Life assurance changes expected soon

Pravin Gordhan (Image: GCIS)

Finance Minister Pravin Gordhan met chief executives of assurers in the retirement industry last week to prepare them for the far-reaching recommendations, which could fundamentally affect the profits of the industry.

The retirement sector was rocked by scandal in the past when the excessively high, upfront charges on retirement annuity products were exposed.

At the meeting with Gordhan, the chief executives committed their companies to developing a comprehensive, uniform and comparable measure of charges so that the costs of different products could be compared with each other.

This would ensure the market was sufficiently competitive on costs. They also undertook to deal with the problem of incentives for intermediaries, which have led to inappropriate sales of products.

Gordhan and Association for Savings and Investment SA's Johan van Zyl said in a joint statement on Wednesday (26 June) that the meeting "focused on costs and charges, recognising the primary role that the sector and government working together can play in bringing down costs and charges".

Recommendations coming

"The meeting noted that the level of costs was not only related to market and disclosure practices, but also to current incentive systems, poor preservation practices and the lack of compulsion to join a retirement fund, compared with many other countries," the statement said

The chief executives were told that a discussion document, due to be released sometime by the Treasury, contained findings "on poor market practices" in the insurance sector, while noting that significant progress and improvements had been made over the past few years.

The Treasury accepted that the sector needed time to comment and, where necessary, contest the adverse findings in the report while the major service providers agreed to consider the proposals in a constructive manner over the next three months and to engage with the Treasury on the findings.

The proposals on charges will be contained in a discussion paper, Charges in South African Retirement Schemes, which is the final of a series of five technical discussion papers released by the Treasury on how to promote household savings and reform the retirement industry.

The other papers, released last year, dealt with how to get a better income in retirement; preservation, portability and governance for retirement funds; encouraging non-retirement household savings and simplifying the tax treatment of retirement funds. The consultation process that followed the publication of the reports laid the foundation for the policy proposals announced in the 2013 budget.

Source: Business Day via I-Net Bridge