Retirement Fees by Fikile Shezi
-
Upload
10x-investments -
Category
Business
-
view
1.355 -
download
1
description
Transcript of Retirement Fees by Fikile Shezi
HEADING
Quantifying the total fees and their impact on members’ retirement outcomes
Costs Calculator
1. Key differences between free standing and umbrella funds
2. Understanding the anatomy of fees and their importance
3. Quantifying total fees and their impact on members’ retirement outcomes
4. Conclusion: Costs matter
Agenda
Key differences: Free standing versus Umbrella Funds
Key Differences
The Anatomy of Fees
Industry is often complex & inefficient: many choices, high fees
Broker/ consultan
t
Investment advice
Investment admin.
Pension admin
Fund managers
0.3% - 0.8% of payroll
0.1% - 0.5% of assets
0.5% - 1% of assets
0.3% - 0.8% of payroll
0.5% - 2% of assets+ perf.
Fees can be broken down into three areas:1.Advice:
Employee benefits (fund and benefit design) and investments2.Administration:
Fund and investments3.Investment management
Local, offshore, conditional fees eg. performance fees, guarantees
Investor Portfolio
The Importance of Fees
Myth: High costs are a small price to pay
Fact: High costs drastically erode lifetime returns
Fees matter
147% 100% 60% 27% Increased value from lower fees
Cost Calculator: Quantifying total fees and their impact
Step 1: input data and fees
PICTURE GOES HERE
PICTURE GOES HERE
PICURE GOES HEREHggggggggggg
Membership details
Number of employees 5,000
Average contribution per employee pm R2,250
Total assets R 100,000,000
Fee input (incl VAT)
Payroll based fees Fund A Fund B
Admin fees: select ONE of the following
1. Admin fees as % of payroll Nil 0.30%
2. Admin fees as Rand per member pm R34 Nil
Consulting fee as % of payroll Nil 0.15%
Asset based fees as % of assets pa
Investment consulting fee Nil 0.30%
Administration Nil 0.20%
Investment management 0.30% 1.00% Assumes, 1% pa real salary growth, 5% real return, Male aged 65 purchases a CPI linked annuity at 6% initial yield
Step 2: Calculate total fees charged per month
PICTURE GOES HERE
PICTURE GOES HERE
PICURE GOES HERE
HERE
Fee output
Fund A Fund B
Payroll based fees R170 000 R337 500
Asset based fees R25 000 R125 000
Fund expense R 0 R20,833
Total scheme fees pm R195 000 R483 333
Excess fees 148%
Total scheme fee saving per year R3,460,000
Fee saving as % of assets 3.5%
Ave. scheme fees saved per member per year R692
Step 3: Calculate total fee impact on average member
PICTURE GOES HERE
PICTURE GOES HERE
HERE
Projected retirement income increase* pa from fee savingR 1,884 R 8,675 R 59,244
*Male aged 65 who purchases an inflation-linked annuity
Step 4: Project long term fee impact
PICTURE GOES HERE
PICTURE GOES HERE
HERE
Conclusion: Costs matter
Fees matter:
•Each 1% fee savings increases your final pension by approximately 30%
•Quantify total fees from ALL service providers
•Demand full transparency (especially asset based fees)
The 10X fee calculator is available upon request.
What really adds value to fund members?
Thank you