Question:
I was retrenched in Nov 2010. I have a retirement annuity with Discovery, but am unable to meet my monthly payments. However, they have said I cannot take a “holiday” from payments. Kindly advise. With thanks.
Answer:
Shirley,
Unfortunately, most of the assurance companies will not allow you to take a contribution “holiday” irrespective of your circumstances. They usually allow a grace period of about 60 days, before they will deem your policy “paid-up”. If you stop making contributions (ie your policy is made “paid-up”) before the end of your agreed contract term (often your stated retirement date) then they will recover any outstanding initial costs (broker commissions, plus interest) at that point. In other words, they will levy a “termination penalty” which will come off your investment balance.
In the past there was no limit to the amount of the penalty and some investors forfeited their entire investment (often under circumstances when they could least afford to do so, as on retrenchment). Understandably, this caused much unhappiness, to the extent that the law has now been changed, limiting the recovery to 30% of the investment value. Even better, life assurance retirement annuities sold from 1 January 2009 restrict the penalty to 15% of the investment value on transfer.
Some retirement annuities are more flexible in this regard. For example, the 10X Retirement Annuity Fund would allow you to pause or alter your contributions without incurring a penalty. You can resume contributions once your personal circumstances change.
