Life assurers’ recurring-premium investment products - mainly endowment policies - showed sharp growth in 2016, probably as a result of a high demand for tax-free savings products, according to the industry body, the Association for Savings & Investment SA (Asisa).
South African life assurers reported growth of 38 percent in recurring-premium savings business for last year. This business consists almost exclusively of endowment policies, which allow you to save monthly for a fixed term. The 2016 life industry statistics released recently by Asisa show that consumers bought 775 956 of these policies last year, compared with 560 717 in 2015.
Hennie de Villiers, the deputy chair of Asisa’s life and risk board committee, says the increase was probably driven by consumer demand for the tax-free savings products launched in March 2015. These products were introduced by the government to encourage you to put additional money away for long-term goals, such as retirement, and come in three forms: recurring-premium endowment policies offered by life assurers, collective investment scheme products and bank savings accounts. As of March this year, you are allowed to deposit a maximum of R33 000 a year into tax-free accounts until you reach the lifetime maximum contribution of R500 000. The money in the account is free from tax on interest, capital gains and dividends.
De Villiers says another year of tough economic conditions for consumers resulted in slow growth for the other savings and investment products in the life assurance space: retirement annuities and living and guaranteed annuities.
“In 2016, both recurring and single-premium retirement annuity business slowed. We also noticed a suppressed take-up of living and compulsory annuities, which could partly be due to the increase in the de minimis threshold in March last year,” he says.
In terms of the “de minimis” rule, retirement fund members may, on retirement, take their savings in full, tax-free, if the amount is below R247 500. Before the increase in March2016, the threshold was R75 000.