ALEXANDER FORBES UMBRELLA FUNDS

ALEXANDER FORBES UMBRELLA FUNDS INFO I ISSUE 4 I 2019

Financial tips for the festive season

How can you plan to ease your year-end financial burdens?

Start with a household budget This way you can see how much money you have to pay for everything. Start with non-negotiable items like rent or car repayments and factor in January expenses that will need to be paid before your next salary comes in. Remember to budget for school fee increases, new school uniforms and stationary in January. Once you’ve budgeted for these, you can look at what else you’d like to spend on during the holiday period. If you are entertaining Look at who you are inviting. Is anyone staying over and, if so, where and for how long? Will they help with expenses or not? What do you want on the menu for big events? Your budget will help you decide whether to serve chicken or lamb and if people need to bring their own drinks.

Check your reward programmes Figure out how they work to maximise your points. You may be pleasantly surprised by the amount of cash or credit available to pay for things during the festive season.

If you are travellingPlanning your trip is important. Have you factored in petrol, toll road fees, additional treats, activities and eating out?

Choosing gifts wiselyAsk people what they’d like so you don’t have to buy something that won’t be appreciated and a waste of money. Look for discounts on bulk items that can be split and repackaged for a few people. For teachers’ gifts, ask around and club together to buy a voucher. Teachers love it as they can choose what they want.

Handling Christmas sales without getting into debt Keep your budget in mind and know your prices, as a discount is not always a bargain. Use a list to keep spending in check. Don’t look around aimlessly as you might be tempted to buy something you don’t need. Keep the interest on the credit card in mind as the discount might not be as good as you think when you have to buy on credit. If you’re already in debt, stay away from the shops as much as possible.

Before you make any decisions that could affect your retirement savings, it’s a good idea to speak to an accredited financial adviser who understands your needs and personal circumstances and can explain financial jargon. Phone the Alexander Forbes Individual Advice Centre on 0860 100 444 or call the Financial Planning Institute of Southern Africa on +27 (0)11 470 6000 to find an accredited financial adviser. You can also check your financial adviser’s credentials on www.fpi.co.za.

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2020IN FOCUS

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How would retrenchment affect your financial well-being?The South African economy is struggling and the impact of slow growth is now being felt by some companies who’ve begun retrenching or talking about retrenching employees. It is therefore important to educate yourself about the impact of retrenchment on your financial well-being and what to do if you lose your job. While this is a scary thought, it’s always better to hope for the best but plan for the worst.

If you are retrenched, you’ll be entitled to a severance package of at least one week’s pay for every completed year of continuous employment with your employer.

According to the 2018 Alexander Forbes Member Watch™ analysis, over the last three years, 89% of members who were retrenched from their employers cashed in their retirement savings.

The analysis also revealed that retirees replaced on average around 30% of their pensionable income when they retired.

Not keeping retirement savings invested when moving from one job to another (for whatever reason) is one of the biggest contributors to poor retirement outcomes in South Africa.

Some people are under the impression that money that is preserved doesn’t earn investment returns and therefore doesn’t grow. This is not true. A lump sum transferred to a preservation fund or

Retirement fund implicationsBecause retrenchment means leaving your employer, you also have to decide what to do with your retirement savings in the employer’s retirement fund. You can preserve your savings by:

leaving your retirement savings invested in that fund

moving all your retirement savings to: your new employer’s fund a preservation fund a retirement annuity fund

You can also take all or a part of your retirement savings in cash, but then you are unlikely to have enough money when you retire. Any cash taken out will be taxed.

left in a former employer’s fund will grow with investment returns. Unfortunately, you can no longer contribute to the fund. You may make one withdrawal during the lifetime of the preservation fund, bearing in mind the tax consequences. This provides flexibility should you genuinely require the money.

South Africans in general don’t save adequately for their long-term needs. This is attributed mainly to the high unemployment rate, breaks in employment, lack of education, distrust of financial institutions, money mindsets and prioritising short-term, high-priority needs.In most cases, any person who has the option to take their retirement savings in cash when they leave their employer will instinctively do so. It may be considered the “easy” option, but even though saving your money now does not serve you immediately, it will definitely help you meet future needs if you preserve it. Ideally emergency savings should be in place to avoid dipping into retirement funds.

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Tips1. Get counselling

Retrenchment is a financially and emotionally stressful experience. Consider counselling before making any major financial decisions. Many financial decisions will have to be made, and budgeting and cutting costs are unavoidable. However, it’s important to put thought and consideration into these decisions.

4. Get advice Because personal circumstances differ between individuals, seeking financial advice from an accredited adviser could prove beneficial in limiting expenses and managing your money so that it can stretch further and meet your specific needs. Also consider your fund’s retirement benefit counselling options, which may assist you in the financial decisions related to your retirement savings.

2. Keep paying medical aid contributions and insurance premiums These are essential and can prevent further financial distress should something else unexpected happen. Ensure you and your family are on a medical aid option that meets your needs. Rather reconsider any luxury goods and services or cut back on wasteful expenses.

5. Keep learning and growing With global economic activity evolving, the fourth industrial revolution looming and retrenchments on the rise, it is crucial that we have a competitive edge as individuals. In an era where technology is rapidly advancing, individuals must constantly educate and upskill themselves to remain relevant in the market.

3. Save for emergencies Consider contributing towards an emergency savings pot. Aim to save at least three times your monthly salary as a financial buffer. This will help take some of the pressure off if you are ever retrenched.

Tax implications

Everyone is given once-in-a-lifetime tax relief of R500 000 on their retirement lump sum benefit. A retrenchment severance package is considered and taxed as a retirement lump sum benefit. Therefore, if you are retrenched, the first R500 000 of the combined severance package and any retirement fund benefit taken cash will be tax-free. Any further cash balance taken will be taxed at the retirement tax tables. Remember: the tax-free portion depends on cash amounts taken previously.

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Why it is important to reassess your healthcare plan selection every year

The end of the year is a time when many people look forward to a well-deserved break, summer, sun and special family time. It’s also the time of the year when the medical schemes announce their benefit changes and contribution increases. Most people are under the impression that reviewing their medical scheme option is time-consuming and too complicated, so they simply choose to stay on their current option. It is important to go through the annual benefit change documentation and attend any information sessions so that you’re knowledgeable about your coverage and comfortable that your option will meet your needs in the coming year.

Keep lifestyle changes in mindIf you have a new addition to the family or are planning to have a baby in the future, it is a good idea to review your healthcare option. Small children are exposed to all kinds of illnesses and families with very young children fall into one of the highest claims categories. Premature labour is a trend that is unfortunately on the rise. Premature birth ranks among the top ten highest costs and has had the most frequent admissions in the industry for the last few years.

Changes to your health status could mean that your existing option is no longer suitable for your needs. Risk tends to increase with age, so your medical aid should be adjusted as you move on through life’s many stages. Chronic needs might change because although all medical scheme options make provision for 27 chronic conditions, not all options provide the same medication cover. The comprehensive options usually cover more chronic conditions and offer more comprehensive benefits.

Planning a procedure or operation? Do you know if there are sub-limits, co-payments or deductibles on your option? Do you know at what rate your option will reimburse your providers?

Then again, you may even be overinsured and could save money by reducing your level of cover. Or, you may have both healthy and sick members in your family. By analysing your current option, your healthcare consultant can advise you on possible solutions. As an example, a solution might be to split the family scheme membership.

Most schemes have options with GP and hospital networks and regularly review these networks, adding to and removing from their network listings. If you are not aware of this, it could mean that you have to pay a penalty. Get to know your hospital network and what level of access you have to hospitals in your area.

!A healthcare consultant will complete a needs analysis of your requirements to establish exactly what type of cover you and your family need. So, before you go on that well-deserved holiday, make a note to check that you and your family are adequately covered, because your health matters.

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Understanding investmentsIn our last newsletter we explained a few investment terms. Here are two more …

Balanced and specialist investment management

In balanced investment portfolios, the investment manager can decide how much to invest in each type of asset class, such as shares or bonds. Balanced investment managers invest competitively, and try to outperform each other.

Specialist investment portfolios are designed to have fixed amounts invested in each type of asset class. Each manager in a specialist portfolio invests in one of the specific asset classes, depending on their strengths or speciality. R

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Investment returns

AFRF Investment returns September 2019

AF GOAL-BASED LIFESTAGE MODEL PORTFOLIOS Quarter 3 1 year 3 years 5 years

AF High Growth 7.45% 1.90% 4.33% 6.00%

Benchmark 7.96% 3.05% 4.66% 6.69%

AF Balanced High Growth 8.71% 2.70% 6.21% 7.42%

Benchmark 7.88% 2.26% 5.36% 6.28%

AF Passive Bold 7.34% 2.65% 4.14% 6.38%

Benchmark 7.65% 2.69% 4.21% 6.42%

AF Life Protector 6.66% 5.57%

Benchmark 5.84% 5.05%

AF Life Passive Protector 6.04% 5.40%

Benchmark 5.87% 5.13%

MULTIMANAGER PORTFOLIOS Quarter 3 1 year 3 years 5 years

AF Life Accelerator 9.62% 2.81% 5.91%

Benchmark 8.44% 2.60% 4.90%

AF Life Banker 6.52% 8.87% 8.82% 8.48%

Benchmark 4.96% 6.68% 6.74% 6.50%

AF Life Conserver 8.28% 7.16% 7.59% 7.32%

Benchmark 6.59% 5.67% 5.87% 6.84%

AF Life Performer 8.71% 2.70% 6.21% 7.42%

Benchmark 7.88% 2.26% 5.36% 6.28%

AF Life Real Return Focus 7.47% 6.07% 6.89% 7.23%

Benchmark 6.20% 8.42% 8.70% 9.16%

AF Life Stable Focus Combined 8.45% 8.17% 7.20% 7.13%

Benchmark 5.45% 7.40% 7.69% 8.16%

AF Life Spectrum 8.29% 2.97% 5.69% 6.19%

Benchmark 8.24% 3.01% 5.47% 5.81%

AF Life Shari’ah High Growth 10.22% 4.14%

Benchmark 7.22% 1.74%

AF Life Shari’ah Medium Growth 8.43% 5.33%

Benchmark 5.33% 2.89%

SINGLE MANAGER PORTFOLIOS Quarter 3 1 year 3 years 5 years

AF Life Allan Gray Classic Balanced 4.50% -0.56% 4.09% 6.51%

Benchmark 7.88% 2.26% 5.36% 6.28%

AF Life Coronation Best Investment II 10.91% 4.09% 5.50% 6.65%

Benchmark 7.88% 2.26% 5.36% 6.28%

AF Life Coronation Managed I 10.62% 3.70% 3.96% 5.66%

Benchmark 7.02% 3.54% 5.46% 6.74%

AF Life Foord Asset Management (best investment view portfolio)

8.77% 2.52% 4.22% 5.77%

Benchmark 7.88% 2.26% 5.36% 6.28%

AF Life Investec Asset Management (best investment view portfolio)

9.65% 4.50% 7.26% 8.87%

Benchmark 7.88% 2.26% 5.36% 6.28%

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TALK TO US

If you have any questions on your investment returns or you’d like to speak to a financial adviser, you can contact the Individual Advice Centre on 0860 100 444 or send an email to iac@aforbes.co.za.

AF Life Investec Cautious Managed 9.82% 7.39% 7.31% 7.54%

Benchmark 7.86% 5.86% 6.54% 7.38%

AF Life Oasis Asset Management (best investment view portfolio)

5.54% -0.80% 4.76% 5.30%

Benchmark 7.88% 2.26% 5.36% 6.28%

AF Life Prudential 7.75% 1.26% 6.45% 7.19%

Benchmark 7.88% 2.26% 5.36% 6.28%

PSG Global Balanced

Benchmark

CLOSED PORTFOLIOS Quarter 3 1 year 3 years 5 years

AF High/ Medium Growth 7.04% 3.18% 4.92% 6.26%

Benchmark 6.44% 3.45% 4.76% 6.48%

AF Medium Growth 7.05% 4.65% 5.77% 6.84%

Benchmark 6.07% 3.99% 4.99% 6.51%

AF Medium/Conservative Growth 7.29% 5.71% 6.38% 7.24%

Benchmark 5.64% 4.48% 5.08% 6.33%

AF Conservative Growth 7.24% 6.57% 6.65% 7.38%

Benchmark 5.19% 4.83% 5.14% 6.14%

AF Balanced High/Medium Growth 8.43% 3.63% 6.34% 7.29%

Benchmark 7.42% 3.33% 5.87% 6.69%

AF Balanced Medium Growth 8.13% 4.66% 6.49% 7.18%

Benchmark 6.95% 4.37% 6.35% 7.09%

AF Balanced Medium/Conservative Growth 7.84% 5.65% 6.62% 7.04%

Benchmark 6.46% 5.40% 6.82% 7.46%

AF Balanced Conservative Growth 7.73% 7.84% 6.99% 6.91%

Benchmark 5.89% 7.56% 7.74% 8.25%

AF Passive Bold/ Moderate 6.06% 3.33% 4.44% 6.31%

Benchmark 6.16% 3.14% 4.30% 6.19%

AF Passive Moderate 5.99% 4.03% 4.79% 6.47%

Benchmark 5.84% 3.69% 4.51% 6.17%

AF Passive Moderate/ Cautious 5.98% 5.14% 5.41% 6.74%

Benchmark 5.51% 4.42% 4.83% 6.17%

AF Passive Cautious 5.80% 5.90% 5.99% 7.03%

Benchmark 5.18% 5.01% 5.14% 6.17%

AF Life Coronation Fund Managers 10.91% 4.09% 5.50% 6.65%

Benchmark 7.88% 2.26% 5.36% 6.28%

AF Life FullVest 3.59% 4.83% 6.55% 8.05%

Benchmark 3.19% 4.34% 4.67% 4.91%

AF Life Stable Focus 7.29% 7.64% 6.86% 6.72%

Benchmark 5.45% 7.40% 7.69% 8.16%

AF Life Allan Gray (best investment view portfolio) 4.16% -0.82% 4.42% 6.88%

Benchmark 7.88% 2.26% 5.36% 6.28%

INFLATION (August 2019) Quarter 3 1 year 3 years 5 years

CPI headline inflation 3.57% 4.34% 4.68% 4.91%

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HEAD OFFICE – SANDTON

Alexander Forbes, 115 West Street, SandtonPO Box 787240, Sandton, 2146Telephone: +27 (0)11 269 0000or 083 917 AFORBESFax: +27 (0)11 263 2785

CAPE TOWN

Block A, The Boulevard, Searle Street, Woodstock, Cape TownPO Box 253, Cape Town, 8000Telephone: +27 (0)21 401 9300Fax: +27 (0)21 415 5580

DURBAN

Alexander Forbes Place, 10 Torsvale Crescent, Torsvale Park,La Lucia Ridge Office Estate, La LuciaPO Box 782, Umhlanga Rocks, 4320Telephone: +27 (0)31 573 8000Fax: +27 (0)31 573 8311

BLOEMFONTEIN

8-10 Reid Street Westdene, Bloemfontein 9300 PO Box 12731, Brandhof 9324Telephone: +27 (0)51 403 6500Fax: +27 (0)51 403 3770

EAST LONDON

1st Floor Short Mill House, Quarry Office Park, Berea, East LondonPO Box 19367, Tecoma, 5214Telephone: +27 (0)43 701 4800Fax: +27 (0)43 721 0028

PORT ELIZABETH

256 Cape Road, Newton Park,Port ElizabethPO Box 27972, Greenacres, 6057Telephone: +27 (0)41 392 8300Fax: +27 (0)41 392 8792

PRETORIA

Alexander Forbes House,189 Clark Street,Brooklyn, PretoriaPO Box 2435, Pretoria, 0001Telephone: +27 (0)12 452 7000Fax: +27 (0)12 452 7741

STELLENBOSCH

40 Dorp Street, StellenboschPO Box 501, Stellenbosch, 7599Telephone: +27 (0)21 809 3600Fax: +27 (0)21 886 4432

Alexander Forbes Life is a licensed financial services provider (FSP 1178).Credits: Alexander Forbes Communications (production) | Getty Images (imagery)

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Let us know if your contact details have changed

Deferred members afrfclaims@aforbes.com or 0860 100 333In-fund Preservation and In-fund Living annuitants – investadmin@aforbes.com or 011 324 3457