Casting new light on AVCs

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Proposed changes to the National Pensions Law could soon allow you to unlock and withdraw Additional Voluntary Contributions (AVCs) from your pension account (outlined in the June edition of this bulletin). AVC withdrawals would be permitted to help with medical expenses, temporary unemployment, purchase of a home, or any educational purpose. Currently,AVC withdrawals are only permitted at retirement from age 65.

Loosening restrictions on AVC withdrawals is intended to help you see your pension accounts as a more attractive place to save for a variety of financial needs and ultimately create momentum to grow your retirement savings.

Five reasons to start or increase your AVCs:

  1. Easy to contribute – Contributions are made directly from your pay (automatically) and are easily increased, reduced, stopped and restarted whenever you need.
  2. Home ownership and rainy day savings – Under the pending new rules, you will be able to access your AVC savings whenever you need your money for a down payment on a home, or other critical financial needs. And unlike a bank account, you’ll be restricted from dipping into your AVCs for non-critical financial needs like a new television.
  3. Built-in diversity – AVCs can be invested in your choice of Silver Thatch Pensions’ investment portfolios. These include a diverse mix of assets representing U.S., Global and Emerging markets, including bonds, equities, and alternative investments. Because not all investments perform well at the same time, holding a variety of investments may help offset the impact of poor performance in one or more investments, while taking advantage of the earning potential of the rest.
  4. Earnings potential – Savings held in a Cayman bank account will usually earn annual interest of 0.1% to 0.5%, and a five-year term deposit or guaranteed investment certificate will earn no more than 0.5%-1.0%. That’s usually not enough to beat inflation. In comparison, Silver Thatch’s portfolios offer attractive returns over the long term. The five-year average annual returns as of June 30, 2015 are as follows:
    • Conservative Portfolio: 5.39%
    • Balanced Portfolio: 7.34%
    • Growth Portfolio: 9.23%
    • Aggressive Portfolio: 10.26

    Keep in mind, as with most investment vehicles the Silver Thatch portfolios can rise and fall with financial markets and sometimes provide returns below the overall market.

  5. Low cost – As professionally managed funds, the portfolios carry investment and administrative costs. In 2015, these fees ranged from 1.5% to 1.6%. In comparison, retail mutual fund investments carry total investment and administrative costs that typically range between 1.5% and 2.5%, and sometimes more. Also, retail investment fund expenses are paid and reported in many different ways, so it can be very difficult to clearly understand the true cost.

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