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Will I have to pay penalties for transferring my RA?

Can the company enforce its terms and conditions without a signed contract?

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?

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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.

Do you have any questions you would like answered by registered financial planners?

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COMMENTS   7

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I’d say you should log a complaint with the Ombudsman For Long Term Insurance, in regards to the Section 14 transfer you want to do but they want to charge a penalty for, if they do not have the signed policy to tell what may be deducted or not.

Agree. Request the original record of advice, and check to see if the penalty fee is disclosed. Then check if alternative quotes were provided – a flexible unit trust based RA or just an insurance based one. Did the broker disclose the commission. Did the broker do a needs analysis to see if a committed RA was the best option for the individual.

If not, lodge a complaint and demand the penalty refunded.

Most people with these “old School” retirement annuities are VERY VERY INEFFICIENT. I encourage people to add up all their payments and see what’s in there!!!!!! All of you will be surprised. For 26 years I have heard about these and people get “SURPRISED” when they don’t get anything close to their “Projected values.” At age 60 there’s really nothing you can do and you left it too late. 95% of South African’s will not have enough money at retirement. Where do you think you are? I know one of the reasons.

I just changed 2 RA’s from Liberty to Sygnia. Never add a Financial Advisor or other (benefits??) such as disability and life insurance to an RA. They erode your RA till there is nothing left. I paid 2% penalty for the Section 12 transfer. Well worth it.

RAs? The biggest Ponzi scheme ever devised, with the real profits harvested by your RA company, its shareholders and its investment “advisors”. After 35 years, with an automatic 10%pa premium increase, mine is worth substantially less than what it would have been if I had simply invested the money in an ordinary savings account. Try to get a statement of account from your RA company? They will run all manner of circles to avoid giving you one, and if you eventually manage to force one out of it, you will be horrified by the commissions, fees, costs and other deductions. And don’t bother with the usual annual tax saving spiel; I would have been taxed on interest earned on my savings account added to my annual taxable income (which would actually have made a relatively negligible difference to my lifestyle), but after retirement whatever I have and withdraw from that savings account, but for that tax on interest, is tax free. And I am free to invest wherever and in whatever I want, without Government interference, restraint and/or threat of expropriation. Is that nonsense? Since 1998 when I realised what a grand scam RAs is, I actually ran an annually reinvested term deposit savings account with deposits matched Rand for Rand with my RA premiums. The balance on that savings account is now, at my retirement, worth substantially more than the entirety of my RA payout (now invested in a living annuity), and then I not even getting to the balance on my privately managed unit trust investment account, opened 20 years ago. My advice? When you hit 55, suffer the penalty, take your RAs and run for better shelter. And if they come for your private savings, like Max du Preez I would say when they come knocking at my door, I will be taking that last sip of Blue Label purchased with my last traceable cent and pass them the empty bottle to go swap for the deposit.

SA investment products are the biggest scam out. If you dont have control of your money its NOT YOURS. Its utterly disgusting that 25+ years into democracy your employer is still telling you where to invest…and legacy RA that you might have are able to charge fees for changes/leaving-(personal experience)

I agree and have also found rich people dont use these stupid grifting SA investment products, should tell you everything you need to know!

Feel your pain….
After a financial immigration process (talk of costly) and being whacked with fees from the “trusted” financial industry whose “got my back” or whatever their slogan may be and then taxes for the privalege of their service I have taught myself to grow and safely invest my own money. One of the big financial institutions could only manage a 3,2% average growth over 15 years (luckily that was not a lot of money). That is criminally low….guess it is my fualt too for being complacent. No longer….and now successfully I average growth rates above 30% annually (including highs and lows)
Never again will I use their or that kind of service.

End of comments.

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