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Friday, June 1, 2007
All in house

The Professional Provident Society of South Africa has recently launched a range of new products, including the new PPS ProviderTM, to meet the changing needs of the modern graduate professional.

The launch took place during the course of May this year.  The main developments include new products under the existing PPS Sickness and Permanent Incapacity Benefits; and the introduction of a new business, PPS Investments, to provide members with access to low cost, flexible and transparent retirement, savings and investment products.
Life cover can now be extended to whole life, under the brand new PPS Professional Life ProviderTM.  For health cover, the PPS Professional Health ProviderTM has been added, with an optional PHP Maternity Cover; and the interesting PHP CatchAll Cover option (explained below).
Thus, PPS is now a fully-fledged financial services business, able to offer its members the whole range of life, health, savings, pensions and investment products and personal and business short-term insurance cover.
Under the PPS Sickness and Permanent Incapacity Benefit members buy ‘Units of Benefit’ based on their gross professional income. In turn these units earn a profit share credited to members’ PPS Surplus Rebate Accounts (SRA). The new development here is that members have the option of keeping their SRA with PPS after retirement (not previously possible), affording them access to great investment returns at low costs.

Investment products

The most significant development must be the launch of PPS Investments, to provide retirement and savings products that are uncomplicated, transparent, and flexible. They include the PPS Personal Pension (a new generation retirement annuity), PPS Preservation Fund, PPS Living Annuity, PPS Endowment Plan and the PPS Preferred Funds unit trust platform.
“Fundamentally PPS has been in the risk space for years,” explains Mike Jackson, CEO of PPS Investments. “As for investment products, these were essentially left with the other players: the retirement annuity was with Sanlam, and for any other investment and savings products, our members had to go elsewhere. Clearly we needed to meet the demands on the part of PPS members, who wanted to invest directly with us - hence, the launch of our own range of investment products.”
Of course the historic PPS Retirement Annuity Fund remains in place. Assets in the PPS Retirement Annuity Fund grew from R12,2 billion for the year ended December 2005, to R16 billion for the year ended December 2006, a  31% increase. The figure for the end of 2004 was R8,5 billion (see Insurance Times & Investments page 10 Vol 19.3 June 2006).
“We did not need to re-invent the wheel. After all, the low cost unit trust products are already out there; we just needed to create a more direct route with the additional advantage of PPS branding, governance and controls.”
Since no one better understands its own member profiles than PPS itself, it made sense for the society to take more control over the way products were being offered.
“We have been talking to Coronation Fund Managers for some time. They are one of the few truly independent asset managers; they have no link to any life company, or any bank, so we felt they would be a superb partner. They have proven ability, having been involved in managing our assets for several years, and their own retail products.
“PPS Investments was launched in October 2006 with a 51%/49% ownership split between ourselves and Coronation.  Nick Battersby has moved across from Coronation Fund Managers, to run the new operation.
“We provide the membership, the branding and distribution; and Coronation provides the intellectual capital, the management and the systems.
“Since then we have been developing the products to carry the new investment offerings. There are no initial fees, fees for switching, penalties on withdrawal or stopping premiums; and overall, we can provide a very low cost product.”

Life and health benefits

Explains Chris de Klerk, Corporate Actuary at PPS, “life cover was previously provided only under our group scheme offering, underwritten by Sanlam. We can now offer our members free-standing life products as well, which include the PPS Immediate Needs Benefit – pays up to R50 000 within 24 hours – and the PPS Terminal Illness Benefit, a 50% total life cover benefit – immediately payable on the diagnosis of a terminal illness, where the patient is not expected to survive beyond 12 months.”
PPS ProviderTM is also the umbrella product for the PPS Professional Health ProviderTM, originally launched in June 2004. New features include the PHP Maternity Cover, which is an optional extra to provide for pregnancy related medical complications. Cover for cancer and other serious illnesses are included in the normal PHP cover.
PHP CatchAll Cover (an add-on benefit) is an exciting concept. “At any time when you design a product, you have to work with the latest medical knowledge – embracing the current perceived wisdom. But you can never predict what will happen down the road. There’s a very real possibility that the cover you buy today under our critical illness cover (dread disease) will not extend to every eventuality. Hence the PHP CatchAll Cover add-on, which is an added policy benefit to provide for any unforeseen significant medical illness or disease.
“Traditional dread disease products work, not on an exclusion, but on an inclusion basis,” he explains. So, they include a list of conditions for which the policyholder has cover. “We have listed about 35 claimable events or conditions including cancers, heart attack, chronic heart disease, even gun shot wounds.
“But no one knows what’s going to happen, say, in five years’ time. You could have a new strain of avian flu, a new disease is diagnosed or a new cancer is diagnosed. So the world is changing all the time; you can’t predict what’s going to happen. But if you take the PPS CatchAll Cover, and you find you are not covered under the inclusion list in terms of the PHP benefit, this should take care of you.”

Surplus Rebate Account

Says Mr Jackson, “Members truly participate in the benefits of low claims. Compared to R1,8 billion the year before, for the financial year ended December 2006, PPS allocated no less than R2,2 billion to its members’ Surplus Rebate Accounts.” This arises from the members’ share of the company’s operating profits and investment returns. “Of course, we don’t have any outside shareholders, so all the profits (and the losses) go to the members.”
The primary way members receive a Surplus Rebate Account allocation is through the so-called ‘Unit of Benefits’, accrued through the purchase of the PPS Sickness and Permanent Incapacity Benefits. Benefits are allocated in proportion to the gross professional income of the individual concerned.  Thus, the higher his income, the more Units of Benefit he can acquire, which should mean a bigger Surplus Rebate Account in time.
This is the main gateway to the mutual benefits of PPS.
But the recent launch of PPS Investments sees another way to share in the profits, this time through unit trusts. “You no longer have to have Unit of Benefits to share in the mutual benefits of PPS.  You can still participate if you are an investor in PPS Investments and have a PPS Surplus Rebate Account,” Jackson points out.  “People, who buy our investment products, not only get the low cost structure, but also participate in the profits. Indeed, to our knowledge, this is the only way a professional can buy a unit trust and share in the profits of that business at the same time.”
The member’s portion of the accumulated Surplus Rebate Account is paid as a lump sum on retirement or death.
Of course, as a new option, retirees may now leave their accumulated surpluses with PPS.
“The PPS Surplus Rebate Account,” comments Mr Jackson, “is fantastic for members. Some of them have as much as R1m in their accounts at retirement, simply from buying our risk products during their working life.
“It is a very good business model. If, for example, you divide the R2,2 billion allocated to our 130 000 members last year, on average each member received R17 000. Yet the average premium for the sickness benefits is only around R7 000 a year. This is over and above any claims a member might have had during the year. It is a very good deal.”

Member growth and Black Economic Empowerment

Last year saw a net gain in membership of over 5 000. “Our plan is to grow by around this amount each year, taking into account retirements, deaths and emigration,” explains Mr Jackson.
Now, with our recent Black Economic Empowerment initiatives, we want to encourage more black professionals to become members. In fact currently 40% of our new members are black. We believe there are at least 10 000 black professionals out there who could still join PPS. We want to accelerate growth particularly for our black members, by offering a two-year window period for earning “accelerated benefits”.
  How this will work is that the current 18% economic interest on the part of black members of PPS has been boosted to 25% without any change in contribution rate. This additional 7%, amounts to the equivalent of R70m, for which all existing PPS Members have already been compensated; and will be credited to black members’ accounts, at the end of 2008. This value will be repaid out of future earnings.
“Because we are a mutual organisation we cannot bring in outside shareholders or capital,” explains Mr Jackson. “So we have effectively rearranged the capital inside the business to achieve this accelerated benefit for black members, over the next two years.”

Message for independent financial advisors
Do you have any clients who are ‘professionals’ without the benefits of the PPS insurance and investment services?  Why not look through your client database and review their financial planning arrangements. The benefits for those eligible for joining PPS will be considerable.
Membership of PPS Ltd is open to graduate professionals who hold a four-year degree or the equivalent thereof, such as an Honours, Masters, M.Tech or D.Tech; and who are working in their representative field of study (for example in the medical, legal, dentistry, accountancy or engineering fields.)
Student membership is also available to those in training for the eligible professions. By Nigel Benetton

Copyright © Insurance Times and Investments® Vol:20.5 1st June, 2007
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