The Sanlam Umbrella Fund allows members who leave their employer before retirement to leave their benefits paid up in the Fund. Where a member has left employment and not provided the Fund with an instrucution to become paid-up, or have his/her benefit paid out or transferred, they will be defaulted into a central paid-up member category after 6 months. Members can subsequently review their investment strategy at any time without paying an investment switch fee. Paid-up members can also elect to withdraw their entire member share at any time.
Sanlam Umbrella Fund’s Individual Member Products and Servicing Committee recently reviewed the default investment strategy for this paid-up member category. The Sanlam Lifestage strategy is currently the default, and is a long-term investment strategy that aims to meet members’ retirement savings requirement, by working towards a members’ planned retirement age. It was noted however that members invested in the paid-up member group, had a much shorter investment time horizon, with most members remaining in this category for less than 2 years. The committee therefore investigated whether there was not a more suitable default strategy available for this member group.
Where the Preservation phase of the Sanlam Lifestage strategy is ideal for members close to retirement and provides a valuable guarantee on retirement, it was further noted that the majority of paid-up members were invested in the more aggressive Accumulation phase due to their age. When these members withdrew from the paid-up category, they did not have the benefit of smoothing or guarantees but were fully exposed to the risk of a market downturn.
The committee considered a number of alternative strategies, and ultimately agreed to change the default investment strategy for the paid-up member category to the Volatility Protection Strategy with effect from 1 July 2021. This means that all existing members in this member category, as well all new members that do not make a paid-up election, will be invested in the Volatility Protection Strategy from 1 July 2021.
The Volatility Protection Strategy limits negative returns for members while still providing real returns. For members with a short-term investment horizon this has the following benefits:
- Members can temporarily leave their accumulated savings in the paid-up member category while considering alternatives, knowing that their savings would not depreciate materially in the meantime.
- While being a paid-up member their accumulated savings are still growing at an attractive long-term return as both the alternatives still have more than 50% allocation to global and domestic equities.