The Financial Services Commission (FSC) has been asked to intervene urgently to try to stave off another possible CLICO debacle by protecting those pensioners whose Registered Retirement Savings Plans (RRSP) are being transferred by a local commercial bank.
The Barbados Association of Insurance and Financial Advisors (BARAIFA) said on Sunday it is “deeply” troubled that CIBC FirstCaribbean International Bank, which has decided to transfer the RRSP accounts of its clients to insurance giant Sagicor, has not given these customers enough time to make well-informed options about their hard-earned investments.
According to the notice from CIBC dated October 1, 2021, if the holder of the RRSP wished to have it transferred to Sagicor, they are to fill out the necessary application form and the related onboarding documents and send them to an email address provided “no later than November 1, 2021.
However, clients who have been venting their frustration to Barbados TODAY complained that they only received the notification at the end of October.
Further, the letter to the clients said “if we do not receive a withdrawal or transfer request from you by November 8, 2021, we will understand you to require a transfer of assets (less 25 per cent withholding tax) and we will communicate with you further in this regard, if necessary.”
But president of BARAIFA Tyrone Lowe said that one month’s notice is far from enough time to give these people whose pensions will be the only source of survival in their latter years and could be seriously disadvantaged by being rushed into a last-minute decision.
“We at BARAIFA stand ready to call members to a meeting, if necessary, but we believe the FSC needs to get involved for the benefit of protecting the integrity of the financial services industry; we believe that FristCaribbean needs to get involved and extend the time for people to make a more informed decision; and we believe those persons who are still uncertain should reach out to their financial advisors immediately to see how best they can get guidance,” Lowe told Barbados TODAY.
Expressing fears that these clients could lose the full benefits of their investments if they are not allowed time to properly resolve any doubts or concerns regarding the future of their pensions, Lowe recalled the financial collapse of CLICO International Life Insurance Company, which then led to Government to issue of bonds and other financial instruments to reimburse investors and pensioners who lost their money. He remembered that several of these failed to benefit from their investments as was expected and at the time they were due because the offer was restructured for them to wait much longer.
“Based on what we are seeing, the RRSP therefore is giving people some pension savings. If now at this stage people are being forced at short notice to find an alternative investment, that could very well impact on their options. We want to recall recently Barbados has had two problems with pensioners. Remember the Reslife/CLICO scenario where many persons who were reaching pension age had to wait to have access to their funds; and then the bonds further delayed the maturity of the pensions,” the senior financial advisor observed.
Lowe added: “There were people who already had Government bonds and so on in Central Bank, looking expectantly for their money; and then there was that particular extension of the maturity periods and even a decrease of the interest rate.”
“At 60 or 65, when you are about to enjoy your pension, the last thing you want to have is a scenario where you are not quite sure what is the next step. To our minds, what is troubling for us is that it affects this particular component. It also does something for the wider financial industry. One of the things the FSC seeks to do is to make sure that investor confidence is propelled; and therefore, if you have an issue where people are uncertain about their future after planning and saving for it, that does something for the wider insurance and financial community,” the head of the BARAIFA said.
Lowe also urged CIBC to immediately reengage its clients before implementing this transfer, pointing out these customers’ financial future could be jeopardized by the bank if it insists on ‘rushing ahead” with the move.
“What is also further troubling is that if a person is not given enough time to make a well-informed investment, people are by default going to be charged 25 per cent of their savings. The bank is going to put it somewhere by default, if you don’t get back to them by November, which is tomorrow. Now that forces people therefore to lose 25 per cent automatically without even having a chance to look around. How much time did they have? Is one month good enough?” the spokesman for the insurance and financial investment sector asked.
He contended that when a person retires, they are given three months to make an appropriate pension option.
“If that was not given then, there seems to be a failure to give proper notice and to give people a chance to seek guidance by their financial advisors, their retirements as to the next step,” Lowe stated.
In its letter to clients, CIBC FirstCaribbean said the decision to exit its Barbados-based asset management business was not made lightly. “At this stage our main goal is to ensure that there is a seamless transition of your arrangements with us to whatever option you choose,” the financial institution said.
The options given are to withdraw the contributions, agree to the transfer to Sagicor or transfer the funds in the account to an RRSP with another service provider.
Transferring to another RRSP provider will not attract the 25 per cent tax penalty. (EJ)