Post Retirement Planning

The Ombud’s annual report highlights specific problems related to advice when clients retire.

South Africans continue to procrastinate when it comes to saving for retirement. Many still rely solely on the benefits provided by their employers’ pension and/or provident funds that they have as a result of their employment. The result is that the majority do not adequately provide for retirement, yet the expectation, that they maintain their standard of living into retirement, remains.

The concerning aspect of this is that a large number of complaints dealt with by this office are as a result of intermediaries having failed to be forthright with their clients. What intermediaries fail to communicate to their clients is the reality of the sacrifices and changes in lifestyle that are required if a client has not saved sufficiently for his retirement. Instead, intermediaries, to the detriment of the client, attempt to remedy the shortfall in retirement capital by recommending that clients invest into living annuities where they can choose an income of between 2.5% and 17.5%. They do not inform the client about the real risk of depleting the capital.

A worst case scenario is where clients are advised to invest in little unknown companies with no track record and no apparent means to generate what appears to be attractive returns. There are two problems with the last scenario. In the first instance, two materially different products would be compared solely on the basis of a return. This is frowned upon by the Code because it is misleading. The second is failure to act with honesty and integrity, care and diligence, with no regard to the interests of the client and the integrity of the financial services industry.

A significant number of complaints in this area have to do with clients whose entire capital has been fully annuitized without allowing the consumer the opportunity to consider the option of withdrawing the one third portion and the implications thereof. These clients find themselves stranded as the income is significantly reduced compared to their employment income, without having had the opportunity to either settle their mortgage loan or carefully consider their position and make informed decisions in the light of the size of their savings.

We still have complaints involving the sale of single life annuities sold to people with surviving spouses and children both of whom had a clear case of dependency at the time of providing advice. These complaints are as a result of the financial advisor having failed to gather necessary and available information from their clients. They however do not hesitate to inform us that their deceased clients wanted a higher level of income, which would not have been possible if they had ‘disclosed’ that they had dependants. We continue to resolve these complaints on a ‘without prejudice’ basis.

At the root of most of these problems, in my personal experience, lies the client’s insistence on the highest income possible, underscored by selective memory loss when the pawpaw strikes the fan – editor.

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