Retirement Annuity & Preservation Funds

Transcription

1 FLASH FACT February 2014 FLASH 2 Cumulus Echo Retirement Annuity & Preservation Funds NEW BUSINESS AND CONVERSIONS Conversions from Legacy to Cumulus Echo Give universal life and other old generation (Legacy) retirement annuity and preservation fund plans a new lease on life! How? By simply converting them to our Cumulus Echo retirement savings product range with our unique approach to the loyalty bonus concept the Echo Bonus! Unique Echo Bonus percentages: Each converted plan gets its own unique set of Echo Bonus percentages which leaves the plan in the same or better position at retirement after conversion. In addition, any contribution increases and ad hoc one-off additions on the converted plan will be treated exactly the same as new business Cumulus Echo. Product structure: Conversions to Cumulus Echo are available for retirement annuities and preservation fund plans. The option to select the For Professionals and For Graduates versions of the Cumulus Echo Retirement Annuity is also available - provided the client complies with the underwriting criteria applicable to new business. If the client has a Legacy Cobalt for Professionals Retirement Annuity, it will automatically be converted to the Cumulus Echo Retirement Annuity for Professionals. The Comprehensive and Comprehensive R28 options are available. The Core option is not available for Cumulus Echo conversions. 1

2 Investment funds The same range of investment funds available for new business Cumulus Echo applies to Cumulus Echo conversions. Similar to new business, if the Comprehensive option is chosen, the client can select from Regulation 28 compliant and non-compliant funds. The client however has to ensure that the selected portfolio is Regulation 28 compliant. Within the Comprehensive option the client has the option to select Comprehensive R28 which limits the client to only Regulation 28 compliant investment funds. This option includes the Cumulus Echo Life Time Investment Option. It is possible to change between Comprehensive and Comprehensive R28 at any time and it is free of charge. NOTES Important notes Legacy plans with active recurring contributions If recurring contributions are currently being made to the Legacy plan, there are no minimum requirements for the plan to be converted. The plan can be converted with its current contribution level. Paid-up Legacy plans or with one-off contributions only If the Legacy plan is paid-up or consists of one-off contributions only, and the fund value is less than R10 000, a recurring contribution of at least R250 per month must be added for the conversion to be allowed. Recurring contributions must apply from the conversion date as they cannot be added later. If the fund value of a Legacy preservation fund plan is less than R10 000, a conversion is not allowed. Minimum recurring contribution increase Similar to Cumulus Echo new business, the minimum recurring contribution increase is R150 per month, but also subject to a minimum contribution of R250 per month after the conversion. Note: If the Legacy recurring contribution before the conversion is lower than its previous highest contribution and the contribution is increased on conversion date, part of the contribution reduction charge levied on this Legacy plan when its contribution was reduced, if any, will be added to the conversion value. A contribution reduction on the conversion date is not allowed. The contribution can be reduced either before the conversion (on the Legacy plan), or after the conversion has been completed. An ad hoc one-off contribution is not allowed on the conversion date only after the conversion has been completed. The minimum ad hoc one-off contribution is R

3 Minimum and maximum terms Years The minimum retirement age is 55 next birthday There is no maximum retirement age The minimum term is 2 years, subject to the minimum retirement age If the client wants to increase the term at the time of the conversion, the maximum term is determined as the greater of 65 less actual age on conversion date and 10 years. Legacy table codes that may qualify RETIREMENT ANNUITY PRESERVATION FUND Universal life T334, T434, T534 T360, T361, T460, T461, T560, T Plus T125, T127, T128, T135, T136, T137 BIN T325, T425, T327, T427, T328, T428 Notes: Conversions to Stratus are no longer available including conversions from Reversionary Bonus Series plans. The option to convert Reversionary Bonus Series plans to Cumulus Echo will be made available at a later date. Legacy PPS Retirement Annuity plans cannot be converted to Cumulus Echo. Conversions to Stratus are still available for these plans. A Legacy plan which is part of an employee scheme can be converted. Waiver of Contributions at Disability benefit This benefit is optional and can be added at the time of the conversion only. It cannot be added after the conversion has been completed. Full medical and occupational underwriting will be applicable. 3

4 Charge structure Conversion layer The charge structure which applies to the conversion layer is exactly the same as that for new business Cumulus Echo except for the Echo Bonus percentages and the factor used in the Echo Bonus calculation. Each converted plan gets its own unique set of Echo Bonus percentages which leaves the plan in the same or better position at retirement after conversion. The fund values before and after conversion is projected, allowing for any existing recurring contribution, if any, and increase, if any, at conversion. The Echo Bonus percentages are determined to give similar fund values at fixed intervals between the conversion and the retirement date on both scenarios. An assumed 10% per annum investment return is used. The resulting Echo Bonus percentages are rounded up to the higher 2%. For example: If the calculation as explained above results in an Echo Bonus of 14.3%, it is rounded up to 16%. The factor used in the Echo Bonus calculation for the conversion layer is one. Important notes about the projection: Any recurring contribution increase done on the conversion date will be projected using the same charge structure and Echo Bonus percentages applicable to similar new business Cumulus Echo. Indexplan (contractual contribution growth) which the plan may have is ignored because each future Indexplan growth is a new payment layer with the same charge structure and Echo Bonus percentages applicable to similar new business Cumulus Echo. Premiums for risk cover which may exist on the Legacy plan are also not taken into account as the risk cover will fall away when the plan is converted. The calculation will allow for any Sanlam Retirement Booster which could have existed on the Legacy plan. The projection before conversion excludes the smoothing charge which is levied on Legacy plans investing in the Stable Bonus Fund. The projection after conversion uses the same asset management charge which applies on the Legacy plan. The projection uses the Comprehensive R28 option for the converted plan. The projection after conversion includes a once-off transaction charge of R600. Recurring contribution increases and one-off additions on the converted plan These contributions are treated exactly the same as new business Cumulus Echo. This means that each increase or addition will be a new payment layer with its own Echo Bonus percentages which is applicable to new business. The factor used in the Echo Bonus calculation for each payment layer is also calculated exactly the same as for new business. 4

5 Alteration charge Early termination charge The early termination charge is a monetary amount calculated on the conversion date. It is equal to the early termination charge, if any, which applies to the Legacy plan on conversion date. For Legacy plans with one-off contributions only The charge runs off linearly to zero over the shortest of the remaining term and 5 years. For Legacy plans with recurring contributions or paid-up plans The charge runs off linearly to zero over the shortest of the remaining term and 10 years. Note: The early termination charge is not affected by any contribution increases or ad hoc one-off contributions done after the conversion date. These layers effectively have a zero alteration charge. Payment reduction charge If the recurring contribution is stopped, the payment reduction charge will be equal to 50% of the early termination charge, if any, at that point. For a contribution reduction of less than 100%, the charge is weighted by the percentage reduction in the contribution. For example: If the contribution is reduced by 50%, the payment reduction charge will be 25% of the early termination charge, if any, at that point. Note: If the contribution after a reduction is still higher than the total contribution on the conversion date, no payment reduction charge will be levied. The Echo Bonus factor for the relevant payment layer will however be affected. 5

6 NB Important considerations The Stable Bonus Fund (300 Plus) is a smoothed bonus type investment fund. This means that the investment return is smoothed over time. Currently such an investment fund is not available on Cumulus Echo. If a Legacy plan invested in this fund is converted to Cumulus Echo, smoothing of the investment return will no longer take place on the plan. For Legacy plans invested in the Stable Bonus Fund, the fund value, including all declared bonuses, is only guaranteed on the maturity date of the plan and at the death of the life insured. On other dates when the Stable Bonus Fund is underfunded, the fund value is adjusted with a market value adjuster in the calculation of the termination value. This is done to ensure the termination value doesn t exceed the market value of the underlying assets and therefore to protect the interests of clients who remain in the Stable Bonus Fund. The Stable Bonus Fund was overfunded on 31 December If a Legacy plan invested in this fund is converted to Cumulus Echo when the Stable Bonus Fund is overfunded, the client will not participate in the future bonus allocation that may potentially be higher than the future investment performance of the Stable Bonus Fund due to the overfunded position. The Stable Bonus Fund and Market Value Fund (400 Plus) offer an investment guarantee in terms of a minimum maturity value calculated as the net investment amount accumulated at a guarantee rate of 4.5% or 5% per annum. This type of guarantee is not available on Cumulus Echo and the minimum maturity value is forfeited if a conversion to Cumulus Echo is done. A conversion to Cumulus Echo is optional. If a client prefers to continue investing in any of the above funds and also wants to increase his or her retirement provision, a new Cumulus Echo Retirement Annuity will have to be taken out for the increased contribution. From end of March 2014, recurring contribution increases and ad hoc one-off additions are no longer allowed on Legacy plans. Existing contractual contribution growth is however still allowed to be continued. When a conversion to Cumulus Echo is done the converted plan must comply with the Regulation 28 asset limits. In particular clients with Legacy plans investing in the Sanlam Equity Fund or Offshore Equity Fund must take note of this requirement as they will lose the 100% equity and offshore exposure. With a conversion to Cumulus Echo the client will forfeit all life cover and rider benefits that may apply to the Legacy plan. There is an option (with certain terms and conditions) to transfer the life cover and rider benefits to a Matrix risk cover plan without medical underwriting. 6

7 Intermediary remuneration Any plan that started before 1 January 2009 falls under Part 3A of the Long-term Insurance Act. Therefore a converted plan falls under Part 3A because the start date of a converted plan is the same date as the original start date of the Legacy plan. Recurring contributions The maximum upfront 1st year commission payable on any increase in the recurring contribution on or after the conversion date, is calculated as specified under Part 3A. The level of upfront 1st year commission can be negotiated on conversion date only. It cannot be changed after the conversion has been completed. No 2nd year commission is payable on or applicable to Cumulus Echo conversions. Notes: Commission will be paid on contribution increases above the previous highest level of the Legacy plan only. The above also applies to Indexplan increases after the conversion. The vesting period of commission is 60 months similar to new business. One-off contributions The commission that may be negotiated is treated the same as that for new business. See article about Intermediary Remuneration. Fund-based fee For retirement annuity conversions a fund-based fee of up to 0.57% per annum (including VAT, if applicable) may be negotiated and added - irrespective of the level of the upfront commission negotiated or the conversion. For the conversion of Preservation Fund plans a fund-based fee of up to 1.14% per annum (including VAT, if applicable) may be negotiated and added. As is currently the case with any fund-based fees, the amount paid in any given year will be disclosed to the clients in their annual benefit statement. For conversions to Cumulus Echo it is required that the fund-based fee, if added at conversion or thereafter, must be renegotiated every 3 years from addition. 7

8 Notes V2938/2 03/ LICENSED FINANCIAL SERVICES PROVIDER 8