On 30 March 2005 I placed and article in the Sakeburger about poor investment values on insurance policies. If you would like a copy, you can request one at my office. As a result of the pressure that the Minister of Finance and National Treasury placed on Life Insurers, the Life Offices Association decided that policies where clients took early retirement or where they reduced or stopped premiums after 1 January 2001 would have their values adjusted to 65% and in certain circumstances 70% of the premiums paid, thus still applying penalties. This legislation has only been in place for about a year.
I have 6 retirement annuities (referred to here as RAs) with three different insurers, one of which I have already transfered. The same happened with all of the policies, but for illustrative purposes the following happened and I will use one as an example. (I still have the evidence of my enquiries in this regard in January 2002 and the vague explanations that I received that did not answer my questions directly.)
I made contributions from 1/11/1998 to the value of R 63 960 up until 1/12/2002. From 1/8/2001 I lowered the premiums to R 1000 per month, and R 30 733,75 was deducted for costs. On 1/12/2002 I made my last payment of R 1000 after I could not get any satisfactory answers, upon which a further cost recovery of R 18 286,45 was applied.
Thus R 52 559,87 in costs was deducted and my investment balance on 1/4/2007 was only R10 333,45 after 8 years and 6 months. A month later I received a further allocation of R49 355,07 on the basis of the amendments in legislation mentioned in the first paragraph. I had still been penalised by R 18 192,25 under the new rules.
About 4 years ago I, along with a few of my Financial Planner colleagues, decided to start to use unit trust funds as an investment vehicle. Low risk funds such as stable and balanced asset allocation funds are used and the balanced funds have delivered returns of around 25% per annum and more while the stable portfolio has delivered returns of around 15% and more per annum since April 2003. If I had been allowed to place my RA (the R 63 960) in this balanced portfolio from April 2003 to April 2007, I would have had about R 156 152,34 in the specific portfolio without having made any further contributions. In short, the cost structures can be significantly lower and this is the most acceptable international method today.
Your options at present are as follows:
1. Ask your intermediary to evaluate your existing investment policies by calculating your returns to date and compare these to what the rest of the market offers\ed over the same time period with the same risk profile.
2. You can transfer your existing RA’s to a different RA before you reach the age of 55, in order to earn better returns and especially to enjoy lower cost structures.
3. If you transfer to the correct place, you will never again have to pay early retirement penalties, premium decrease or cessation penalties.
4. You can expect quarterly progress reports.
5. Unit Trusts are protected by the Collective Investment Schemes Act and are completely safe.