Still many of us procrastinate about making this decision. There always seems to be something more urgent (or enjoyable) to do. Before we know it, weeks become months become years, and much of the benefit of paying lower fees is lost.
Yet delaying for even a few years could cost you dearly. To illustrate the principle, let’s say you have R100,000 to invest in a high equity portfolio. You may expect to earn an average 5% real (after-inflation) return over the long-term, based on historical averages.
Net of a 1% fee, you stand to get out R480,000. But if you paid 3% pa in fees, which is not uncommon for some of the retirement annuities sold by the life insurance industry, your payout would be only R221,000, which is less than half.
Assume you earn those returns in a straight line, and you delayed switching into the lower cost alternative for just five years. Your pay-out would still increase, of course, from R221k to R436k, but that’s still 10% less than if you switched immediately. Especially in the early years, every year you delay switching to a low-cost alternative could lose you 2% of your final pension. That will take a big chunk out of your retirement lifestyle in no time at all.
In this case, procrastination doesn’t just steal your time but also your pension.
In the real world, returns don’t accrue in a straight line; our example just illustrates the principle. Also, in the context of switching your RA, you not only have to consider the actual fees you presently pay but also any potential early termination charge. These will both depend on the specific terms of your policy.
We will quantify the potential benefit of a switch to a low cost option such as 10X for you. With your permission, we will contact your RA administrator and request full details of your fees and termination charges, if any, and provide you with a comprehensive comparative quote.
Nine times out of ten, when we do this exercise, the long-term benefit of paying lower fees considerably exceeds the cost of the early termination charge.
At 10X we make switching simple. Fill out your details here and we’ll get back to you, to sort out the rest.
Switching providers: the trick is in the timing
It’s no secret that in today’s economic climate finding ways to save money for long-term goals (such as your retirement) can be difficult. You might think people would jump at an effective, easy way to enhance your retirement outcome: switch to a low-cost provider. Paying just 2% less in fees can give more than 40% more in the end.
