Read the fine print in your older RA

PHILIP du Preez, head of retail insurance at Momentum, part of the listed MMI group, came out fighting this week in defence of retirement annuities taken out before 2009, when the law on commission changed in favour of policyholders.

MMI represents a host of “legacy assets” that include retirement annuities initially sold by Protea Life, since taken over by Metropolitan and then by Momentum. While Du Preez’s response deals specifically with MMI’s policies, it applies to all insurers servicing old-generation policies.

First check your original contract, says Du Preez. In it, you should note three crucial items:

The mandate you gave the investment manager to achieve a certain return on investment;

What you agreed would occur if you cancelled the contract before the end of its term. This may have required that you pay an “exit fee”; and

Whether or not your contract included a risk element in the form of life cover. Such policies, which split premiums between investment and insurance, were termed universal life products.

Du Preez says returns were on target for my 19-year RA bought in 1996.

The mandate was for a balanced portfolio with an “aggressive” growth-oriented strategy that suited my risk profile at 36 when I bought it.

Despite changes in asset managers, and after fund-expense deductions, the portfolio has returned 13% to date — about 7% above the average inflation rate. I invested R78 000 in premiums from 1996, and if I cashed in would get R192 000.

Nothing to shout about, but safe enough. My RA may not be typical, but at least it shows fellow long-term savers that they have not thrown their cash into a hopeless pit.

Which brings us to the contentious issue of underlying investments. Again Du Preez urges investors to go back their original policy document detailing their investment mandate.

MMI has, over the years, rationalised separate pools of investors’ money into more costeffective single-manager funds.

Some confusion may arise over MMI’s offshore structures, especially pertinent to those wanting to invest the maximum permissible 25% of their retirement savings offshore.

Before 2009, when the new legislation was introduced, insurers recouped their expenses in two ways.

“Most charges were allocated in the first two years. That meant your fund value grew very slowly in the beginning — less than the premiums paid,” Du Preez says.

The positive was that no exit penalties would have been levied if I chose to surrender it. My dues had been paid.

“Other old-generation products might have been sold without upfront charges,” warns Du Preez. “Expenses associated with them might manifest as exit penalties for someone who cancelled his contract.”

And now for the confusing matter of life cover:

“Old-generation policies were typically called universal life products — a package, in one solution, of life cover and investment,” says Du Preez

“Typically, the insurer charged the relevant risk premium for life cover and the balance of the premium was invested.” But not all contracts sold pre-2009 were universal products. Mine had no risk charges for life cover.