Question:
I am 35, and have formally emigrated from South Africa and am looking at early termination of my retirement annuity. I have been told that I will be hit with an early termination fee, which is nearly 1/3 of the retirement annuity value. Is this normal? Thanks in advance.
Answer:
Brad, No, termination penalties are not normal, but unfortunately, they are industry practice among the life assurance companies. Please read our blog post on the RA termination fee. As we write in the post, 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. You "penalty" appears to be on the 30% limit, so your retirement annuity policy must be a bit older.
