access to a financial advisor. Members can choose to have their retirement savings paid into the fund’s approved annuity strategy. The rules of the NMG Umbrella SmartFund do not provide for annuities to be provided by the fund; annuities must be purchased from licensed annuity providers.

Previously, the NMG Umbrella SmartFund’s annuity strategy provided different options depending on the value of the member’s fund credit at retirement.

  • If the non-vested benefit was R247 500 or less, the member could choose to take the benefit in cash.
  • If the retirement benefit was between R247 500 and R500 000, the annuity option was a with-profit life annuity paid for the rest of the member’s life. 
  • For retirement benefits more than R500 000, the annuity option was a hybrid annuity that used a combination of a living annuity and with-profit life annuity. The annuity started off as a living annuity and then converted to a life annuity over the next 10 years in fixed increments. 

Review of the annuity strategy

During 2023, the board reviewed the fund’s annuity strategy, considering the nature of the fund, and that members have a wide range of needs and profiles. The annuity strategy was revised, and the current strategy no longer differentiates the annuity offering according to the size of the member’s benefit. Instead, the annuity strategy offers members three types of annuity arrangements, allowing members to select the offering most suited to their needs.  The three options are the following:

1. NMG Smart Living Annuity

A living annuity allows the retiree to select an income level between 2,5% and 17,5% of the investment value. The chosen income level can be changed once a year as the retiree’s needs change. There is no Capital Gains Tax, no Tax on Interest, and no Dividends Withholding Tax on the investment growth although the income is taxed. The benefit is distributed to the nominated beneficiaries in the event of the retiree’s death. It is also protected from creditors.

In the NMG Smart Living Annuity, provided by 27four Life, there is a choice of four investment portfolios:

  • NMG SmartActive Aggressive
  • NMG SmartActive Moderate
  • NMG SmartActive Conservative
  • NMG SmartActive Preserver

The fees that apply are:

Platform feeInvestment fee
0.25% p.a. for assets between R0 to R1m, 0.20% p.a. for assets between R1 to R3m, 0.12% p.a. for assets between R3 to R10m, 0.08% p.a. for assets more than R10m.The fee for the selected SmartAssets portfolio will apply. There is no switching fee or disinvestment fee if the retiree moves from the SmartAssets investment portfolio in the NMG Umbrella SmartFund to this living annuity.

2. “Hybrid” annuity: NMG Golden Living Annuity, using Guaranteed Annuity portfolio

In this annuity option, provided by Momentum, the legal structure is that of a living annuity, with the drawdown provisions applicable to living annuities. One of the portfolios in the NMG Golden Living Annuity is the Guaranteed Annuity portfolio, which allows the retiree to choose the specifications of the guaranteed annuity.

The Guaranteed Annuity Portfolio pays a monthly guaranteed amount to the living annuity’s Money Market portfolio. The income drawdown from the NMG Golden Living Annuity is first taken from Money Market, and if more income is required, this is taken from the portfolio selected by the member. When a Guaranteed Annuity portfolio is added to the NMG Golden Living Annuity, the retiree must choose certain features that cannot be changed later, namely purchase amount, annuitants, guarantee term and yearly income increases.

Investment into the Guaranteed Annuity Portfolio may not be more than 80% of the value of the NMG Golden Living Annuity at the time of purchase. A single monthly payment is made to the retiree.

There is a choice of four investment portfolios:

  • NMG SmartEnhanced Aggressive
  • NMG SmartEnhanced Moderate
  • NMG SmartEnhanced Conservative 
  • Guaranteed Annuity Portfolio

The fees that apply are:

Platform feeInvestment fee
0.35% p.a. for the first R1m of assets, 0.20% p.a. for the next R1.5m of assets, 0.15% p.a. for the next R5m of assets and 0,10% thereafter.The fee for the selected portfolio will apply.   The benefit will be disinvested from the investment portfolio in the NMG Umbrella SmartFund and transferred to Momentum.

3. With-profit annuity – Momentum Golden Income With-Profit Annuity

This annuity option, provided by Momentum, provides a guaranteed monthly income for the life of the retiree. The annual annuity increases cannot be taken away once granted and are based on the investment returns of the underlying bonus generating portfolio. There is an option to include an annuity for the retiree’s spouse after death, and an option to choose a guaranteed payment period.  The retiree can choose the Post Retirement Interest (PRI) rate from the range offered by the product (from 0% to 3,5% in increments of 0,5%).

The bonus generating portfolio is invested in multi-asset class portfolios.

The fees that apply are:

Administration feeGuaranteed product total expense ratio
Initial fee: R3 900 (priced into policy) Monthly fee: R63.01 increasing with CPI each year1.20%, includes cost of capital and portfolio management fees and assuming no change in risk charge.

Fund communication

The fund’s booklets have been updated with links to the documents listed below.

The communication has also been saved on the fund’s web portal for members to access.


T&C's apply. NMG Employee Benefits (Pty) Ltd (FSP number 33426) 

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