JOHANNESBURG – I’m sure you can appreciate why my jaw dropped when I learnt that a friend of a friend used part of a R1 million payout from the Road Accident Fund (RAF) to buy a Mini Cooper, despite not having a driver’s licence, being relatively poor and not having a tertiary education.
I imagine he’s not the only person who, having received an eye-watering lump sum from the RAF, has opted to spend the remaining amount (after medical and legal bills) on consumption.
So I welcome the announcement that the RAF has entered into an agreement with the Financial Planning Institute (FPI), in terms of which all claimants will have access to free financial advice from certified financial planner (CFP) professionals through the MYMONEY123 programme “in a bid to protect them from mishandling their finances”.
The RAF makes available compulsory social insurance cover to all South Africa’s road users. Figures from June 2014 suggest that an average RAF claim payment is around R104 000. For the 2013/2014 financial year, the RAF paid out R15.2 billion in claims. The majority of the RAF’s funding is derived from the fuel levy.
Payouts by the RAF are meant to cover everything from past and future medical expenses, to past and future loss of earnings, past and future loss of family support, compensation for pain and suffering, as well as funeral expenses. There are caps on these categories and terms and conditions do apply, but in many instances, RAF payouts are no small change.
According to RAF CEO, Eugene Watson, the lump-sum settlements are often made to claimants who are not financially literate enough to manage their finances in such a way that it sustains their family’s livelihood; particularly as some of the road accident victims may be unable to work again.
Recently, Moneyweb has been covering the case of a lawyer who allegedly overcharged his client for services in respect of an RAF claim. Providing this service is one way of trying to ensure people don’t overpay for lawyers or spend their money foolishly.
In light of how many respondents in Old Mutual’s Savings and Investment Monitor said they would spend a financial windfall at least partly on consumption, it’s clear that almost all of us need help to make better financial decisions.
How it’s going to work
Head of member and corporate relations at the FPI, David Kop notes that advice will be available on a voluntary basis to all RAF claimants, regardless of the size of the claim. “Financial advice and education on smaller claim amounts will focus mainly on budgeting and debt management, while advice on bigger claim amounts would go further and could include investment advice,” Kop notes.
The FPI is an independent professional body for financial planners and, according to its website, the only institution in Southern Africa able to offer the CFP certification.
The first consultation, which any of the FPI’s 6 000 CFP professional members can provide, will be on a pro bono basis. Thereafter, claimants will have to pay for additional advice according to the terms of service of the individual financial planner.
General manager for stakeholder relations management at the RAF, Zukisa Nduneni, explains that the FPI will use its network to provide the service, whether in group settings in town halls, for example, or one-on-one at specific member offices. Nduneni says the RAF will continue to monitor whether the agreement achieves the desired outcomes of providing holistic post-crash care to victims and integrating them back into society.
She notes that this is available to all claimants of the RAF and/or their representatives. “The service is available retrospectively, to people who have already claimed from the RAF, as well as all future claimants,” Nduneni says.
“This is one way to get out there and start with grassroots financial education,” Kop comments, highlighting that the initiative is part of the FPI’s vision of providing “professional financial planning for all”. Kop says the FPI has attended two RAF roadshows to make people aware of the benefit.