Weekend Argus (Saturday Edition)
HOW PENALTIES ON RAs HAVE BEEN CURTAILED
2005: Then Pension Funds Adjudicator Vuyani Ngalwana hands down rulings against life assurance companies that imposed early termination penalties on retirement annuity (RA) policyholders. The life companies successfully challenge the adjudicator’s jurisdiction over the contracts they entered into with policyholders. December 2005: Life assurers and the Minister of Finance sign the Statement of Intent. The assurers agree to pay R3 billion in compensation to endowment and RA policyholders on whom they have imposed early termination penalties since 2001. The life companies also agree to limit penalties on RAs sold from December 1, 2006 to 30 percent. January 1, 2009: Life assurers agree to pay 50 percent, instead of 100 percent, of the commission advisers earn on RAs and endowments upfront and the rest as and when the contributions are paid. This supports limiting the penalties to 15 percent for policies sold after January 1, 2009, with the penalty reducing to nothing over the term of the policy. The maximum term for lump-sum policies is set at five years and for recurring-contribution policies at 10 years. November 2013: As some life assurers are imposing the maximum penalty more than once if a policyholder makes more than one change to his or her contract, the Financial Services Board (FSB) issues Directive 153, which states that the maximum penalty applies cumulatively over the term of the policy, not to each causal event. November 2014: The FSB publishes the Retail Distribution Review, which proposes scrapping upfront commissions on savings policies. This largely removes the rationale for penalties. The proposal has not been implemented.