27four Investment Managers
5th June 2013
What is Seamless Transition?
Seamless Transition is a service offered by 27four Investment Managers and Prescient Life, which will allow your members to retire seamlessly from a defined contribution retirement fund into a living annuity in a cost effective manner. Seamless Transition allows your members to invest in the same 27four investment portfolios that they are currently invested in pre-retirement, once they move into retirement. Importantly, they are able to invest in the same portfolios at the same fees.
At the point of retirement, there is no need for the member to cash out of their investment; there is simply a change of legal ownership of the assets from the fund to the member: the member goes from contributing one month, to drawing down an income through the Prescient Living Annuity in the next month. The seamless nature of this transaction means that the member faces no market timing risk because they do not need to disinvest into cash and then buy back into the market.
What is a Living Annuity?
A living annuity is essentially an investment-linked draw down account, through which a retiree is entitled to draw down between 2.5% and 17.5% of their retirement capital in each year as an income. Within a living annuity the retiree is able to choose from different underlying investment options, in this case, the 27four portfolios that you currently hold. In the event of death, the remaining capital within a retiree’s living annuity will be passed on to their beneficiaries.
Why is Seamless Transition Needed?
As trustees, you govern your occupational retirement fund’s investments and ensure that your members have access to portfolios that best suit their saving needs at competitive levels of cost. When your members retire, they enter the retail market which offers considerable choice in terms of financial advisors, providers and products.
Prospective retirees generally have inadequate knowledge to choose between the range of retirement products and services on offer and as a result, can incur high financial advisor, platform and investment management costs in retirement. Unfortunately, these costs have a considerable impact on their ability to enjoy a comfortable retirement. The chart illustrates the impact that 1%, 2% and 3% fees can have on a living annuitant’s capital and income.