Guaranteed maturity values

Some investors who have received payouts from Old Mutual’s Insured Investment Plan (“Versekerde Beleggingsplan”) or similar Flexi policies may qualify for an “ex gratia” payment where the payouts differed from the guaranteed maturity values in the original policies.

Guaranteed maturity values are not to be confused with projected maturity values, which were frequently used as marketing gimmicks in the past. In most cases projected maturity values were based on growth rates of around 12% to 15%, resulting in more than double the guaranteed maturity values, creating the expectation that final payout values would be higher than the guaranteed maturity values, subject to annual premium adjustments. The Pension Funds Adjudicator questioned the usefulness of projected values some years ago and highlighted the problems caused by not adjusting projected future fund values to the realities of a lower-inflation and lower-return environment.

A Moneyweb reader, Jan Heyneke, who invested in three of the Insured Investment Plan policies with Old Mutual during the early 1990s, recently realised that the payouts he received fell well short of the “guaranteed” maturity values.

His policy documents stipulate that if premiums increased in line with the Premium Adjuster (“Premie-Aanpasser”) annually, the guaranteed maturity values would be applicable at the maturity dates.

It also notes that the total premium would automatically be adjusted with inflation annually “as determined by Old Mutual” and that if the premium-adjustment rate on the policy matched the inflation rate, Old Mutual would determine the increases at its discretion.

In January this year, as Heyneke was about to get rid of the policy documents after the policies matured, he realised that they referred to a “guaranteed maturity value” and that the payments he received fell well short of these values. In fact, he received amounts of between 12% and 24% less than the guaranteed values respectively, totalling about R75 000.

Following several engagements with his broker and in an effort to determine why the payments differed from what was seemingly guaranteed values, Heyneke wrote to Old Mutual to get clarity.

Initial correspondence from Old Mutual included a standard document stating: “As this rate [CPI] cannot be predetermined an illustrative rate is used in the calculation of future values… to provide the client with an illustration of what the GMB [guaranteed maturity amount] would be based on this 12% assumption.”

Old Mutual seemed not to differentiate between projected values and guaranteed values, specifically where it determined the annual premium adjustments, Heyneke says.

Shortly after he presented a copy of an original policy document to the insurer his bank advised that Old Mutual had made three payments to his bank account. Closer examination revealed that the payments reflected the difference between the guaranteed maturity values and the amounts previously paid.

A letter Old Mutual sent to Heyneke explained that a “management decision” was taken to pay the difference between the guaranteed values and the amounts previously paid.

Which bodes the question: Why would a management decision be necessary to pay maturity values that were “guaranteed”?

When asked why the amounts that were originally paid to Heyneke in terms of the policies differed from the guaranteed maturity values, Carmen Williams, complaints manager at Old Mutual, said certain of its Flexi policies were designed to provide for various premium update options and for certain guaranteed maturity Values (GMVs) namely:

  • A GMV based on the initial agreed premium and assuming no premium increases; or
  • An increased GMV that was applicable if the premiums payable over the term of the policy increased annually throughout the term of the policy.

Williams says these products offered policyholders a choice between two types of premium updates – a fixed premium update rate or an inflation-related premium update with the updates linked to the applicable rate of inflation.

“For the three policies in question an inflation-related premium increase was selected (CPI). The policy contract quoted both the GMV without premium increases (GMV-Level) and the GMV with inflation-related premium increases (GMV-CPI). Both guaranteed values were based on the assumption that all premiums would be paid when due.