Consumers shunt risk cover in favour of retirement savings

Tough economic conditions are forcing consumers to prioritise retirement savings contributions and neglect contributions to risk policies such as life, disability and dread disease cover. According to the Association for Savings and Investment South Africa (ASISA) new recurring individual risk policy premiums of R3.9 billion for the first half of 2012 was down by nine percent compared to the second half of 2011 and only five percent up on the first half of 2011.


The number of lapsed risk policies less than 12 months  old increased by 27 percent compared to the first half of 2011, but decreased by 15 percent when compared to the second half of 2011. (A lapse occurs when policy holders stop paying premiums).


Peter Dempsey, deputy CEO of ASISA, said that while consumers were taking their retirement savings seriously, the lower uptake of risk policies was of grave concern.


“Increasingly consumers can simply not afford life cover and then still provide for their retirement. Something has to give and many consumers are probably opting to go without life, disability and dread disease cover,” said Dempsey.


Two years ago, ASISA produced research that found that the average South African income earner was underinsured by R600, 000 in the event of death and R900, 000 in the event of disability. In total, South Africans were underinsured by R18.4 trillion.


Dempsey, however, pointed out that retirement annuities remained a popular retirement savings choice among consumers. Living annuities attracted R13.7 billion in single premiums from January to the end of June this year – the biggest portion of the new single premiums. Traditional guaranteed annuities attracted only R2.5 billion in single payments, although this was 11 percent and 12 percent more than in the first and second halves of last year.


“This comes as no surprise since traditional guaranteed annuities are generally seen as less attractive when interest rates are low. However, this is not always true, especially for older pensioners. As an industry we therefore have to do more to educate consumers on the role of living annuities versus guaranteed annuities. If used wisely, sometimes even in combination, both types of annuities can provide pensioners with solid income producing options,” said Dempsey.


Retirement annuities (RAs) attracted new monthly premiums worth R822-million in the first half of 2012 -16 percent more than in the first half of last year and three percent more than in the second half of last year. New lump sum investments into RAs amounted to R3-billion, representing an increase of 13 percent compared to the first six months of 2011 and a whopping 29 percent increase over the second half of last year.


Dempsey said it was encouraging that consumers continue to recognise the benefits of investing in RAs, which are the industry’s disciplined retirement savings vehicles.