Old Mutual replaces penalty with loyalty bonus

From the end of this year, Old Mutual plans to stop selling recurring-contribution retirement annuities (RAs) where you incur a penalty if you reduce or stop paying your contributions.

The Max Focussed RA, which uses the old penalty system, will be closed to new business at the end of the year.

Its new-generation Max Investments Optimal RA, Old Mutual will, however, penalise you indirectly by fully or partially withdrawing an “investment booster”, which is added to your savings only if you stay invested in the RA for five years, and for each month after that.

Old Mutual says there is no change in the cost structure of the new product, which was launched at the beginning of this year. You will also be liable for a R300 administration fee if you alter your contribution amount.

Cobus Rothman, an investment actuary at Old Mutual, concedes that the “investment booster” is a loyalty bonus.

National Treasury has proposed that products with loyalty bonuses should not be used as default investment options for retirement funds.

Rothman says the “investment booster”, which aims to encourage customers to keep contributing, was launched before National Treasury published its proposals on default investment options.

“When the final regulations for retirement reform have been finalised, we will ensure that all our products are fully compliant with all applicable regulations,” Rothman says.