Right of reply: PPS

In Right of Reply by Kristia van Heerden

Professional Provident Society (PPS), the financial services company focused solely on providing intelligent financial solutions for graduate professionals, is the only diversified financial services company in South Africa operating under the ethos of mutuality.  The group provides specialised financial services including financial planning, wealth management, fiduciary services, investments, long and short-term insurance as well as healthcare administration and Profmed Medical Scheme.

It is important to note that PPS is not a mutual fund as it was referred to, however it operates under the ethos of mutuality. This means it is not a shareholder-owned company like most other insurance and investment companies, and it does not declare dividends. In essence, this means that members with qualifying products participate exclusively in the profits of the PPS Group through allocations to their unique Profit-Share Accounts (100% of the Group’s total – operating and investment – profits get distributed back to its members every year), which accumulates with investment returns. The Profit-Share Account is a mechanism for allocating the annual profits to members. It is not an endowment or other form of investment product, but rather a means by which profits are given back to members, which at any other insurance company, would’ve gone to shareholders.

The Fat Wallet podcast has broadly made comments of “hating” PPS and that “everybody who writes in” complains about PPS. We would naturally be interested in addressing any of our member complaints that come your way in order to resolve them with our members. However, PPS has in excess of 150,000 members actively engaged in a variety of our products and reaping the benefits that are specifically suited to them.

For context:

  • In 2019, PPS paid R3.7 billion in valid claims and benefit pay-outs to members.
  • R4.2 billion in total profits were allocated to members in 2019.
  • 6 804 PPS members had more than R1m in their profit share accounts in 2019.
  • More than R1 billion in Profit-Share was paid out to members who retired in 2019, thereby boosting their retirement savings (the Profit-Share funds get paid out tax-free at retirement).

While we appreciate the value of your podcast as commentary (both critical and promotional) and providing much-needed financial education in the market, it equally has to do so with some level of responsibility to the audiences it influences. South Africa has a massive savings culture deficit, which channels like JustOneLap can help address.

Comparing insurance products with investment products is problematic. They are different financial mechanisms that serve different functions in a holistic financial portfolio.

We would also like to advise that the option of purchasing a single premium life cover using a saved lump sum as mentioned, is not available in South Africa.  In addition, suggesting that people delay purchasing life insurance is discouraged as they could find themselves becoming uninsurable depending on life events.

However, before purchasing life insurance, it is crucial for people to consult an accredited financial adviser, who will conduct a financial need analysis and recommendation suited to their unique circumstances and needs, rather than having a blanket approach for everyone.

PPS’s Profit-Share Account does not provide a retirement investment solution on its own. It is an additional benefit that members receive, purely for having qualifying products with us. It can be used however the member chooses, like to supplement retirement savings, or to fund things like medical aid, when it vests at retirement. As such there are no costs for sharing in and receiving Profit-Share, hidden or otherwise.

This account can be accessed by members at retirement age, fulfilling the first-principle rules of savings to invest long-term. In addition, because these amounts are invested, they perform better than inflation, whilst providing a tax-free lump sum on maturity. The primary investment objective of the Profit-Share Account is to beat inflation, a level that PPS has consistently achieved.  Of course, if members decide to cancel their insurance products, they can access their funds, subject to early access charges.

While the Profit-Share Account accumulates, PPS members continue to have the benefits and peace of mind of a life insurance policy that provides sufficient cover for any eventuality that would require a valid claim to cover those unforeseen circumstances. In most instances, by the time members retire, what they receive in their Profit-Share Account is more than what they would have paid in premiums to PPS, over and above having enjoyed benefits of claiming for claimable events.

Unlike shareholder-owned companies, PPS members benefit directly from valid claims pay outs as well as investment returns in their Profit-Share Accounts which is not impacted by a member’s claims history.

Key differences
Ethos of Mutuality Shareholder Owned
Ownership Policyholders Shareholders
Policyholder voting rights Yes No
Dividends PPS does not pay dividends.

All profit (after claims and operating expenses) is allocated to policyholders’ Profit-Share Accounts

 

Profits are reinvested, earn interest and are accessible at retirement, free of tax.  Members therefore not only share in the profits of PPS, but also the investment returns.

Paid to shareholders
Purpose Pay all valid claims for policyholders

 

Decisions based on what is best for the member

Make money for shareholders

 

Decisions based on delivering shareholder value

Benefit The benefit to members shapes all decisions

 

Long-term focus – focus on long-term safety, security and return to policyholders

Shareholder and management driven

 

Decisions are made to increase dividends to shareholders

 

Short-term focus – therefore likely to take greater risks

PPS is a highly relevant and valuable financial services provider for a growing number of members. It has increased claim pay-outs and profits for this growing member base every year for the past 10 years.

We trust that this assists in answering any future discussions on the topic of profit-share and insurance vs investment and invite you to approach PPS should you have any questions about any of the services and product offerings we provide.

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