Policyholder’s cushion against volatile markets

Ramnarain said given the political uncertainty in the country what the smooth bonus fund was offering was a reduction in that volatility.

The fund takes the market returns, keeps them in a reserve and then passes them on to policyholders every month.

“We aim to kind of reduce that market volatility and reduce the member’s exposure. Smooth bonus funds come with some sort of guarantee, depending on the product you choose; any money you put in can be guaranteed. So not only are you protected against that volatility, but also on the downside as well. Given where markets were recently, we have seen an increase in entrants in the smooth bonus, especially on the corporate side. Retirement funds consultants have been asking more about that and the recent default regulations,” said Ramnarain.

He said there was a need for more education on smooth bonus products and insurers had improved their disclosure and the way they communicated about how the product worked as well as increased focus on transparency.

“What we are seeing is that not just with the member base, but also with trustees and principal officers, there is a misconception about how the smooth bonus fund works. At Momentum Corporate we are trying to increase the awareness around the smooth bonus fund.”

Ramnarain said the results from the latest Momentum/Unisa Consumer Financial Vulnerability Index showed a worsening trend across all indicators of financial vulnerability.

He said retirement fund trustees could protect retirement fund members by offering them the best possible investment solution for their retirement savings, both in terms of capital guarantees and highly competitive fee structures.

“We believe that a combination of low financial literacy and capability levels, as well as poor consumer financial behaviour, are the core underlying reasons for financial vulnerability, a term that refers to a sense of insecurity or inability to cope financially.

“However, given the increasingly volatile local market environment, it is understandable that saving for retirement can often be pushed out as a last priority for many. It is therefore critical that all members, especially those who are particularly vulnerable, be given the best possible chance of achieving their retirement and investment outcomes.”

PERSONAL FINANCE