Question:
I have 3 retirement annuities that are paid up. My broker tells me that if I revive one, he can do a section 14 transfer on the other 2 retirement annuities and I will not be penalized and the money that was taken off my retirement annuities when they where paid up will be paid back to me. Is this correct? Thanks.
Answer:
Ian,
This is a matter of the specific fund rules, in particular whether you can revive your retirement annuity, and whether you will be credited with any past termination penalties. The latter can only happen if all your retirement annuities are with the same provider. Termination penalties are in effect an accelerated recovery of upfront costs (mainly brokerage commission) that are otherwise collected over the term of the retirement annuity contract. The retirement annuity provider effectively creates a loan account against your name, and charges you interest on that loan. This loan is recovered over the contract term and you are deducted the balance if you make your retirement annuity paid up early. If you revive, and are credited with termination fees, the underlying costs (with interest) are then once again amortised, ie deducted, on a month-by-month basis from your account.
You are allowed to transfer paid-up RA balances to another retirement annuity as suggested by your broker. By consolidating your retirement annuities you should save on the monthly admin fee (which you were "triplicating" by having three separate retirement annuities).
If the fund rules permit all of the above and you decide to go ahead, make sure you understand all the costs involved. You should not be pay or incur any further broker commission (you have already paid these) and you should request to waive transfer fees, if any.
Costs impact critically on the long term investment outcome. As you can tell from the above, the termination penalty is in effect a sunk cost, and you will pay the underlying fees one way or another. You should perhaps request your broker to also compare the annual fees you pay on your retirement annuities to other rates available in the market, and whether it would not make more financial sense to rather transfer all three paid-up retirement annuities to one low cost retirement annuity.
