Sanlam Life has restructured its Stratus investment endowment and retirement annuity (RA) products to significantly reduce the confiscatory surrender and lapse penalties on the product. However, the changes will apply from today to new sales only.
The move follows in the wake of increasing consumer resistance to life assurance products and a spate of recent rulings by Vuyani Ngalwana, the Pension Funds Adjudicator, who found that the high penalties imposed by the industry are unacceptable.
Sanlam Life offers you dramatically improved values from the first month, if you cancel your policy, reduce your premiums or make it paid-up (you make no further contributions but leave your capital invested). Click here for a graph showing the effect of the new surrender penalties.
With most life investment policies, you lose virtually everything you have invested if you cancel a policy, reduce your premiums or make the policy paid-up in the first few years of a contract, and even in later years, you will suffer stiff penalties.
In a first for the industry, Sanlam Life has transferred a large portion of the risk of you failing to maintain premiums to its shareholders. It will not make you pay higher annual fees, which reduce your end maturity value, as some life assurance companies have done with new products that have lower surrender penalties.
In the past, shareholders at Sanlam have profited from the confiscatory penalties that have been levied on policyholders. Financial advisers also have to come to the party with the Stratus Retirement Annuity product. They will have to pay back part of their commission if you do not maintain your premiums in the first three years.
Previously, the commission was only clawed back if you did not maintain premiums for two years.
On new RAs and endowments, at least 75 percent of the investment value will be retained from the first month, should you make the policy paid-up. After five years, the paid-up value will be between 81 and 99 percent, and after 10 years, the value will be between 91 and 99 percent, depending on the term of the contract.
Anton Gildenhuys, the head of Sanlam Client Solutions, says: We believe that this offer represents a tangible commitment from Sanlam to actively contribute to the transition that our industry has entered.
He says Sanlam remains committed to offering value-for-money products and, although the company has significantly improved early termination values over the past couple of years as a result of considerable cost-saving initiatives, further enhancements in these values are still required.
Gildenhuys says: The message to our clients is that we will not stop here. We will continue to play an active role to help revitalise our industry, and our own product development forms part of our plan.
When a client buys a retirement annuity, the initial intention would be to keep paying the premiums to the maturity date of the contract. How-ever, with increasing employment mobility and flexibility, the confidence that the client will have that future premiums will be paid decreases the further one looks into the future, Gildenhuys says.
This is why we have implemented an offer whereby we have not only radically improved the initial paid-up values, but also improved values further down the line, he says.
For instance, if a 15-year retirement annuity is fully paid-up during the first year of its term, then the paid-up value is equal to at least 75 percent of the fund. After only five years this value will increase to 90 percent.
If an endowment policy is surrendered and not made paid-up, then the surrender value starts at 60 percent of the fund value in the first year and increases for surrenders later during the policy term.
Gildenhuys says that it is important for you to keep in mind that RAs and endowments are long-term savings vehicles and that you will still benefit the most from these products if you stay invested for the long run.
Charges (commissions included) on the Status product are:
- Premium charge: One to two percent, depending on premium size. (No charge for single premiums.)
- Policy fee: R10.50 a month.
- Buy/sell spread: two percent.
- Total annual fund charge: 2.2 percent to 3.6 percent, depending on the investment fund.
- Minimum premium: R150 a month.
- Minimum single-premium RA:
R2 500.
- Minimum single-premium endowment: R10 000.