RA's on Carte Blanche

[Nivec]

Thanks RVFmal

No, unfortunately through a broker, someone who had been dealing with my families financial matters for some time and generally trusted. Hmmm, I will restrain my self here.

But anyway, they have given me a number of options, none of which I am happy with, when you dig deeper the options they are proposing leave me in pretty much the same situation.

So I am just trying to find out as much as I can, before I approach the PFA.

Dolby:
As far as I know there are slight variations from fund to fund, but generally, at the end of the policy, you take 1/3 as a lump sum(taxable), this you can do with what you like. The remainder is used to pay you a monthly pension.

 

[RVFmal]

Alright ... hyperthetical situation :

I'm 25 years old, open a Retirement Annuity till 55, and contibute R300.00pm. By age 55 I'll have (as an example) R150,000 saved in my RA. I can take 2/3 capital (R100,000) and by law I must invest that other R50,000 - is this right, basically?

OK growth would depend on a number of factors being the funds invested in, annual contribution increase etc, but the gist of it would be that if you had R 150 000 invested at retirement age on policy (in this case being age 55) you could take R 50 000 as capital (being the 1/3 and would be tax free depending on value - there is a maximum limit) and the balance of R 100 000 (2/3rds) would have to be used to purchase an annuity to pay you your monthly income or pension (which is taxable due to your getting a rebate during contribution).

 

[Dolby]

What amount would the monthly income or pension be? A percentage of what is left ie R100,000? Is it on going until I die? What if I die at age 57? What if I die at age 97?

 

[RVFmal]

Thanks RVFmal

No, unfortunately through a broker, someone who had been dealing with my families financial matters for some time and generally trusted. Hmmm, I will restrain my self here.

But anyway, they have given me a number of options, none of which I am happy with, when you dig deeper the options they are proposing leave me in pretty much the same situation.

So I am just trying to find out as much as I can, before I approach the PFA.

Dolby:
As far as I know there are slight variations from fund to fund, but generally, at the end of the policy, you take 1/3 as a lump sum(taxable), this you can do with what you like. The remainder is used to pay you a monthly pension.

I take it he did not advise as to the costs when he sold you the policy?

I hope that you are able to sort the issue out without much loss and without having to approach the ombudsman

The first R 120 000 on the lump sum is tax free, the balance taxable, as is your monthly income.

 

[RVFmal]

What amount would the monthly income or pension be? A percentage of what is left ie R100,000? Is it on going until I die? What if I die at age 57? What if I die at age 97?

These all depend on the type of annuity that you buy. Some annuities will pay a higher income if you limit the benefit period i.e: if you choose to have the income paid over a ten year period only (not generally a very good option - circumstances dependent).

You can have an annuity pay for the rest of your life and cease on death, or you can have an annuity pay for the rest of your life and continue payng for the life of your spouse and you can have an annuity pay after your and your spouses death to your nominated dependents.

There are various options, each with it's pro's and cons. Bear in mind that the longer you want an annuity to pay, the less your monthly benefit will be.

 

[bb_matt]

I'm probably going right off on a tangent here and stating the glaringly obvious, but the idea of an RA or Pension or whatever seems to hinge around this :-

Whoever runs the fund you are a part of could go bust at any time and you'll lose everything. Alternatively, they won't and if you don't have an RA, you'll not be able to survive when you retire.

The financial institutions offering these schemes are quick to point out the horrors of a future without one. How you'll need X times more money in 20 years than you do now to survive. That maybe true if things never change, if there's never a war, or a crippling economic drop caused by oil shortages or natural disaster. That may be true if there's never a regime change in the country you live in, or civil war, or a coo. But we all know that we live in a world of continual upheaval. Our very existence is a fine balance.

It's an odd situation.

I'll be starting a UK RA scheme when I get over there, as well as applying for whatever government / National insurance scheme I can, but I'm well aware of the fairly recent problems with these schemes.

What I'd ideally like to do, should fortune shine upon me in my work life, would be to buy property and f@ck any RA or Pension or crap like that. Of course, you need a considerable sum of money to get involved in the property game, but it seems far more agreeable than handing over sums of money every month to a financial institution that could go bust.

It happens all the time, which is what scares me.

I personally think the idea of RA is outdated, but then, what do I know ?
I'm a financial disaster !

 

[scatlett]

This is EXACTLY what happens. If you are a broker and can create a client base of 200 idiots. You can resell them the same product over and over every two years and you will only have to worry about what colour your next porshe is going to be.

RVFMal, being a broker - I am interested if you have any comments to my previous point? Am I being a little too fanatical or do I have the gist of it (for some brokers?)

 

[Nivec]

No, was never advised on the costs, other than the monthly cost on the premium, haven’t got the detail with me, but basically a yearly % divided by 12. No mention was ever made about the expense account, I only new of this recently from that show on 702.

Also for that 7 month period when I reduced my premium, I thought I was doing the responsible thing by phoning them (The Provider) and asking what was the minimum amount I could pay, They did not inform me that that would result in a 27k charge.

Thanks, I sure hope I can sought it out as well, just difficult to know exactly what my rights are in this circumstance and what would be considered fair.

 

[scatlett]

Whoever runs the fund you are a part of could go bust at any time and you'll lose everything. Alternatively, they won't and if you don't have an RA, you'll not be able to survive when you retire.

No, the fund is an entity outside of whoever may be managing it. If the managing company goes bankrupt, the fund may be managed by some other company.

The financial institutions offering these schemes are quick to point out the horrors of a future without one. How you'll need X times more money in 20 years than you do now to survive. That maybe true if things never change, if there's never a war, or a crippling economic drop caused by oil shortages or natural disaster. That may be true if there's never a regime change in the country you live in, or civil war, or a coo. But we all know that we live in a world of continual upheaval. Our very existence is a fine balance.

Products in the Life Assurance industry are sold not bought.

What I'd ideally like to do, should fortune shine upon me in my work life, would be to buy property and f@ck any RA or Pension or crap like that. Of course, you need a considerable sum of money to get involved in the property game, but it seems far more agreeable than handing over sums of money every month to a financial institution that could go bust.

It happens all the time, which is what scares me.

I personally think the idea of RA is outdated, but then, what do I know ?
I'm a financial disaster !

RA's do have tax advantages. Get a financial advisor to help you when you are overseas - especially since you do not know the financial landscape.

 

[RVFmal]

bb_Matt, I doubt any of the funds will go bankrupt short of a major catastrophe (nuclear war springs to mind here) or a complete collapse of the stock exchange.

If one were to be given every imaginable scenario it would take half a life time to decide which funds to invest in.

As I have stated before, an RA is only one part of a person's investment portfolio as is property. Whilst property is offering good returns at the moment it will not continue indefinitely. One only needs look at equities. Not so long ago it was not a very good idea to invest in any, but now they are offering fantastic returns which little else can currently match.

It is very difficult to say what is the best investment for a client which is why a Needs Analysis and Risk Profile are so important.

Whilst the idea of an RA may seem outdated to you, in the greater scheme of ones portfolio it has it's place.

 

[scatlett]

No, was never advised on the costs, other than the monthly cost on the premium, haven’t got the detail with me, but basically a yearly % divided by 12. No mention was ever made about the expense account, I only new of this recently from that show on 702.

Also for that 7 month period when I reduced my premium, I thought I was doing the responsible thing by phoning them (The Provider) and asking what was the minimum amount I could pay, They did not inform me that that would result in a 27k charge.

Thanks, I sure hope I can sought it out as well, just difficult to know exactly what my rights are in this circumstance and what would be considered fair.

Complain to the ombud, he has already made like 14 judgements against the Life Assurance companies for this. If the wording did not define these costs, then you should not be charged.

For interest's sake, which life company do you have the RA with? (I bet Liberty Life?)

 

[RVFmal]

RVFMal, being a broker - I am interested if you have any comments to my previous point? Am I being a little too fanatical or do I have the gist of it (for some brokers?)

Unfortunately it can be done, but the regulations are being refined to prevent unscrupulous brokers from operating in this fashion. The first step to this was the introduction of the Replacement of Policy Document that had to be signed by both parties outlining the reasons for the replacement of an existing policy.

 

[RVFmal]

Complain to the ombud, he has already made like 14 judgements against the Life Assurance companies for this. If the wording did not define these costs, then you should not be charged.

For interest's sake, which life company do you have the RA with? (I bet Liberty Life?)

Absolutely agree. However before running to the Ombud, one has to exhaust all other avenues first.

I wanted to say that, but it would have been to obvious. However there are other companies that are just as likely to pull such a stunt.

 

[Nivec]

I am planning to complain to the ombud, the PFA(Pension fund adjuticator), just getting all the details together and allowing ‘Old Mutual’ the opportunity to correct the situation first. This is a rule with the PFA, you have to first approach the provider and if they do not help to your satisfaction within one month, only then can you lodge a complaint with the PFA.

bb_mat, as RVFmal suggested, but in fewer words. “Don’t put all your eggs in one basket”

 

[scatlett]

I am planning to complain to the ombud, the PFA(Pension fund adjuticator), just getting all the details together and allowing ‘Old Mutual’ the opportunity to correct the situation first. This is a rule with the PFA, you have to first approach the provider and if they do not help to your satisfaction within one month, only then can you lodge a complaint with the PFA.

On a previous case from OMU, they reversed the penalty charges but the client had to start contributing the same original premium (+ escalations). Basically, they said that the fault was the broker's for not informing the clients. That was before the PFA started throwing his weight around though...

 

[bb_matt]

Thanks for the info RVFmal - always good to hear from someone in their field willing to impart free advise !

Although I'm 38, I still am learning how to manage my finances as I've done terribly to date. I'm not in any debt at all, but I don't have any assets either. What I do have is about to be converted into a move to the UK.

I suppose you could argue that I'm not doing too badly, considering my credit is good and I don't owe anything - but hey, I'm now understanding the very real reasons behind getting a portfolio and getting one very soon - I'm knocking on 40 years old - potentially half my life has past by, time to invest in a future where I can no longer work to earn my money. I hope it doesn't come to that. My grandparents on both sides worked till the day they died and were quite happy doing that, but that was a different generation.

On a side note, what's the easiest way to take 5 years off your age "on paper" - hehe - I'm seriously going to try and do that before I hit 45, because although I'm 38, I look 28.

 

[Nivec]

I have not stopped paying; actually paying almost 10 times what the inception premium was. I have also moved money from another policy into this one, so have paid far more that what I originally agreed to. The contract does stipulates that if you increase the amount you are paying then the costs are adjusted, they do not state what the costs are though.

Strange though, it’s just numbers in a computer somewhere, why does the size of the numbers determine the charges. Perhaps it adds to there bandwidth bill from Telkom.

I think there have been 19 judgments now, last one was last week. Guy was unhappy with returns so stopped paying, the provider then penalised him. They where ordered to refund the amount.

 

[RVFmal]

Free is a relative term!

You have left it rather late, but then again, better late than never. As Scatlett said, find a repuatable Financial Advisor when you get overseas to assist you. There is nothing stopping you from being actively involved in the choice of funds that you invest in and to be honest if one wants good returns learn from those in the know.

As to taking 5 years off your life on paper, if you find a way, let us all know.

Why the huge increase in your contributions as to when you started? Voluntary or compulsory? The reason for the fluctuation in costs is that you are deviating from the initial contracted amount which they have costed for. Adding additional funds can reduce your costs as the more invested the less they charge. This is generally on a tiered structure. Your policy wording should give you an indication of how they reduce in line with your capital growth.

There will be many more judgements in the future - for and against the Assurance companies.

There was an article that if the Life Companies actually allocated a specific amount to cover the costs of moving all their clients to new, lower cost products, it would amount to a quarter of the total amount that clients could claim in the vent that penalties were reversed. Some food for thought. OM have already allocated over R 200 million to the cost of doing just that for their clients. How long it will take remains to be seen.

 

[scatlett]

There was an article that if the Life Companies actually allocated a specific amount to cover the costs of moving all their clients to new, lower cost products, it would amount to a quarter of the total amount that clients could claim in the vent that penalties were reversed. Some food for thought. OM have already allocated over R 200 million to the cost of doing just that for their clients. How long it will take remains to be seen.

WOW!!!! Can you believe it!!!!

If consumerism can affect the life assurance industry, who can afford and is ruthless enough to keep you in court for many years, then it will work against telkom!

Just a matter of time.

 

[Nivec]

Interesting, thanks for the info RVFmal. I know that OM is going to offer there existing customers a move to there new MAX product towards the end of the year, still trying to find out what will happen to the expense account if I take the offer.

I did not opt for an annual increase, just increased it a couple of times when I could afford it.