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A Fin24 user wants to switch retirement annuities to have better control over her investments. She writes:
I have a retirement annuity (RA) with Momentum, specifically an Investo Retirement Annuity.
I wish to spread my investments and take out a unit trust-linked RA, specifically because I will have better control on the type of investment.
My question is, are there penalties for stopping my monthly payment and if I wanted to, can I convert the Investo RA to a unit trust-linked RA?
Andrew Duvenage, CFP® and executive director at NFB, responds:
When dealing with an existing life company RA (such as the one you mention), you need to get an alteration quote to see if penalties are applicable and if so, what they are, before making any changes.
The existence or quantum of these penalties depends on how the RA was structured, what fees were charged and the contract term. Look carefully to see if the benefits of a different fund selection outweigh the costs of the proposed changes.
Before making any changes, you would be well advised to see what fund options are available to you through this existing RA. In many instances a number of top fund managers are available through the existing product, which does make it possible to change the funds that you are invested in within the existing RA.
This can help the investor avoid any penalties associated with making the RA paid up.
RAs are great products with significant advantages for investors. Our preference for new investments is to use unit trust-based RAs as they are more cost effective and more flexible, in that they do not have paid-up penalties or charges.
The reality is that saving for retirement is a long-term exercise, and circumstances do change over time. Thus a product that provides flexibility and does not penalise you for changes in circumstances makes most sense to us.
- Fin24
Do you have a pressing financial question? Post it on our Money Clinic section and we will get an expert to answer your query.
I have a retirement annuity (RA) with Momentum, specifically an Investo Retirement Annuity.
I wish to spread my investments and take out a unit trust-linked RA, specifically because I will have better control on the type of investment.
My question is, are there penalties for stopping my monthly payment and if I wanted to, can I convert the Investo RA to a unit trust-linked RA?
Andrew Duvenage, CFP® and executive director at NFB, responds:
When dealing with an existing life company RA (such as the one you mention), you need to get an alteration quote to see if penalties are applicable and if so, what they are, before making any changes.
The existence or quantum of these penalties depends on how the RA was structured, what fees were charged and the contract term. Look carefully to see if the benefits of a different fund selection outweigh the costs of the proposed changes.
Before making any changes, you would be well advised to see what fund options are available to you through this existing RA. In many instances a number of top fund managers are available through the existing product, which does make it possible to change the funds that you are invested in within the existing RA.
This can help the investor avoid any penalties associated with making the RA paid up.
RAs are great products with significant advantages for investors. Our preference for new investments is to use unit trust-based RAs as they are more cost effective and more flexible, in that they do not have paid-up penalties or charges.
The reality is that saving for retirement is a long-term exercise, and circumstances do change over time. Thus a product that provides flexibility and does not penalise you for changes in circumstances makes most sense to us.
- Fin24
Do you have a pressing financial question? Post it on our Money Clinic section and we will get an expert to answer your query.
Disclaimer: Fin24 cannot be held liable for any investment decisions made based on the advice given by independent financial service providers.
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