The proposal could yet assume political overtones as brokers warned yesterday that it could “decimate the sales force for retirement annuities”, thwarting calls by Finance Minister Trevor Manuel to raise SA’s slack household savings rate of less than 1% of disposable income.

The LOA put forward the new proposal as a way to lower costs on life assurance products, after a raft of Pension Fund Adjudicator decisions this year forced companies to pay back hefty penalties they levied on consumers.

Yesterday, Adjudicator Vuyani Ngalwana issued his seventh such ruling this year, forcing Liberty Life to repay an R11900 penalty that it had deducted from Henriette Geldenhuys’ retirement annuity savings of R14400 — a penalty of 82%.

All the broking groups said yesterday they recognised commission structures paid to brokers need to be revisited in the interests of fairness to the consumer.

But the Insurance Brokers Council (IBC) said the LOA’s proposals could “destroy the insurance industry within a few months” while the life majors, including Sanlam, Old Mutual and Liberty, had made almost no sacrifices at all.

Council president Johann van Rensburg said brokers’ commissions accounted for only 34% of the costs of life products, while the companies themselves account for 66% of the costs.

“It is clear these companies should be absorbing some of the costs, but instead they are trying to avoid this by passing the buck onto the brokers,” he said.

Raymond Byrne, director of financial planning body Luasa, said the LOA proposal would see brokers get paid 3% of a premium’s value “as and when” a consumer pays a premium on a retirement annuity policy.

As it stands, brokers get paid their entire commissions over the first two years of any policy on an “upfront” basis.

Byrne said the new model would see brokers earn up to a tenth of the income they would have received using the “upfront” commission structure. “This is smoke and mirrors, because brokers are carrying all the costs of selling life policies, while the life companies are not absorbing any of these costs.”

But LOA director Gerhard Joubert said the brokers were “talking rubbish” as none of the models discussed had been decided upon.

“The life companies are very aware that it is not in their interest to put the brokers out of business, but we really have to focus on giving consumers a better deal,” Joubert said.

Joubert said the life companies were “just as willing to make sacrifices” as they expected the brokers to be. He said the LOA would be meeting with national treasury and other stake holders soon to discuss the issue.

South African Financial Services Intermediaries Association (Safsia) MD Ben Rossouw said brokers were aware of the need for change. “But how this is done could have a major impact on how many brokers will be able to continue doing business,” he said.

The main broking groups — the IBC, Safsia, Luasa and the Financial Planning Institute — will meet on Monday and presumably hammer out a position.

On Tuesday, the groups will meet the LOA, at what could be a heated meeting given the tensions between the two parties in Ngalwana’s immediate firing line.