The Poor and Voluntary Long Term Contractual Savings: Lessons from South Africa

This paper analyzes causes for the failure of voluntary long term contractual savings (VLTCS) products and makes recommendations to improve their quality.

A survey of the established low-income VLTCS market in South Africa indicates that VLCTS products are difficult to sell and service. Potential clients need to feel reassured that the organization selling the VLCTS is stable and safe. VLCTS charges are not flexible and transparent, and clients find it difficult to obtain and understand documentation.

Providers could look at ways to reduce selling costs, improve voluntary disclosure and reconfigure agent incentives in order to improve the quality of VLCTS products. Policy makers and regulators could:

• Create systems to collect national level data on VLTCS usage;
• Make recommendations for reforming tax on VLTCS products;
• Compel providers to disclose product details in ways that can be understood by low-income buyers;
• Motivate agents to consider clients long term interests.