Pension Funds Adjudicator, Ms Muvhango Lukhaimane.
There would appear to be no end to complaints concerning exorbitant causal event charges coming before the Office of the Pension Funds Adjudicator.
Causal event charges are levied if the policy is made paid-up; if the premiums are reduced in order to recover un-recouped expenses incurred upfront; or if policies are transferred to other service providers.
However, while most of the complaints about causal event charges are upheld, sometimes Pension Funds Adjudicator Ms Muvhango Lukhaimane dismisses such complaints.
Mr D Hauptfleisch became a member of the Professional Provident Society Retirement Annuity Fund (first respondent) on 1 September 2005. A retirement annuity policy was issued and was set to endure until his retirement date of 1 April 2023.
The first respondent is administered by Sanlam Life Insurance Limited (second respondent).
On 19 December 2013, the complainant and his wife divorced. The decree of divorce incorporated a settlement agreement which provided for 100% of his policy value to be paid to the non-member spouse.
On 27 December 2013, the complainant provided the first respondent with a copy of the decree of divorce together with a written authorisation for his policy value to be paid to the non-member spouse.
On 16 January 2014, the second respondent confirmed that the complainant’s full pension interest had been assigned to the non-member spouse.
The non-member spouse elected to have the full pension interest paid to her in a single cash lump sum. On 10 February 2014, she was paid an amount of R177 932.67, after the deduction of a causal event charge of R37 458.00.
The complainant submitted that a causal event charge was deducted from the policy value despite him being advised that no penalties would be imposed in the circumstances.
He further submitted that the first respondent misrepresented the issue of the imposition of causal event charges to him by providing incorrect information.
The complainant also submitted that he was still a member of the first respondent and never requested that his membership be terminated. He submitted that he was still paying contributions to the first respondent.
The complainant further submitted that it was incorrect that the second respondent would be unable to recover upfront costs from contributions due to the termination of the policy as he was still a member of the first respondent. He submitted that he only requested that his pension interest be paid to the non-member spouse and not that his membership be cancelled.
He submitted that the incorrect information given to him caused him major financial repercussions.
The first respondent submitted that on 13 November 2013, the complainant was provided with a benefit statement by the second respondent, reflecting his transfer value as well as the total fund value of his retirement annuity investment.
On 16 January 2014, the complainant received an email from the second respondent, confirming that pension interest in the amount of R253 520.18 had been recorded by the second respondent.
On the same date, the complainant and the non-member spouse received confirmation that 100% of the policy value had been assigned to the latter. The non-member spouse was requested to elect how she would have the benefit paid to her. She elected to receive the benefit in cash and payment of R177 932.67 was made to her on 10 February 2014.
The first respondent submitted that the complainant had been provided with Statements of Assurance dated 1 May 2013 and 1 August 2013, which stipulated that the value at early termination could be lower as a result of alteration charges and market fluctuations.
According to the second respondent, the majority of expenses in respect of policies are incurred at the commencement of the policy or when the premiums are increased. These expenses are recovered by means of charges that are spread over the term of the relevant policy.
The complainant’s policy had been discontinued as he assigned 100% of the policy value to the non-member spouse. Therefore, the second respondent would no longer be able to recover the upfront costs from monthly contributions.
The first respondent submitted that whilst it was regrettable that incorrect information was given to the complainant on this occasion by the client services agent, it must be noted that members have been urged to contact their accredited intermediaries/brokers in order to obtain all information pertaining to the penalty that may be charged.
The complainant was informed at all times that a penalty will be imposed if any material changes were made to the policy.
The first respondent submitted that on 13 November 2013, the complainant was provided with a benefit statement reflecting a transfer value of R209 572.00 and a total fund value of R247 061.00.
The difference is due to the fact that only a certain portion of the total fund value would be available for transfer to the non-member spouse. The benefit statement was sent to the complainant before the date on which the settlement agreement between the complainant and the non-member spouse was signed.
Therefore, the complainant had sufficient time to either consult with his financial advisor or remedy the incorrect perception that there would be no termination or penalty charge.
In addition, on 16 January 2014, the second respondent informed the complainant of the possibility that despite the non-member spouse’s entitlement to pension interest, the second respondent would not be able to pay the full pension interest to her in the instance that the total fund credit exceeded the available transfer value.
This, said the first respondent, was a clear indication that the termination charge would first have to be deducted from the pension interest together with tax, prior to payment being made to the non-member spouse.
In conclusion, the first respondent submitted that although the client services centre agent had erred in informing the complainant that there would be no penalties on the policy value, the error could not be regarded as the singular cause of the complainant’s decision to assign 100% of his pension interest in the first respondent to the non-member spouse.
The second respondent submitted that it was transparent regarding charges that would be levied. It submitted that it never acknowledged that no termination charges would be levied.
The charges were communicated to the complainant on different occasions prior to the payment of pension interest.
The divorce order stipulated that 100% of the complainant’s pension interest be assigned to the non-member spouse. On the complainant’s request, the second respondent paid her the available termination amount, which was less than the registered pension interest amount. The amount paid to the non-member spouse was calculated in terms of the definition of “pension interest” as defined in section 1 of the Divorce Act, 70 of 1979 (“Divorce Act”). The pension interest as at the date of divorce amounted to R253 520.18. This exceeded the termination value of the policy. The termination value on the date the complainant applied for payment amounted to R216 991.07.
This amount, after tax of R39 058.40 had been paid to the Receiver of Revenue, was transferred to the non-member spouse.
The second respondent said the complainant was informed that if the pension interest amount exceeded the policy’s termination value, the second respondent would not pay more than the termination value. This was an indication that there could be a charge applicable with the payment of pension interest. The complainant never queried this.
In her determination, Ms Lukhaimane said she had engaged the services of an independent actuary to assess the causal event charge imposed by the second respondent. The actuary found that the causal event charge of R37 458.15 levied on the complainant’s policy value was within the permissible limits.
With regard to the complainant asserting he had not been informed of the causal event charge, Ms Lukhaimane said the first respondent had acted unlawfully in providing the complainant with incorrect information that a causal event charge would not be levied on the policy.
However, in the first respondent’s favour, Ms Lukhaimane said one of the steps taken by the first respondent to guard against incorrect information that may occasionally be issued by its client services department was to ensure that in addition to information dispatched from the department, members were also provided with policy documents explaining in simple terms, what would happen in the event of the premature termination or amendment of the policy.
“This ensures that in the event that members are provided with incorrect information by the client services department, they are able to verify the veracity thereof by reading the policy document and apprising the first respondent in the event that they still need further clarity.
“Members also have the option of contacting their intermediary or broker to obtain information in the event that they are not satisfied with the contents of the policy document or the information provided by the client services department.
“The complainant was previously provided with policy documents which indicated that an alteration fee would be imposed in the event of the premature termination of the policy.
“On his version, he was aware that the early termination of the policy might attract a causal event charge, which caused him to contact the first respondent to enquire on this. Therefore, the complainant was, at the very least, aware of the provisions of the policy that provided for the imposition of the causal event charge in the event of the early termination of the policy.
“Therefore, while the first respondent acted unlawfully in providing the complainant with incorrect information, it took reasonable steps to guard against the occurrence of this.
“Therefore, it did not act negligently in providing the complainant with incorrect information.
“In the result, the complainant cannot succeed in claiming damages for the incorrect information provided to him and the causal event charge levied on the policy cannot be reversed on this ground,” Ms Lukhaimane ruled.
In terms of the submission by the complainant that he never requested for his membership to be terminated, Ms Lukhaimane agreed with the respondents that the fact that he requested that 100% of his pension interest be assigned and paid to the non-member spouse had the effect of terminating the policy as it no longer had value after the payment of his pension interest.
Ms Lukhaimane sounded a warning to members that they must ensure they are aware of the implications of any instructions that insurers implement on their behalf.
In dismissing the complaint, she said: “In this instance, an act meant to satisfy the division of matrimonial property ended being quite costly for the complainant.”
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