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MONEY CLINIC: I have invested R1m to be paid out monthly, I have not received any during Covid-19. What can I do?

A widow in desperate need of the money she invested seeks the help of an expert on her options of what to do next.

She writes: 

I have in invested R1 000 000 Class C in Ecsponent for me to have income every month and now the five years have expired. They have not paid monthly income the last three months.

This is now critical, and I really need my R1 000 000. What can we do for them to release my money?

I’m 75 years old and a widow. Please advise.

* Editors Note: Since the question was received, the Financial Services Conduct Authority has suspended the operating licence of Ecsponent Financial Services for a period of two weeks. Read more here

Lauren Davids, Senior Investment Consultant at 10X Investments, responds:

Ecsponent provides two income solutions, the Living Annuity and the Preference Shares option. Looking at the information you have provided, it seems that you are invested in Ecsponent Preference Shares, providing a monthly payment of dividends and maintaining 100% of your capital after the five-year investment term.

There were media reports of financial trouble at the company last year, and a dividend default announcement this February. More recently, Ecsponent Financial Services had its licence suspended after an investigation spanning nearly seven years. It would be best for you to make contact with Ecsponent to query your options and the company’s plans in terms of dealing with the default.

It is evident that you are dependent on the monthly income this investment was providing. You did not say whether this is your only capital providing you with a monthly income. You may want to consider an investment vehicle that will continue to provide you with a monthly income as well as greater security and diversification thereby not putting all of your eggs into one basket.The most common investment vehicles to provide pensioners with an income are living annuities and guaranteed annuities.

Living annuities are popular because, among other things, they are estate friendly, meaning they do not form part of one’s estate, and therefore do not attract various taxes at death.

Also, a living annuity provides you with control of your investment and income. You can choose how to invest your capital, in terms of asset allocation, as well as how much income will be provided annually (as long as it is between 2.5% and 17.5% of your investment value). By drawing a lower income than the returns provided by the portfolio, your capital will likely last your lifetime allowing you to leave a legacy for loved ones by way of a beneficiary nomination. A living annuity can be transferred between service providers.

Guaranteed annuities, offered by various Life Assurers, provide a set income for life. There are options available to the annuitant in terms of income increases and guaranteed terms of the capital. Once you have purchased an annuity, you are unable to alter your choice and must remain with the service provider and option. A guaranteed annuity won’t leave capital for your dependents should you wish to leave a legacy.

Should you choose a living annuity, an important consideration is the fees charged. Many South African pensioners are paying high fees, in some cases, close to 3% of their total investment balance p.a. This is typically made up of 0.75% for advice, 0.25% for administration, 1.5% for investment management and 0,4% for VAT. Choosing a low-cost living annuity (charging 1% or less per annum), such as 10X Investments, will allow a higher monthly income and longevity of income. 

Compiled by Allison Jeftha. 

Disclaimer: Fin24 cannot be held liable for any investment decisions made based on the advice given by independent financial service providers. Under the ECT Act and to the fullest extent possible under the applicable law, Fin24 disclaims all responsibility or liability for any damages whatsoever resulting from the use of this site in any manner.

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