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News Article : Have you paid too much for your Old Mutual Tax Free Savings Plan?
Category: Life Insurance : Commissions & Fees
Author:Brent Wilson
Email:[email protected]
Posted:01 Sep 2015

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Tax free savings plan becomes another form of legal theft

I don't suppose that when Treasury approved the Tax Free Savings scheme it had the above headlines in mind.

Or when banks and insurance companies developed their own versions that they consciously set out to steal from the South African public.

But when you charge an upfront fee of R2500, and a pay-as-you-go fee of R85.50 per month, and you include an escalation of 10% per annum on a Tax Free Savings Plan, then you have quite literally ripped the heart out of all the good intentions behind the scheme.

This is the story of my experience with Old Mutual - False advertising, false pretences and simple falsification.

False Advertising

In April & May this year I tried to use the OM website to sign up for a Tax Free Savings Plan - apparently using the online platform would mean I wouldn't have to pay any fees.

Numerous frustrating attempts, including seeking the assistance of the OM support centre, to sign up for the product on this retarded platform led me in desperation to call OM and actually speak directly to an agent.

When he disclosed that the entire first month's investment of R2500 would be paying him for the phone call I was making, I terminated that approach.

False Pretences

Next I got hold of an OM representative and agreed with him that I would pay R350 for his time involved in signing up for the contract.

I made it clear that I did not want his financial advice.

He agreed, I signed. And that is when the problems really started.

On the 25 June 2015 I received a contract from OM for the Tax Free Investment Plan.

I saw with surprise that it contained the following 3 errors:

  • An as-and-when advice fee R85.50 / month
  • A statement that I requested that Old Mutual facilitate the payment of a financial planning fee of R2 500.00 to my adviser. The net amount invested for my first premium will be R0.00.
  • An Annual premium increase 10% in June each year starting 2016

I had not agreed to any of the above fees.

A 10% premium increase of 10% also makes no sense since contributions to Tax Free savings investments are capped by law at R30000 per year (or R2500 x 12 months). I was therefore already making the maximum allowed contribution.

I immediately contacted OM and requested that these errors be corrected.

At the end of June OM took R2500 via Debit Order from my bank account. And again did so at the end of July.

Over the next 2 months, July and August, I made numerous requests to the customer support centre for these errors to be corrected. Nothing was forthcoming.

Falsification

I also made contact with the agent who assured me that the contract had been corrected. And I requested from him the corrected version. Nothing was forthcoming from his side.

I eventually requested a new copy of the contract from the customer centre only to find that the contract had not been corrected.

It remains to be seen if OM manages to sort this mess out.

Fee feeding frenzy 

In the meantime I think that the Tax free Savings Plans have simply signalled a new fee feeding frenzy with the SA consumer the ultimate loser.

By my rough calculations an initial fee of R2500 and R85.50 per month represents a cost to me of about 15% of my investment upfront. And this is before admin costs of 0.5%.

If past performance of 9% in the funds I chose to invest in is anything to go by (And it isn't), then I have actually lost money and no amount of Tax Free will ever make this up.

It all flies in the face of the much vaunted RDR that we still have such blatant abuse of the sales process. Why do insurance companies only pay lip service to the regulations that bind financial advisers?

Treating Customers Fairly - what a joke!

Have you paid too much for your Tax Free Investment Plan? If you suspect that you have, please contact me on [email protected]

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