Old Mutual and the Presidential Working Group on Women (PWGW) announced a new retirement product designed for domestic workers to a media contingent in Johannesburg yesterday. The Domestic Workers Plan aims to fill a gap in the market for retirement solutions for women in domestic employment.
The Department of Labour estimates that there are approximately 1.2 million domestic workers in South Africa, although as many as 50% of this number are registered for unemployment benefits. This still leaves a significant market that has up till now had little choice when it comes to affordable retirement savings options.
Old Mutual developed the Domestic Workers Plan after being approached by the PWGW. PWGW chairperson, Gloria Serobe said the product was a response to the "need to provide greater access to savings and cover for vulnerable groups such as women in rural areas, farm workers, single parents and domestic workers. Greater economic independence in their current working situations and in their retirement years is a key to true empowerment. The Domestic Workers Plan is a step towards this goal."
Why Old Mutual? We asked if the PWGW had approached other assurance companies to design similar solutions and perhaps encourage competition to the benefit of consumers. It appears Old Mutual was the only company approached and in this regard it is interesting to note that Serobe also serves as a non-executive director at Old Mutual.
Benefits come at a cost
The Domestic Workers Plan offers a range of benefits including membership of an umbrella retirement annuity, funeral cover (for the insured, spouse and up to six children) and telephonic support in the event of various traumas.
Four options are available starting from R85 per month and moving up to R200 per month. The monthly contribution is split between a retirement fund and funeral policy. For example, the entry level product allocates R50 to retirement savings and R35 to the funeral policy.
SADSAWU General Secretary, Myrtle Witbooi says: "The worker might not have seen much of her own children when growing up because she was caring for others; now she will have something to look forward to. She will know that she can sit back and enjoy life with her children and grandchildren and feel: 'I have got something back; it is for me, about me". While we believe there is a need for retirement solutions in this space, we also believe that a lot more needs to be done to manage expectations.
A domestic worker who signs up for the entry level option will battle a R7 per month admin fee, a 1.65% annual charge on assets under management and a 6% per annum contribution escalation to receive a token amount of between R9, 520 and R12, 700 after ten years. This amount can hardly be used to fund the 'sit-back-and-relax' lifestyle mentioned earlier.
The Reduction in Yield (RIY) on the Domestic Workers Plan ranges from 5% for the entry level option over ten years, to 2.12% on the more expensive policy. The entire administration fee is deducted from the portion of funds intended for savings. Thus in the entry plan approximately R42.17 of the R50 per month contribution will make its way to the savings pool.
HIV/Aids is a sensitive issue
Question time turned into a heated debate on the topic of HIV/Aids. This has long been a concern of domestic workers who are worried about the repercussions should their employers learn about their HIV status. Old Mutual's Domestic Workers Plan asks questions about HIV/Aids and will not issue a funeral policy in the event the respondent admits to being infected.
Journalists were unhappy on a number of fronts. They questioned why Old Mutual had not simply designed the product for all comers regardless of HIV status. This would have been in line with the Life Offices' Associations recent stance on HIV exclusions. They also questioned the sensibility of including extensive HIV/Aids related disclosures in a policy application which would in all likelihood be filled out by the domestic workers employer.
In their response, Old Mutual almost went as far as saying that they expected applicants to lie about their status when taking out the policy. Old Mutual would not test for infection prior to granting cover and would rely instead on available information from other insurance companies regarding previous insurance applications. Testing at claim stage would be highly unlikely.
Not waiting for retirement fund reforms
A great deal of debate in the financial services industry at this time is on the topic of retirement fund reform. We were surprised at the launch of an entry level retirement product given proximity of significant changes in the retirement space. In this regard, credit is due to Old Mutual and the PWGW for being proactive and launching a solution today, rather than leaving a void in the market for another five years.
Old Mutual has ensured the retirement portion of the product is fully transferable should legislation require that it be transferred to a government run fund in the future. Cost concerns aside this product is a step in the right direction.
Editor's thoughts:
Old Mutual announced details of four investment options, ranging from R85 per month to R200 per month. The problem is that monthly admin fees start from R7 per month on the entry level product, and that's before a 1.65% per annum charge on managed assets. Old Mutual says the RIY of 5% over 10 years on the entry level product is 'not too bad'. Today's question is in two parts. First, can anyone provide a simple illustration of how reduction in yield (RIY) is calculated? And second, do you believe it is possible to provide these entry level retirement saving products more economically? Send your comments to gareth@fanews.co.za