Flexible savings plans with downside cover

By Staff Writer
By Hennie Pretorius, journalist, Justmoney
The 2-In-One Savings Plan by Old Mutual was launched last week Tuesday, 12 August 2014. On Wednesday, Discovery announced the launch of their Classic Flexible Investment plan.
Findings of the latest Old Mutual Savings and Investment Monitor (OMSIM) indicated the need for a more flexible savings plan by consumers, one they could access if and when the need arose. Both Discovery's and Old Mutual's plans are intended to offer more flexibility to the consumer.
While Old Mutual’s 2-IN-ONE Savings Plan targets the R5000 to R20000 per month income bracket, Discovery’s Classic Flexible Investment Plan is a lump sum product whereby a minimum lump sum of R100 000 is required by investors.
Discovery’s Plan
The Discovery Classic Flexible Investment Plan is a lisp product that offers investors “protection from fund underperformance,” according to head of Discovery Invest Product Development, Craig Sher.
Those interested in the offer initially agree to invest for a minimum five year period. An ongoing protector premium of 0.57% per annum is payable.
The plan offers up to a 10% upfront boost to the sum invested with Discovery called the Classic Performance Protector Fund: “This upfront boost grows at a guaranteed rate of 6% each year for five years,” says Sher.   After five years, any remaining amounts in the Classic Performance Protector Fund will continue to grow at 6% per annum and will be paid out after 10 years. 
Although the Classic Flexible Investment Plan offers investors immediate access to their money from day one, those interested in the performance protection offer have to invest for a minimum of five years. An ongoing protector premium of 0.57% per annum is payable. An early exit fee of 2.75% plus vat applies to withdrawals in excess of 5% in the first 3 years. 
There are no exit fees thereafter.
Besides the Protector Premium, there are no initial administration fees and no annual administration fees if the client chooses Discovery Funds.
Additional plans on offer
Two additional plans are offered by Discovery to allow for more flexibility.
An Essential Flexible Investment Plan is on offer with a minimum investment amount of R60 000. The ‘performance protector’ fund does not apply with this plan which means there is no 0.57% protector premium per annum, but it also means there is no guaranteed minimum growth rate.
The Core Plan is said to be fully ‘flexible’ and ‘liquid’. No initial fees or early exit fees are payable on Discovery Funds but an annual fee of 0.35% plus vat is payable.
What to look out for when investing in endowments
According to financial planning expert Gavin Came, legally endowment policies have a minimum investment period of five years.
Policy providers record expected profits in their financial statements based on expected policy performance for the five year period.
If there is an early withdrawal of funds, a fee will be charged by the policy provider based on the reduced profit potential due to the early withdrawal.
“Ideally you want to leave your funds invested for the entire five year period, any early retirement fees will negatively affect your investment,” said Came.
However, yearly fees can’t be avoided. It costs policy providers to collect payments from policy holders.
According to Came, endowments are beneficial in the sense that they encourage people to save. Unlike unit trusts, the minimum amount you can invest in endowments is substantially less.
Bearing this in mind, Came recommends comparing an endowment plan to an ordinary day-to-day savings plan from your local bank, and also not to forget to take inflation into account.
“It might sound strange but if you are not earning more from your endowment than your day-to-day bank savings account, you should rather be spending the money,” said Came.
According to Trading Economics the current inflation rate is sitting at 6.6%.
*The Discovery savings plans mentioned in this article are not classified as endowments.

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