By Andró Griessel

1 February, 2025

Every five years or so, I get the urge to rant and rave about what I see as the murky underworld of contractual savings products.

The companies offering these products seem untouchable, continuing to siphon millions of rands from unsuspecting savers every month. These products serve the interests of the agents who sell them and, undoubtedly, the shareholders of these companies – but certainly not the saver.

If it sounds like I’ve forgotten to take my Prozac lately, I apologise. The frustration is simply seeping through because my colleagues and I have been fighting this battle – unsuccessfully – for years.

In the faint hope that an executive of one of the traditional insurance companies that still endorses and pushes these products reads this article today and a small voice inside their head whispers that there must be a better way to do business, I will once again expose the face of this monster.

If you are an investor who still holds one of these insurance-based savings products in your portfolio, you might want to take your losses (however unwittingly you signed up for them) sooner rather than later and move on to something better.

Case Study

I want to share the details of a recent case that landed on my desk and its impact on the client.

Mr. T. Ricked started investing R500 per month in a Liberty retirement annuity (RA) on 1 July 1994, with annual escalations. His current fund value stands at R1,006,126. The internal rate of return on his investment over more than 20 years has been 8.41% per year.

Looking at the underlying fund (Liberty Lifestyle Managed), the fund fact sheet doesn’t provide performance data from inception (1998), but it does indicate that the 10-year return up to December 24, 2024, was 5.14% per year.

The past decade has been challenging, no doubt, but the median fund in the moderate-equity exposure category still achieved 6.9% per year, while the median high-equity exposure fund delivered 7.15%.

This means the RA has underperformed an average expected outcome (not even the best possible) by nearly 2% per year over the past decade.

High Costs

So, here’s Mr. Ricked’s (and my) problem: He is now aware of the poor performance, which is primarily due to the high cost of 3.59% per year associated with the product. What are his options?

He could switch to a different underlying fund, but that wouldn’t change the cost structure of the product itself. Even if his new fund performs better than the current one, he will still underperform compared to the same fund on a lower-cost platform.

So, does that mean the best solution is to move his RA to a cheaper platform?

And this is precisely where my blood pressure starts to rise.

Transfer Value

The transfer value of Mr. Ricked’s RA is only R916,843.

He still has 10 years left in his contractual annuity, and because he essentially signed a contract with Liberty to keep paying premiums until 2035, Liberty will impose a “fine” of R89,283 if the client tries to improve his already underperforming investment by moving it to a cheaper product, or even if he wants to retire earlier from it.

To put this in perspective, Mr. Ricked has contributed “only” R204,375 in premiums over the past 20 years, yet the penalty amounts to more than 44% of his total contributions.

So, what should he do?

If all else remains equal and he transfers his money to a product that is 2 percentage points cheaper per year, he will have nearly R300,000 more in his alternative investment after 10 years – despite starting with R89,000 less than what he currently has.

The real tragedy, however, is that if the client had never invested in a contractual insurance-based RA in the first place but had rather used a direct investment platform, his returns – everything else being equal – would have been at least 50% higher than they are now.

The compounded effect of this difference over the remaining 30 potential years of his retirement is enormous.

Complaints and Threats

Over the past 20 years, I have encountered countless cases like this – particularly with Sanlam, Old Mutual, and Liberty. I have taken my grievances to their internal ombuds, lodged complaints, pleaded, threatened to expose them in the media, and even appealed to their sense of integrity.

Yet, to this day, nothing meaningful has changed regarding these so-called “fines”.

As I mentioned at the beginning of this article if this lands on the desk of an insurance executive – even if only to serve as the basis for a defamation lawsuit against me – could you at least consider allowing clients to exit these products without facing further penalties?

It is the right thing to do!

Andró Griessel is a certified financial planner at Woodland Wealth. Contact him at info@woodlandwealth.co.za.

Although all possible care has been taken in the preparation of this document, the factual correctness of the information contained herein cannot be guaranteed. This document does not constitute advice and anyone who intends to take any financial action based on this document is strongly advised to first consult with his/her personal financial advisor. Woodland Wealth is an authorized financial service provider with FSP no. 5966.