Chris Moerdyk

Insurance predators stalking consumers

2013-03-25 08:20

Chris Moerdyk 

Whenever the subject of political greed and corruption raises its head as it does so often these days at dinner parties, braais, in bars, shebeens and around the office water coolers, I find myself saying that while there is certainly a huge amount of corruption in global government today, there is probably even more in the business sector.

I remember a few years ago the World Trade Organisation estimating that every year businesses spent in the region of R60 TRILLION on backhanders, bribes, corruption and all sorts of other sneaky ruses to get a deal done.

An example of corporate sneakiness is the South African Life Assurance industry. In 2005 local life assurers signed a statement of intent in the presence of former Finance Minister Trevor Manuel agreeing to limit the penalty charges on Retirement Annuities.

Eight year later, we have the Pension Fund Adjudicator saying last week that her office was "deeply disappointed" that it was unable to help people with the "excessive charges" levied by the assurance industry when their clients wanted to stop or reduce their contributions to RAs.

Victim of retirement annuities

Hopefully, these charges will be something that the National Treasury will look at when they investigate the whole question of retirement savings.

The trouble too, is that these RAs are written in a language that few consumers can really understand. And the figures the people who sell these things give always seem to be very different to what you actually get out of an RA at the end of it all.

Last year I mentioned in this column that I noticed that after a few years of inactivity, retirement annuity policies were starting to be advertised by the big insurance companies again. They still are. Very strongly.

I said at the time that having been a victim of retirement annuities and seeing others suffering the same fate over the years, I have told my children in no uncertain terms that if they buy a retirement annuity policy I will disown them.

I have suggested that they rather buy shares in the insurance companies because that way they will make a lot more money.

At the time I added, that I've always thought that those big, bold health warnings on cigarette packets were a waste of time because even a brain dead newt knows that smoking is bad for you. The same applies to warnings that are about to be slapped all over liquor bottles. They're all stating the obvious and are nothing more than a rather futile attempt at curing cancer with a Band Aid.

But, there are some products that desperately need health warning stickers. Like pension, retirement annuity and all sorts of other investment products sold to us by modern day snake oil salesmen.

Horror stories

Advertisements and policy documents should be clearly labelled: "Warning - You Are Now Gambling." Because, that's what it is really all about. Nothing more, nothing less.

It was in 2005 that a parliamentary committee heard one horror story after the other about pension fund fees and just before that, the then Finance Minister Trevor Manuel lashed out publicly at the "horrendous" fees charged by life assurance companies for retirement annuities.

Round about that time I made a concerted effort to ask family and colleagues at retirement age whether they were happy with what their annuities would pay out and I not found a single person who was even remotely satisfied.

They were all furious in fact, with a lot of them actually getting out less than they paid in.

One of these was former media chief executive, financial journalist and now columnist for the Business Times, Stephen Mulholland.

In a delightfully acerbic column at the time he wrote: "When I think of the years and years of contributions I made to annuities that now pay me a pittance, I could weep.

 "We often forget," he added. "That insurance is nothing more or less, than a vast casino."

For example, my wife and I bought one of those tertiary education policies when our youngest kid was born. By the time he started high school our financial advisor calculated that by the time he started university the policy would actually pay out just enough for about a year.

'Game of chance'

Shortly after that the same financial advisor suggested I get rid of my retirement annuity policies, so I called the insurance agent who had sold them to me. His immediate response was: "Wow, have you still got those things - I dumped mine years ago - they're useless."

This is all nothing new of course. More than a century ago Ambrose Bierce wrote about insurance as "an ingenious modern game of chance in which the player is permitted to enjoy the comfortable conviction that he is beating the man who keeps the table".

Nothing has changed.

My advice to anyone buying an RA is to ask whomever is selling it to you, when they start showing you tables of how much money you will make at the end of it all, to give you that guarantee in writing. They won't, because they all work on an absolute best case scenario which is often not only pie in the sky but the whole damn bakery in the sky.      

- Follow Chris on Twitter.

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