Government to stop social grant deductions

The Department of Social Development has voiced its concern about authorised deductions being taken off of social welfare grants. This follows reports that fees for funeral cover were being deducted from child welfare grants prior to being deposited in the recipients bank account. The funeral policies were for the child recipients of the grants. (To read more, click here)

According to the Minister of Social Development, Bathabile Dlamini, “advanced airtime is the main cause of deduction disputes, and is on the increase.”

Dlamini noted that in other cases, grant recipients were informed by funeral policy providers that it was “mandatory for grant beneficiaries to take out funeral policies.”

New regulations

Earlier this year, the Department for Social Development released draft regulations for public comment. These regulations “aimed at clarifying existing legislation in terms of what is legally permissible and the level of consent required for a deduction from a social grant,” revealed Dlamini.

These regulations (revised Regulations to the Social Assistance Act) were implemented last week. “This will put an end to the tide of unauthorised and unlawful deductions and ensure better control of Sections 21 and 26A which deals with the payment environment,” explained Dlamini.

According to Dlamini, the proposal of new regulations was met with criticism and concern by the industry. However, she emphasised that these changes were proposed to help the grant recipients. The regulations aim to stop the practice of money being easily deducted from grants prior to them being deposited in the recipient’s account. “It is very easy to take the money of social grant beneficiaries without proper consent and controls. However, it’s very difficult for them to get their money back,” noted Dlamini.

“We aim to stop this practice, by ensuring that third parties can’t simply take someone’s grant. We [are] appalled that the industry doesn’t see this as a problem,” added Dlamini.

In her speech, Dlamini explained the changes that the new regulations will introduce:

“The amendments to the Regulations now accurately reflect the fact that only insurers registered under the Long-term Insurance Act of 1998 may offer funeral policies. This is important in facilitating access to funeral policies by social grant beneficiaries in a way that offers adequate consumer protection and ensures that funeral benefits are indeed made available to the beneficiaries when a death occurs.

“Further, payments for funeral policy premiums will now only be made directly to the insurer that is responsible for providing benefits under the policy. No payments to brokers will be allowed. This will ensure a direct relationship between the insurer and the social grant recipient, and ensure that insurers have direct access to policyholder information. This will go a long way in ensuring that funeral benefits are paid timeously and directly to the beneficiaries.”

In addition, she noted: “These amendments will also assist SASSA to work with the Financial Services Board to ensure that social grant recipients and their beneficiaries are treated fairly.

“Funeral deductions from children’s grants will not be allowed. Regulation 26A was intended for adult grant beneficiaries. The amended Regulations seek to clarify this original intent by limiting funeral policy deductions to adult grants only.”

Lion of Africa Life Assurance responds

Lion of Africa Life Assurance was one of the companies first mentioned when the case of child funeral policies came to light last week. In her speech, Dlamini again made mention of the company, this time explaining that it had taken over the underwriting of policies from 1Life for Emerald Wealth (now Emerald Life). Emerald Wealth Management was one of the that was mentioned with regards to cases where social grant recipients had fees deducted for services they were not aware of or had not authorised, yet struggled to get the deductions to stop and get the premiums reimbursed to them.

Paul Myeza, CEO, Lion of Africa Life Assurance, clarified to Justmoney: “Lion of Africa Life Assurance has designed a policy that is distributed on an intermediary basis and Emerald Life is part of that sales channel. We have a combination of internal reps, tied agents and other intermediaries that distribute products.

“However, since the moratorium on this was introduced in December 2015, Lion of Africa Life has not processed any deductions from child support grants. The Minister’s statement on 6 May 2015 clarifies that such policies may no longer be sold, so Emerald Life will not be able to sell a funeral policy to child grant recipients on behalf of Lion of Africa Life at all. As an industry intermediary, Emerald Life will be able to sell other Lion of Africa Life policies.”

According to Myeza, Lion of Africa has welcomed the announcement by the Minister. “The fact that policyholders in this space will continue to deal with legitimate licenced insurers only, will continue to have a 10% ceiling in respect of the ratio of premium to the grant and that the applicant may only have one policy, is in line with our practice and has our full support.

“We also thank the Minister for being so thorough in the statement. It is our understanding that Regulation 26A has been very beneficial for the purchase of funeral benefits – which are much needed. All sectors of society have to bury loved ones and all would like to be able to do so with some dignity. Any doubt that was cast on the applicable regulations in the last few months has been cleared up by the Minister and is in line with our expectations and understanding.”

However, with regards to specific cases of policies sold by Emerald Wealth as mentioned by the Minister, Myeza stated: “We cannot comment on the cases mentioned by the Minister, as they pre-date our entrance into this market in the second half of 2015. However, as already mentioned, when applicants deal with legitimate and licenced providers and have the protection of 26A, they can be assured of the correct recourse if there is ever a problem.”

Sanlam and Channel Life respond

While not mentioned in Dlamini’s speech, Sanlam and its subsidiary, Channel Life, were mentioned in media reports last week about the sale of funeral policies for child welfare grant recipients. Sanlam has since come out in support of the government’s “move to eradicate abuses and fraudulent deductions in the social grant system.”

Jurie Strydom, deputy chief executive officer of Sanlam Personal Finance, stated: “We fully support Government’s actions in addressing abuses and fraudulent deductions from social grant recipients, and believe that appropriate legislation supported by a stringent implementation process will limit the possibility of fraud and abuse.

“Sanlam and Channel Life had instituted legal action to get clarity under the previous regulations to ensure that existing policyholders would not be prejudiced. We will continue to engage with both SASSA and Government directly to support the process of cleaning up the system.”

In addition, Sanlam clarified what the amendments with regards to Regulation 26A were:

• Only insurers registered under the Long-term Insurance Act of 1998 may offer funeral policies to social grant recipients.
• No premiums may be deducted by brokers or other administrators excluding registered financial services providers.
• In line with a SASSA moratorium imposed on 1 December 2015, the amendments prevent any premiums from new policies for guardians being deducted from child support grants.
• Cash Paymaster Services (CPS) was ordered to remove the debit order facility from SASSA-branded cards.

As a final note, Sanlam clarified that it is “not involved in the legal action by Lion of Africa Assurance Co. regarding deductions from child support grants.”