Life Offices Association Statement Industry welcomes minimum standards on early termination values as an equitable solution for all Life Offices Association (LOA) chairman Mike Jackson today said the minimum standards on early termination values for retirement annuities and endowments announced today represented an equitable solution for all stakeholders. Most importantly, we hope our commitment to the standards will justify consumers trust and confidence in the sector to act as custodians of their savings, he said. Jackson said the minimum standards were needed to respond to a changing employment and savings landscape where consumers required greater flexibility in their options on long-term contractual savings policies. The standards were worked out over many months in workshops jointly coordinated by the LOA and National Treasury. Jackson said they now require final approval by each individual companys board of directors, and in the case of the RA funds, by the trustees. The industry has made a number of changes during the course of this year. We put our first concrete reform proposals on the table in June 2005 when the LOA tabled its proposal on changing the legislated commission structures in order to enhance early termination values, and in July we overhauled the code on benefit illustration agreement to show the impact of costs on investment returns and thus foster competition and enhance transparency, he said. The minimum standards will be retrospective to 01 January 2001 and it is estimated compliance with the standards will cost the industry between R2,5 R 3 billion. Jackson said this cost would be carried by the life companies themselves from shareholders funds and reserves and would not be subsidised by policyholders in any way. Jackson said the standards would significantly enhance the value of long term savings and investment policies terminated in the first few years (see graph below). Looking back, the standards are set to improve the situation for policyholders who were forced by circumstances to exit their savings or investment policies early during the course of the past five years, and going forward they provide peace of mind to consumers who may be forced to exit early due to significant changes in their circumstances he said. Jackson emphasised that policyholders should only consider the termination of their contracts as a last resort. For those policyholders who manage to stay in their contracts for a relatively long period of time the impact of related charges is lessened and they are likely to receive more than the minimum standards require. It is in their best interest for policyholders to stay in their contracts until maturity. Charges related to the policy are then recovered over the full length, and the fund gets the full benefit of both compound interest and of being in the market for a longer period of time, he said. Graph showing early termination values currently and then as proposed by the minimum standards  The standards: To introduce minimum values after allowing for the effect of investment return i.e. that should be offered in the event of any form of early premium cessation (i.e. paid-up, premium reduction, lapse, early retirement, transfer, surrender). The following minimum values will be applied to the relevant policies: 1.1 Retrospective application: It is agreed that for all RAs that have been early terminated from 01 January 2001 as well as endowments that have already been made paid up but are still on the books, there will be a minimum value of 65% of the investment account. For RAs that have lapsed the benefit upliftment will be handled on application by the former policyholder. For paid up RAs and paid up endowments the relevant amount will be credited to the value of the policy and this benefit upliftment communicated to the policyholder. 1.2 Prospective application:
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