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Life Policies
Friday, April 1, 2005
About time

Momentum Investment House recently introduced the Investo Version 4 endowment plan.

The company’s Danie van den Bergh (Head: Investment House Marketing) hopes the product is strong enough to attract back millions of previously disillusioned investors to the assurance industry.
Investo is a policy that is far easier to sell because it removes all stigma (and the perception) of being ‘ripped off’. It provides for increased savings for retirement in a way that may cost policyholders nothing at all. Features to mention include:
• fees and surrender penalties have been slashed;
• the lack of transparency and poor performance of policies has been directly addressed;
• all investment vehicles have been given equal treatment in respect of fees; and,
• there’s an attractive solution to reverse the dramatic fall in savings in South Africa, which is also tax efficient.

The current savings rate as a percentage of income has plummeted to 0,4% compared to 11,4% 10 years ago, observes Momentum (see graph). “Times are hard enough on consumers, and it’s no use asking them to try and save more for retirement when they’re struggling to meet bills today. We therefore set out to create savings money where none existed before,” explains Mr Van den Bergh.


Branded ‘Save Thru Spend’ and embedded into the product at no cost, Investo 4 policyholders can generate savings by spending their ordinary monthly expenses within a closed community of business partners, each of which pays a kickback on the spend into the individual’s savings account.
Grouped under six general categories (house, groceries, utilities, motor, protection and other), the Save Thru Spend partners include: Asset Pulse Homeloan finance, Stuttaford Van Lines, Cashbuild, Spar, EasyCall (prepaid electricity, Telkom and all network airtime), Nashua Mobile (all network cell phone contracts). Also: McCarthy Call-a-Car, Wesbank, Auto & General, Tracker, ADT Security, InterCape, SpecSavers and various restaurants, such as Famous Butchers Grill, RJ’s, Amici and The Cape Fish Company.
By spending no more money than their current existing budget, an average middle class family can generate an additional R200 a month in savings to add to their contractual savings of, say, R200 a month.
Policyholders who are also members of Momentum’s Multiply Loyalty programme increase these benefits by a minimum of 50%: based on their membership status it could be much higher.
The Investo Version 4 represents a thorough overhaul of the previous package, with numerous features that address consumer concerns. The product is also applicable to existing investors. The investment portfolio comprises Investo Linked Annuity; Endowment, Retirement Annuity, Preservation Plan, and Designer Annuity.
Momentum has slashed costs by 30% by simplifying the fee structure to a single rate no matter what the policy, whether retirement annuities or unit trusts. A further enhancement is consolidating all members’ policies, unit trusts and other investments into one portfolio. Mr Van den Bergh says this alone can save some clients as much as 40% of their ongoing fees.
Momentum also becomes the first life company to share the risk with investors by opting for performance-based fees both on the upside and the downside of investment on Momentum-managed funds.
If the asset manager achieves the benchmark, Momentum’s portfolio fee is 1,25%, and for each one percentage point variation from the benchmark it adds or deducts 0,125% to a maximum of 2,5% and minimum of 0%. In addition, it charges a fixed ‘tiered portfolio’ fee of 0,4%.
Investo 4’s exit fees are significantly reduced, and offer two options: Loyalty and Flexible pricing structures. The Flexible option charges higher fees (0,7%), but is cheaper to surrender. The Loyalty option rewards investors who stay the full duration of the term with lower fees (0,4%) but penalises them slightly more for breaking that loyalty. On the flexible option, the penalties are 5%, 4%, 3%, 2% and 1% in the 1st, 2nd, 3rd, 4th and 5th years respectively.
In addition, the exit pricing is completely transparent and can be easily calculated in advance by investors or their brokers.
“For the first time ever in South Africa we’ve levelled the playing fields between different investment vehicles. Whether you invest in an endowment policy, a unit trust or a retirement annuity, the costs are the same. This makes it simple to calculate fees and to be transparent about costs.”
Since 1988 Insurance Times & Investments has been critical of life assurance products. We often made suggestions as to how to improve the way consumers were being treated, how upfront fees could be eliminated, with overall charges reduced, and what should be done to increase surrender values. Most of these suggestions were shot down in flames by the industry. Looks like one company at least has finally agreed with some of the ideas, plus a few of its own. If true, we will have little left to complain about.

Copyright © Insurance Times and Investments® Vol:18.2 1st April, 2005
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