The average income replacement at retirement in SA is just 28%

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The numbers show that the country is not yet winning the game in terms of retirement savings, says Michael Prinsloo, Managing Executive: Research & Product Development at Alexander Forbes.

“This isn’t a country where retirement is a number-one financial priority. People are largely under pressure and they need to take care of wider family groups. These are South African realities,” he adds.

Prinsloo was speaking at the launch of the 2018 Alexander Forbes Member Watch™ survey, a piece of research that focuses on the key stakeholders in the retirement journey: the members saving for retirement.

He adds that Alexander Forbes is extremely proud of the survey that was started back in 2006 when the sample size stood at 320 000 members belonging to 460 employer clients. This has grown to just over one million members belonging to 2 030 employer clients at 31 March 2018.

For the first time, the 2018 Member Watch uses data from all the South African retirement funds that Alexander Forbes administers, meaning that the survey has the biggest membership and employer groupings data sample of all the retirement fund surveys available in South Africa.

One of the findings of the Member Watch Survey is that the average projected replacement ratio stands at 40.5% (This is the ratio of the income you receive from your pension once retired, to the salary you were receiving just before retirement).

The average actual replacement ratio of those employees that retired during the last year stands at 28.8%.

“This means that for every R10 000 that an employee earned pre-retirement, their pension is R2 880 – and that is a 70% reduction in lifestyle,” says Prinsloo. “Can people handle it?” Meanwhile, retirees who achieve a replacement ratio of 80% or higher stands at 5.17%. The industry norm in South Africa is to target a replacement ratio of 75% or more.

Prinsloo points out that low preservation rates are one of the biggest reasons for replacement ratios being lower than the target. Policymakers are attempting to solve the problem by regulating the use of a default preservation strategy when a member leaves their employer and doesn’t make a payment election, he adds. Several funds already allow members this option, but the law requiring this approach officially comes into effect on 1 March 2019.

One of the most common reasons given by members for not preserving their benefits is that their fund credit is too low to warrant the trouble and expense of a preservation fund, he notes. “A total of 61% of those who chose not to preserve any of their benefits had a benefit of between R0 and R25 000 and the other 37% of non-preserving members had already accumulated a significant benefit but chose not to preserve.” He warns that individuals should be made aware of the longer-term impact of not preserving even relatively modest amounts at younger ages because of the power of compounding.

Prinsloo notes that according to the latest Member Watch Survey, the number of members preserving has decreased from 11.5% in 2012 to 8.7% in 2018 – although preservation has improved by 4% per annum over the last three years.

The public services sector had the highest preservation rate in 2018 with 33% of members preserving. The retail, wholesale and hospitality sector had the lowest preservation rate with only 5.94% of members preserving.

The energy sector had the highest proportion of fund members who had access to financial advice.

Predictive analytics tools used on the Member Watch data have identified five key factors that affect the level of preservation. These factors are:

  • Size of the fund credit: The higher the fund credit at exit, the higher the probability of the member preserving their retirement savings. This affects the amount of tax that will be paid, which acts as a disincentive for members to take their benefit in cash. Fund credit size is also correlated to the length of pensionable service and salary. Other factors include the monthly pension that members can buy with the retirement lump sum. If members feel that the monthly pension they can buy at retirement is too low, they are more likely not to preserve.
  • Industry sector: Some industries have a higher average preservation rate than other sectors. Industries with high turnover rate and very high resignations tend to have very low preservation rates. The level of financial literacy within the industry is also a factor. For example, in the retail sector where people change jobs more frequently and there are more contract workers, the members are more likely to take their benefit in cash.
  • Exit type: The exit type also has an impact of the likelihood of preservation. The data shows that the highest rates of non-preservation are on resignation and early retirement. The reason for the exit is also often correlated with the member’s financial situation. Members without emergency savings or who are highly indebted are more likely to take their retirement savings in cash.
  • Access to financial advice: Access to financial advice has a significant impact on the level of preservation. Members who have access to financial advice have higher preservation rates.
  • Whether the fund offers a preservation solution: The analysis shows that when members can preserve in a fund-supported preservation solution that is easy to access and institutionally priced, the preservation rate is higher.

The Member Watch Survey also shows that fewer members are making investment choices, rather relying on employers and trustee-provided choices.

“This highlights the importance of default investment portfolios and we have also seen the importance of fund-supported solutions, such as annuity strategies, to help employees navigate to retirement security. There is an opportunity for companies to help their employees along their full financial journey,” Prinsloo says.

Increasing normal retirement ages can also be seen in the findings. “A few years ago, the most common retirement age set by employers was 60 years, but that has now increased to 65,” he adds. “Increasing one’s normal retirement age by two years can add 8% – 15% extra income at retirement, so retiring at 65 rather than 55 can almost double a replacement ratio due to the compounding effect.”

Article written by: Michael Prinsloo (Managing Executive: Research & Product Development, Alexander Forbes)
For: MoneyMarketing

We’ve partnered with Crossfit Bazinga!

Yip, you read that right, folks! We’ve partnered with Crossfit Bazinga to bring you exclusive benefits ranging from periodic lucky draws to discounted gym memberships – all in conjunction with the rewards you received from Momentum Multiply & Discovery Vitality.

A word from De Wet Steyn, owner of Crossfit Bazinga

CrossFit Bazinga offers full body fitness. Our programming is ideal for people who are looking to lose weight, get in shape and live a healthy lifestyle. Every day is something new so you don’t get bored of the same routine; we love keeping our workouts fun and challenging at the same time.

At CrossFit Bazinga you train with other people – in every class there are beginners, rookies and advanced members… Everyone does the same workout, but each person works to their own capacity. You know where your fitness level is so you (with the help of the coaches) scale the workout to suit your exact needs. CrossFit Bazinga is for everyone: male, female, young and old. The coaches at CrossFit Bazinga assist you through the entire class; from the workout explanation, warm-up, the workout itself and then the cool-down afterwards.

CrossFit is universally scalable for everyone. Anyone can join and everyone can benefit from it.

Okay, that’s great, but what benefits will I get?

Well, we’ve got a few tricks up our sleeve! But here are the two main benefits of doing business with ANF Brokers as an existing or new Crossfit Bazinga member:

  • Members who complete business with ANF Brokers will qualify for 20% discount on the following 6-months of their Crossfit Bazinga gym membership
  • Clients who offer us the opportunity to provide them with a second opinion on their existing portfolio, but do not complete business with ANF Brokers, will be entered into a lucky draw to win a fitness device (exact device to be confirmed, although we can guarantee it’ll be a Garmin device!)

You mentioned Momentum Multiply & Discovery Vitality, what’s that about?

Good that you asked! These two rewards programs offer their members a vast array of benefits ranging from discounted life insurance premiums all the way to discounts and cash backs from hundreds of rewards partners (think getting cash back for shopping at Pick n Pay, cheaper flights and even paying up to 60% less on your insurance premium!)

Need more info? Get in touch!

Allie @ ANF Brokers
Office: 081 754 5752
Email: kantoor@anfmakelaars.co.za
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De Wet @ Crossfit Bazinga
Cell: 079 527 7330
Email: crossfitbazinga@gmail.com
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A Myriad-Multiply up-sell offer for healthy lives!

Momentum

Myriad clients with a green or amber Multiply Premier Healthy Heart Score can now purchase up to R3 million life cover without underwriting!

Clients will qualify for this offer:

  • If they have a current Multiply Premier Healthy Heart Score of green or amber, and
  • If they are currently 54 years or younger (below the age of 55 at their next birthday), and
  • If they currently have a fully underwritten Myriad policy (excluding funeral cover).

Please note that clients with existing Myriad cover where a benefit has been loaded do not qualify for the upsell offer.

It’s as easy as 1-2-3!
Qualifying clients will have to sign the health and lifestyle declaration to qualify for the upsell offer. This replaces the standard medical questions on the alteration quote.

By signing the health and lifestyle declaration, clients confirm that they qualify for the upsell offer on the stated criteria.  The signed declaration and -alteration quote will be the only documents required for submission to issue the additional cover. For more information click here.

Medical underwriting
No additional medical information will be required, provided that the insured life meets the criteria as listed in the health and lifestyle declaration and the information obtained through an LOA check, Momentum Interactive and the Multiply Healthy Heart Score does not contradict the listed criteria.

Qualifying period
All alterations that comply with the stated criteria and are submitted with a signed health and lifestyle declaration, will qualify for this upsell offer from 1 March 2019. The upsell offer ends on 28 June 2019.

Interested in making use of this special offer?
Simply contact us for an appointment to find out if you qualify and, if you do, to increase your cover!

Kind regards,

The ANF Brokers Team

Understanding Policy Replacements

Understanding Policy Replacements

Policy replacements are a big problem – one that is difficult to control, especially in terms of unnecessary replacements.  In this article we’d like to give you more information about policy replacements: when they are necessary, when they are not and how to be more aware of the advice you receive.

Correct policy structure

The most important point to make is that if your policies are correctly structured right from the start, there are very few valid reasons to ever need to cancel and replace those policies. How do you know that your policies are properly structured? Here are a few key points to keep in mind:

  • Your premium pattern is “level”, NOT age-rated, progressive or compulsory. Level is the most cost-effective long-term solution, allowing you to keep your cover in place for your whole life
  • Your specific products are the most comprehensive ones available at the time of signing your quote
  • Your specific products are structured as stand-alone benefits, not accelerated. For example, if you have death cover of R5 000 000 and accelerated disability cover of R4 000 000 and put in a disability claim, your life cover will decrease to R1 000 000. If your benefits were stand-alone benefits, however, you’d receive your R4 000 000 disability claim payout and you would still have R5 000 000 death cover in place.

If you’ve established that your existing policies comply with the above points and a broker approaches you with advice to cancel your policies and replace them with new ones you should be very cautious! Here are some tips to keep you safe from poor advice as well as red flags to look out for and when receiving advice – either from your existing broker or a new one.

Tip 1: Insist that the broker puts everything in writing

Always insist that a broker – whether it’s your existing broker or a new one – puts their advice in writing. They must give you the full details of why they believe your existing policies are wrong/bad, why the product they are proposing is better and how you will be benefited in the long-term by making the changes. Look out for notes made about the previous points mentioned in this article – namely premium pattern, how comprehensive the product is and whether benefits are accelerated or stand-alone.

As soon as you insist on receiving advice in writing you’ll notice that the broker either becomes defensive about it or gives you very vague information in writing. Remember, the policies you pay for are there for your benefit, you have a right to insist on seeing certain details in writing. If a broker does not want to provide you with advice in writing, you must proceed with caution!

Tip 2: Insist on receiving a copy of all quotes

This tip goes hand-in-hand with the above-mentioned tip – a broker who is trying to benefit his own pocket will often be less willing to provide you with full quotes and advice in writing. It is also important that whatever he has written in his advice letter is reflected in the quote – so once again, keep an eye open for premium patterns, the type of benefits and whether benefits are stand-alone or accelerated. Quotes don’t lie!

Red Flag 1: Your existing broker often recommends that you replace your existing policies (that he previously advised you to take!)

This is one we’re noticing more and more in the industry – brokers are advising clients to change their policies every 2 – 4 years. Some brokers move a client’s policies from one company to another, always claiming, “This company’s benefits are far better than the previous one!” or, instead of simply amending your existing policy, advise you to write a whole new policy with the very same company.

In instances like this always keep in mind: If this new company is suddenly better, then it means your broker did not do their job properly the previous time they recommended a new policy! If they did not properly compare all the companies’ benefits and premium options then how could they have promised to give you the best?

Red Flag 2: “I can offer you the same cover at a lower premium!”

Don’t fall for this one – many people have and are now knee-deep in regret.  If someone offers you the same cover at a lower premium always insist on seeing the quote; we can guarantee that the only way anyone can offer you the same cover at lower premiums is if:

  • They change your premium pattern to an age-rated/compulsory/progressive premium pattern
    • This means that your premiums increase exponentially as you get older and very quickly become unaffordable. Most people end up cancelling their policies all together when this happens!
  • They make your benefits accelerators to your death cover, meaning that any claim you put in will decrease your total death cover amount
  • They offer you less comprehensive benefits than the ones you have

Red Flag 3: “Let’s cancel all your existing products and move them to one company”

This is most likely the biggest red flag of them all. In the industry we refer to this as “churning” – yes, it happens often enough that we’ve had to name it! There are brokers who are affiliated with only one company and profess that their company is the absolute best and all others are terrible. Bear in mind, if a broker agrees to only be affiliated with 1 company they earn 30% more commission than an independent broker that represents multiple insurance companies. That should already warn you of their intentions.

Furthermore, there is no single company that is superior to another across all of their products. Companies’ definition of critical illness differs, so some can be more comprehensive than others, while some companies specialize in fantastic income protection benefits, and so on.  

Perhaps the most important thing to mention is that all retirement annuities are the same, irrespective of which company they’re with. There are brokers who will tell you to transfer your existing retirement annuity to their company because theirs is better – don’t be fooled. Sanlam’s retirement annuity is just as good as Momentum’s, is just as good as Old Mutual’s, is just as good as any other company you can think of. The only difference is which funds are available to you to choose from, in which case most companies offer many of the same fund choices (e.g.: Allan Gray Balanced Fund, Coronation Balanced Plus Fund, etc.).

It is also of utmost importance to remember that transferring a retirement annuity from one company to another incurs substantial penalties which you will not get back. Some penalties we have seen exceed R20 000 – money that you have invested and end up losing all together.

Red Flag 4: Cancelling your disability and critical illness benefits to upgrade to the latest version of the benefit

Doing this is not financially smart. The better option is to leave your current disability and critical illness benefits as they are and to take out additional cover on the newer version of the product. Remember, each year that you’re older you are a higher risk to insurance companies and therefore your premiums will be calculated at a higher rate each time you write a new policy. Often the “improvements” brought about in newer versions of benefits are minor and do not justify cancelling an old product to buy the new one. Think rather of spending the extra money you would have spent on the new benefit on increasing your existing cover amounts.

When is it acceptable to cancel old policies and put new ones in place?

Bearing all of the above in mind, there can be valid reasons for replacing old policies. The main reason you might be advised to replace a policy is if your old policy is structured completely wrong with age-rated/compulsory/progressive premium patterns, less comprehensive benefits and accelerated benefits. In this instance it is a broker’s responsibility to show youall alternative options, along with their advice, in writing and to leave the decision in your hands. Showing you the alternative options includes:

  • Showing you the premium if you were to amend your existing policy to correct all the mistakes
  • Showing you the premium if you were to take out a new policy with a different company according to the correct structure (to be shown for all companies that the broker is affiliated with)

In instances where an old/existing policy has been incorrectly structured it is possible that the correct structure with a different company may be more cost-effective and preferable. In many cases you might find that you are placing different benefits with different companies (e.g.: Death cover with Hollard, disability cover with Sanlam and critical illness with Momentum) in order to ensure that you are paying the best possible premium, receiving the most comprehensive benefit and – most importantly – that your future is protected.

Our offering to you

If you’ve recently received advice that you are unsure of, or have any questions about the information shared in this article you are welcome to contact us for assistance. We’ll be happy to help you, and will always do so by putting all our advice in writing for your peace of mind.

Non-Disclosure: The importance of answering medical questions truthfully

In our previous article about Momentum making provision for victims of violent crimes (click here to read the article), we mentioned the term “non-disclosure”. In this article we’d like to do three things:

  1. Define non-disclosure
  2. Address the consequences of non-disclosure
  3. What you can do if you are concerned about your policy

 

What is non-disclosure?

1. Definition, according to Merriam-Webster

  • failure or refusal to make something knownlack of disclosure
    • nondisclosure of a known problem with the property
  • often used before another noun:
    • declined to name the victim companies, citing nondisclosure agreements it signed

2. What does this have to do with my insurance policies?

When you apply for insurance with any company, you are required to sign an application form. Every company’s application form contain paragraphs relating to disclosure that read something like this:

  1. I declare that the statements and responses provided by me and all documentation that I have signed or will sign in relation to each application/s are true and complete.
  2. I agree that this application and declaration, together with all relevant documents that have been or will be signed by me or any additional parties in terms of this application, shall form part of the contract between Example Insurance Company and myself. If any information is withheld or incorrect, I understand that the benefits will be cancelled from the inception date of the policy and all premiums that have been paid to Example Insurance Company will be forfeited. Where I am married in community of property, I declare that I have the written consent of my spouse to make this application.
  3. I agree that should Example Insurance Company accept this application, the acceptance will be conditional upon there having been no change to the facts on which the acceptance was based. I agree that any changes to the health or risk status of the life insured will be communicated to Example Insurance Company in writing before it accepts this policy, and failure to do so may result in the rejection of any future claims.

 

Yes, it’s a mouthful! But in layman’s terms, what this means is that:

  1. You declare that you are being completely truthful on your application
  2. The signed application is a legal contract, and if any information is incorrect or not truthfully disclosed, the company may cancel your policy from inception date and may refuse to refund paid premiums
  3. You are liable to disclose any change in your health or lifestyle to the company to avoid future non-disclosure

 

This is why it is of utmost importance to ensure that you have a broker who puts their client’s needs first – a good broker will always explain the consequences of non-disclosure with you and will work through all medical questions with you in detail.

 

3. Concerned about your policies? Here’s what you can do

If you are concerned that you may have forgotten to disclose information on your application or would like to disclose new information to your insurance company the first step to make is to get in touch with a reputable broker. The broker will be able to request the original application forms from the relevant companies and work through them with you; and will be able to guide you in terms of disclosing information which may not have been disclosed before.

 

We hope that this helps you understand non-disclosure a little better. If you’re at all concerned that you may have disclosed wrong information or forgotten to mention something, please contact us – we are always here to make sure that your insurance policies work for you, not against you!