Uncertain Markets And Your Pension Money

With lacklustre local stock returns, questions about the creditworthiness of government debt and record-high offshore markets, those close to retirement may be left with daunting choices. Amanda Visser spoke to retirement specialists about the options.

- Amanda Visser

Investors globally and locally are finding themselves in an ‘investment yield drought’, which started in 2008 with the financial crisis in developed markets and rippled through to the rest of the world.

Then came Covid-19, which wreaked havoc on the markets. Retirees and those planning for retirement have justifiably panicked. But the constant refrain from the financial planning industry remains: Do not take short-term decisions for longterm plans.

In South Africa there is a unique combination between the Covid-19 market crash and the SA sovereign risk downgrade by rating agencies that caused long-term interest rates on bonds to increase, says Deane Moore, CEO of retirement income specialist Just.

“Higher long-term interest rates are good news for pensioners because life annuity rates improved significantly. This means those in or close to retirement have an opportunity to purchase guaranteed income for life at some of the cheapest levels in decades.”

Alexander Babich, managing director at Alexander Babich & Associates and deputy chair of the SA Independent Financial Advisors Association (SAIFAA) says SA has an incredible tendency to bounce back from the brink of disaster.

Internationally, interest rates are at either 0% or close to it. In SA investors can get a fixed rate on a three-year SA retail savings bond of 6% and a fixed rate of 8% on five years.

“We do not believe SA is going bankrupt just yet. Although there are credit risks, we think it is still a calculated risk. We believe fixed income funds with short-duration government bonds are still a safe space.”