I have a retirement annuity with a company that was taken out in 2007. I have recently realised I am losing money with this investment. The growth is at -1.3% currently, so I am stopping payment and want to transfer the money. The company wants to charge me penalties for this. I have requested a copy of the signed terms and conditions where I agreed to these terms. It turns out they do not have a copy of the signed contract. Can they enforce their terms and conditions without a signed contract?
I sympathise with you that the investment growth of your retirement annuity has not been favourable.
However, before digging deeper into your question, I need to stipulate that it is difficult to provide specific advice on your specific retirement annuity, as I am not privy to the structure and type of retirement annuity in question and in addition whenever questions of your financial circumstances are concerned, one should realise that to respond to you in this format is not ideal as we do not know your own personal financial situation. As such I would recommend that you consult a licensed financial planner who will assist you in detail in that regard.
I have however summed up generalised information that might assist in answering your question.
First and foremost, you are allowed to make your retirement annuity paid-up where you no longer pay monthly contributions but remain invested until you retire i.e., from 55 years onwards. At retirement, you are allowed by law to take a third as a cash lump sum (subject to retirement lump sum tax tables of the respective fiscal year) and the remaining two thirds must go to a compulsory annuity of your choice.
Coming to the question of transferability to another retirement annuity provider; if fund rules allow, you are free to transfer your paid-up retirement annuity to another retirement annuity provider, but you cannot switch out of the tax-efficient retirement annuity and buy unit trusts.
When considering a Section 14 transfer between two retirement annuities it would be recommended that any penalties or fees be taken into consideration.
Penalty fees are normally charged by the retirement annuity you are transferring from.
Where there are fees that have been incurred by your retirement annuity policy, typically the fees on the retirement annuity policy were charged upfront for the term to maturity of the policy. Thus, there would still be fees payable by your policy that has already been paid by the retirement annuity provider but has not yet been deducted from your particular policy.
In such cases, as an investor, you would need to consider whether the penalty fees charged would outweigh the long-term benefit of transferring to a new retirement annuity. In addition, should you wish to continue with the Section 14 transfer to the new retirement annuity then your current provider would require you to sign off on the penalty fee charged. The penalty fee would be deducted from the current value of the retirement annuity.
Should you decide that the penalty fee is not to your benefit then I would suggest that this exercise be periodically repeated every six months to a year, to determine if the penalty fees have reduced to the point where you could consider the penalty fee being acceptable (in my mind this would be when the fee falls below 8% to 9% of the capital value of the current retirement annuity).
I would further suggest that a ‘new generation’ retirement annuity is entered into where any fees are charged to the policy on an ‘as and when’ basis, which means that at any time the investor can transfer this retirement annuity to another provider without any penalty fees being charged.
Additional considerations to take heed of include the contribution gap that arises when you contribute monthly via debit order between the older service provider and the new provider and whether there were linked benefits to the retirement annuity policy such as life, disability or additional insurance products.
If you decided to remain with this retirement annuity offered by your current provider, I suggest rebalancing your retirement annuity’s underlying funds to try and improve the investment performance (if this is an option on your particular retirement annuity policy). However, please remember that a retirement annuity has to comply with Regulation 28 of the Pension Fund Act, which is the Prudential Investment Guidelines, and this may limit how you would like to restructure the underlying funds in the retirement annuity policy you currently have. You may incur some switching costs depending on the investment platform used, but this is relatively lower than the penalties liable should you transfer your retirement annuity.
I trust this response assists you in your quest to plan for your retirement. Please be aware that this response cannot be construed as advice – we would recommend that you consult with a financial planner that is employed by a licensed financial services provider prior to making any final decisions on your retirement annuity.