More South Africans are cashing in their retirement plans

The Association for Savings and Investment South Africa (ASISA) today released the half-yearly long-term insurance statistics, with the data showing that the Covid-19 pandemic and lockdowns have had a clear impact on the finances of South Africans.

The data shows a decline in the number of individual recurring premium savings policies  – endowments and retirement annuities – from 6.1 million policies at the end of December 2020 to 6 million at the end of June 2021.

While 340,126 new policies were sold during the six month period, 316,023 policies were surrendered. A surrender occurs when the policyholder stops paying premiums and withdraws the fund value before maturity, said Hennie de Villiers, deputy chair of the ASISA Life and Risk Board Committee.

While this is concerning, it is not surprising given the impact of the Covid-19 pandemic on the earning ability of thousands of South Africans, he said.

“When times are tough, consumers are more likely to surrender their savings policies to access their savings due to financial hardship.”

De Villiers pointed out a 3.4% increase in the number of single premium policies (annuities) from 2 million at the end of December 2020 to 2.1 million at the end of June 2021. Unfortunately, this might largely be due to people taking early retirement or investing in retrenchment packages, he said.

“Our industry has never before recorded such high numbers of death claims, and while life companies remain in a strong position to continue paying claims to grieving families, the money paid cannot make up for the life that was lost.

“We, therefore, urge all South Africans to get vaccinated rather than risk death or the long-term debilitating side effects often caused by Covid-19. Evidence from other countries with higher vaccination rates shows clearly that while Covid cases might still be relatively high in some of these countries, deaths have reduced materially.”

Cashing in 

Old Mutual has reported similar findings, with the group warning that more financially stressed South Africans are looking to take cash out of their endowment policies to make ends meets.

An endowment policy is an investment policy taken with an insurer where you commit to saving regularly over a specified term to obtain a lump sum amount on policy maturity or to provide for beneficiaries when the life insured passes.

However, early withdrawal penalties can harm the amount received when the policy proceeds become payable, warns Old Mutual.

Generally, it’s important to know that products designed for a long-term investment tend to have early withdrawal penalties when withdrawals are made before the maturity date. It does not matter whether the contributions you make are on a once-off basis or need to be paid monthly; the rule will still apply, said Rose Khutlang, Old Mutual provincial general manager.

This happens because of the way that the products are designed, she said.”When a customer takes out a long-term investment policy like an endowment, the insurance company may pay for certain expenses upfront – with a view of recovering these upfront costs as the policy grows. If money is withdrawn before the planned maturity date, charges will be applied to recover upfront costs.

“Whether you are cancelling an investment policy, taking out cash, or taking out a loan against your endowment, these penalty charges could apply.”

Depending on how early you take money out of a policy and even given any extra money the investment has earned in bonuses, you could get less money out than the amount you have paid in, said Khutlang.

“Taking money out of a fixed-term investment policy should be avoided whenever possible, especially where the policy was originally taken to achieve specific financial goals. Before you decide to withdraw funds and possibly pay penalty fees, you should talk to your financial adviser about the benefits and costs involved.”

“While it is not always easy for cash-strapped customers to stick to their savings goals, the best way to keep precious long-term investments in one piece is to have a long-term view. Make sure you can get extra cash when you need it by setting up and building an emergency fund that is easily accessible, separate from your long-term savings policy.”

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