Discovery Life has thrown its hat into the retirement funding ring with the launch of Optimiser, a product the company says is made-to-order for those fed up with the high costs and lack of transparency in a much-criticised industry.
This comes at a time when the government is overhauling the country’s retirement funding regulations to create a broader culture of saving, particularly among the poor, and do away with some of the industry’s dodgier practices.
Don Moll, CEO of Don Moll Insurance Brokers, says the ability to reduce life cover in later years and the spare cash to boost retirement savings is an attractive option that will resonate with those approaching retirement.
Bob Bartholomew, a director of the Brantam Group, says one of the problems with historical products was the fact that policy holders were induced to add life cover to the contract. “This meant that a large portion of the investment contribution was sucked up by life cover fees.
“The second problem, which many did not realise, was that the death benefit was treated as a retirement benefit in the event of death, and the beneficiary did not receive the full value of life cover in cash, but had to disinvest as if it was a retirement annuity. Hence it is cheaper and more efficient to buy life cover separately.”
Bartholomew says Discovery’s entry to the retirement business is welcome “as the industry has been bleeding the public for years. I am critical of any insurance-based product that claims to be an investment because of the potential to conceal fees from the public and, given the information to hand, it is difficult to see how Discovery fees will be charged, but I think this opens up an interesting front in the retirement industry’s battle for savings.
Discovery hopes to emulate its success in health insurance, where in 15 years it has come to dominate the field.
One of the criticisms of existing retirement fund products is high up-front fees and lack of pricing transparency. The industry has also been criticised for bundling life cover with retirement savings, making it almost impossible to see how costs are apportioned.
Discovery CEO Adrian Gore says Optimiser’s fees are low and transparent: R20 a month policy fees and a 2% annual management fee. “The aim is to give clients transparency in the fees they are paying, as well as absolute certainty in determining the value of their investments.”
Gore adds that many people have adequate pre-retirement funding, but this is eroded in retirement years where unnecessary life cover is being paid.
Optimiser Life gradually reduces the retiree’s life cover and pumps the extra cash into retirement savings. This has a “turbo-charging” effect of 20% to 25% on retirement savings which will help pensioners maintain their standards of living into old age.
Optimiser customers have the option of a guaranteed inflation-linked fund, paying a return of 2% a year above inflation, net of all costs and tax, or a range of market-linked options such as Investment Solutions’ multi-manager funds, or they can pick from hundreds of unit trusts. The Escalator option guarantees returns of at least 80% of the portfolio’s highest value over its life span.