Valuable information on resolved complaints

In the FAIS Ombud February newsletter, there was valuable information on resolved complaints regarding retirement annuities and utilising endowment policies for retirement planning, which we thought would be interesting to share with our readers.

Case Study: H v M

During March 2017, the complainant, who was 50 years old at the time, provided the respondent’s representative with permission to review her investment, retirement, and insurance portfolio. The complainant was then informed that there was a retirement annuity with Sanlam that was around R103 000 that would appear to have been paid up and that was just lying there.

The respondent’s representative convinced the complainant to reinvest the funds with the respondent, and it was agreed that the funds would be reinvested for a period of 5 years. A Section 14 transfer was applied for and the funds were placed into a retirement annuity with the respondent.

Five years later, during 2022, the complainant approached the respondent to withdraw the funds and she was informed that the policy had been implemented for a period of 15 years and that should she withdraw the funds prior to the maturity date, she would incur penalties in the region of R47 000.

The complainant was upset with this news, as she had specifically requested that the funds be invested for a period of 5 years, and she approached the Office for assistance. The Office noted that the complainant had been 50 years old when the transaction concluded, and that the earliest the complainant could access her funds within the retirement annuity as age 55.

The term of 15 years, therefore, raised a concern as not only had the complainant alleged that she had requested a 5 year term, but because a 15 year term would not appear to have been in the complainant’s best interests, as it restricted the options available to her at age 55 and would as detailed by the complainant have led to penalties should the policy have been terminated.

In addition, the Office wanted the respondent to provide documentation showing compliance with Section 8(1)(a-c) of the General Code of Conduct for Authorised Financial Services Providers and Representatives (‘the Code’) where the respondent needed to support why a term of 15 years was appropriate to the complainants needs and circumstances. The respondent was also requested to provide details of the complainant having been advised of the consequences and implications of the 15-year term and the effects on the policy for early termination in compliance with Section 7(1)(c)(vii) of the Code to have allowed the complainant the opportunity to make an informed decision.

Upon receipt of this Office’s correspondence, the respondent undertook to resolve the matter, with the complainant. Whilst the exact details of the resolution were not made available, the respondent confirmed that when the Section 14 transfer between the insurers was completed, an amount of R107 718.29 was invested into the RA. The amount invested, had subsequently increased to R138 279.06 and that this is the amount that was paid to the complainant, without penalties. It was confirmed with the complainant that she had accepted the offer in full and final resolution.

Case Study: C v O

The Office of the FAIS Ombud has previously highlighted the concerns it has with the manner in which endowment policies are marketed to individuals i.e., that they are recommended, marketed and sold as investments.

During 2012, the complainant applied for an endowment policy with the respondent, which incepted on 1 January 2013 for a period of 10 years. During 2018, the complainant successfully applied for a partial disinvestment in the amount of R10 000 and had successfully applied for a zero-interest loan of R10 000 during 2021. During 2019, the complainant had also voluntarily requested to increase her premiums. When the complainant sought to access 100% of the remaining funds at maturity, she was informed that as a result of the premium increase, that was in excess of 20%, the policy had entered into a new 5-year restriction period and that the funds would now only be available 1 December 2024.

The complainant claimed that she was not advised that should she increase her monthly premium that the policy would enter into a new restriction period, and she requested that the remaining funds be released to her.

After much correspondence was exchanged with the respondent, the Office requested that the respondent not only show compliance with the provisions of the Code at the inception of the policy, but that the complainant was provided with concise details of the limitation applicable to the premium increase, when the complainant had applied for the premium increase.

According to the FAIS Ombud, Section 7(1)(c)(vii) of the Code provides that in rendering the financial service the FS must disclose concise details of any special terms etc., in respect of the specific product. Had the respondent complied with this Section of the Code, the Ombud says the complainant would have been placed in a position to make an informed decision as required in terms of Section 7(1)(a) of the Code. The respondent responded that as it had failed to caution the complainant when she had applied for the premium increase, it would make a business decision to amend the restriction end date and allow the withdrawal. The complainant completed the disinvestment forms together with all supporting documents, and she received a total payment of R69 544.2 in full and final settlement.

Valuable lessons learned

In case study one, what were the lessons learned? According to the FAIS Ombud, when presented with a recommendation in respect of a retirement annuity policy, it is important to always check whether the maturity date exceeds the age of 55 years. Age 55 is the earliest one can access the benefits of a retirement annuity and any maturity date that exceeds this may be to his/her detriment. Secondly, upon reaching the age of 55 the client will, based on his or her circumstances at that time, be able to decide whether he or she wishes to access the funds, i.e., the 1/3rd available to him/her and place the remaining 2/3rd into an annuity, or he/she can choose to extend the term for a further year and continue to do so until the funds are required to fund his/her retirement. Lastly, by not having a maturity date more than age 55, the client will maintain control over his/her retirement benefit, and reduce the effects of commissions, fees, and charges on his/her retirement benefit.

In case study two, what were the lessons learned? Whilst endowment policies can be utilised as alternatives to retirement planning, the FAIS Ombud says endowment policies are provided for a specific term, the minimum of which is five years. During this term the investor is restricted with regards to accessing the proceeds thereof. Secondly, prospective clients should, therefore, thoroughly consider the appropriateness of this product if they anticipate the possibility of needing to access the funds within the restriction period. Lastly, increasing the client’s contributions towards an endowment policy by more than 20% or more above the higher of his/her total contributions in the previous two years, will see his/her policy enter into a new restriction period. Clients, according to the Ombud, should always be aware of this.

Writer’s thoughts
There was valuable information from the case studies on retirement annuities and endowment policies. Do you believe case study two highlights the concerns around the way endowment policies are marketed to individuals? Please comment below, interact with us on Twitter at @fanews_online or email me your thoughts myra@fanews.co.za