ANTICIPATED SPIKE

SOUTH Africa’s retirement fund legislation stipulates that active members of retirement funds cannot access their retirement savings while employed, and benefits can be paid only when they leave their employers.

In an effort to assist members affected by Covid-19, retirement fund regulators in other countries have amended their retirement fund legislation to grant members temporary early access to their retirement savings. They are using the following eligibility criteria. Members must be unemployed, made redundant, subject to reduced working hours, or sole traders whose business has been suspended or whose turnover has fallen.

The Australian government has allowed members to access up to AU$10 000

(R114 949) of their retirement savings before July 1. These members will have another opportunity to access an additional payment of up to AU$10 000 between July 1 and September 24. These payments will be tax free.

The Employees’ Provident Fund Organisation in India has changed its rules to allow for an advance non-refundable withdrawal of retirement savings. Employees will be allowed to withdraw the lower of 75% of their retirement savings or three months’ salary as an advance from the fund, while remaining an active fund member.

Members participating in the Malaysian Employees Provident Fund will be able, over the next 12 months to withdraw up to 500 ringgits (R2 004) a month from their retirement savings. This will apply only to members below 55 years old.

The US has implemented the Coronavirus Aid, Relief and Economic Security Act, which allows the following:

Members can withdraw money from their individual retirement accounts and employer-sponsored retirement plans without incurring the 10% tax penalty for early access.

Members will have three years to repay this amount and when repaid within the three years, no income taxes will be due.

The maximum loan amount from an employer-sponsored retirement plan is now $100 000 (R1.7 million) and a member can now borrow up to 100% of vested assets.

Although the National Treasury and the Financial Sector Conduct Authority have not announced plans to amend the retirement industry legislation to follow the global trend, a number of suggestions have come up over the past few weeks about how members could receive relief using their retirement fund savings. The ideas range from pension-backed lockdown loans in partnership with banks to accessing savings under a special relief benefit.

The lockdown loan would allow members to access competitively priced loans without withdrawing from their retirement savings. In the longer term, the repayment of the loan instalments may become a financial burden to members. If the members leave their funds, their retirement savings’ balance will be reduced by the amount owed.

These measures could be an opportunity to alleviate members’ financial hardship by leveraging their retirement funds. Implementation would, however, require amendments to the legislation. The National Treasury would also need to say whether these proposals are in line with their policy on retirement reform.

Year-to-date major equity markets are severely down from their peaks, so withdrawal of retirement savings during such market conditions could see members locking in any losses incurred. Early withdrawal can be likened to members borrowing from their financial futures, as every rand taken from retirement savings today means less will be available in retirement.

With millions of members possibly experiencing financial distress due to the pandemic, the introduction of early access to retirement savings may result in a substantial outflow of funds within a short period of time, leading to a negative impact on the retirement industry and investment markets. This needs to be balanced with the potential relief such a measure could provide to employees facing financial hardship.

Also see “Call for government to unlock retirement funds” (Personal Finance, May 23), on IOL, www.iol.co.za/personal-finance.

THE OMBUDSMAN for Shortterm Insurance, or Osti for short, recovered R94.9 million for consumers in 2019 after intervening on their behalf in complaints about short-term insurance claims. This is more than the amounts recovered in 2017 and 2018 (each about R87m), but less than what consumers got back in 2015 and 2016 (about

R100m and R99m respectively).

These statistics, among others, were published in the ombudsman’s annual report for 2019, which was released this week.

Deanne Wood was the ombudsman in 2019 . However, at the end of the year Wood stepped down, and long-term insurance ombudsman Judge Ron McClaren became head of both short-term and long-term ombudsman offices.

Wood’s office received 10367 complaints last year, of which 9167 were closed.

Almost half of the complaints closed – 4492 (49%) – were for motor vehicle claims.

The second-highest category was homeowner’s (building) insurance (1843, or 21% of complaints closed). House contents insurance complaints were relatively low (551, or about 6% of complaints closed).

MOTOR VEHICLE CLAIMS

In the area of motor vehicle claims, 19% of disputes were resolved in favour of policyholders, with the ombudsman’s office putting R47701385 back into claimants’ pockets.

Senior assistant ombudsman Ayanda Mazwi said that, of 4492 vehicle claim disputes, 73% were for accident damage. Complaints involving warranty and mechanical breakdown claims comprised 8%, and complaints involving theft and hijackings comprised 8%, being “consistent with previous years”.

Mazwi said most motor vehicle complaints were disputes over settlement amounts calculated by insurers. She said most of these disputes related to vehicle credit shortfall and uninsured accessories.

Mazwi warned consumers that an insurance payout would not necessarily cover the amount owed to the bank on their vehicle.

“Vehicle credit shortfall is the gap between the vehicle’s insured value and the amount owing to the finance house. Should a vehicle be stolen or written off in an accident, the vehicle’s credit shortfall can be crippling, as the consumer is left owing money on a motor vehicle that he or she no longer has.

“Consumers must, therefore, ensure that their policies include cover for the credit shortfall and any financed accessories which have been added to the insured motor vehicle,” she said.

HOMEOWNER’S INSURANCE

In this category, 268 (15%) of the 1843 disputes considered were resolved in favour of policyholders, with a recovery of R14653628.

Mazwi says in the report that 54% of complaints related to claims for damage were caused by acts of nature, largely storm-related. This figure dropped from 58% recorded in 2018.

In 30% of complaints, the insurers rejected claims in which wear and tear, gradual deterioration and lack of building maintenance was the cause of the damage, she said.

Typically, wear and tear, gradual deterioration and loss through the property not being maintained properly are not covered under a homeowner’s policy.

“While this cause for complaint declined by 18% when compared with 2018, this rejection reason continues to be the main basis for consumer dissatisfaction in homeowner’s insurance.”

Mazwi said if damage was attributed to the poor condition of the property, the claim may be rejected, “even if an insured event did occur”. However, she said the burden of proof lay with the insurer, who should establish a connection between the condition of the property and the damage.

Although the report does not cover 2020 operations, it does refer to an expected surge in complaints related to the Covid-19 pandemic, particularly in the areas of business disruption and travel.

Osti chief executive Edite Teixeira-Mckinon said there were signs that 2020 would be very different from previous years: “Up until the end of March, we received, year on year, substantially more complaints. But in April we saw a decline in complaints, and that was predominantly because 49% of our complaints are from motor vehicle claims. With less vehicles on the road, there are less claims and therefore less complaints,” she said.

Teixeira-Mckinon said the office was well prepared to continue functioning during the lockdown.

“We are equipped to continue registering and resolving complaints from home. The fact that we can continue to offer the same services that we have in the past is important. We are still here for insurers and consumers,” TeixeiraMckinon said.

THE LOCAL collective investment schemes industry (comprising mainly unit trust funds and exchange traded funds) reported net inflows of R23 billion in the first three months of this year after having experienced net outflows of R3bn in the fourth quarter of 2019.

This is according to industry statistics for the quarter and 12 months to the end of March, released this week by the Association for Savings and Investment South Africa (Asisa).

Total net inflows over the 12-month period were R93bn.

Sunette Mulder, senior policy adviser at Asisa, says that despite the net inflows in the first quarter, the Covid-19-induced market turmoil caused assets under management to decline by R0.22bn to R2.26 trillion at the end of March.

Just under half of these assets were held in South African multiasset portfolios (49%), with the rest in local interest-bearing portfolios (34%), local equity portfolios (15%) and local real estate portfolios (2%).

Mulder says after suffering net outflows of R15.9bn in the fourth quarter of last year, money market portfolios (which fall within the larger interest-bearing category) attracted R22.2bn in net inflows in the first quarter of this year.

Call for the government to unlock retirement funds. How will Covid-19 impact ESG investing long term? OPINION: Is early access to retirement savings an option? Covid-19: the inescapable truths faced by investors. Understanding Africa and emerging markets in Covid-19.