PFA: Complaint dismissed as underwriter cannot be blamed

The Office of the Pension Funds Adjudicator has dismissed a complaint concerning investment returns that were supposedly “below the inflation rate” after an independent actuary had found that the yield was in fact higher than the inflation rate.

Also, the complainant had not made any allowances for taxation and administration of  the policy.

The complainant M H Stocks was unhappy with the poor investment returns achieved by the underlying policy of MM Retirement Annuity Fund (first respondent), underwritten by Momentum Group Ltd (second respondent).

On 25 August 1985, the complainant applied for membership of the Enemelay Retirement Annuity Fund and the then trustees applied for a fund member policy to provide the benefits with National Mutual Life of Australasia (NMLA).

NMLA subsequently amalgamated with Sage Life Ltd which administered the policy in terms of the memorandum of agreement between the two companies. Sage Life subsequently merged with the second respondent in 2005 and the policy continued to be administered under the Enemelay Rules until it became subject to the first respondent when the policies were transferred under section 14 of the Act and the Enemelay Fund was deregistered.

The complainant contributed a single premium of R8 643.18 which was a withdrawal benefit from the AFC Group Pension Fund. On 1 January 2007 the complainant elected to transfer his benefit to Allan Gray (Pty) Ltd and an amount of R75 584 was transferred.

The complainant submitted that since paying the single premium of R8643. 18 in 1985, the policy paid out R77 681.58 on 21 January 2007. The complainant claimed that according to his information, the average annual return of his investment was 9.87% which was 1.23% below inflation.

The second respondent claimed the Fidelis bonus system in which the complainant had invested was unique in the South African investment market as it had a high guaranteed return and the bonuses once declared were payable in addition to the Guaranteed Capital Value.

This type of bonus gave very high security and could not be compared to different portfolios of investments in which the member took the full investment risk. The risk portfolios were different and, therefore, the comparison was inequitable.

The second respondent submitted one could not expect high returns on this type of investment and the rates determined were not as a result of poor performance of the investment managers or the second respondent. The actuaries determined what rates the fund could support.

Further, the complainant had not made allowances for retirement fund taxation, or management expenses, the need for a reserve account or allowances for the guarantees.

The second respondent added that the complainant’s calculation of the average investment return on the fund was flawed as it was based on the gross investment. The correct return over the period in which the complainant was invested was 11.1% per annum compound. The bonus rates declared were appropriate to the product and the market conditions prevailing.

The Office of the Pension Funds Adjudicator employed the services of an independent actuary who found that the complainant’s calculations were not correct as he had claimed the period of his investment to be 268 months whereas it was only 257 months.

The actuary submitted that the consumer price index (CPI or rate of inflation) was 13.2 as at 1 September 1985 and 86.4 as at 31 January 2007. This worked out at an annual rate of 9.17% per annum and not the 11.1% claimed.

Also, the complainant has not made any allowances for the costs of running the policy.

The actuary added that if the CPI rates were applied to the complainant’s initial investment, this would produce a maturity value of R56 573.54, which was well below the figure actually paid.

The actuary also submitted that even if the asset managers had performed below the performance of their peers, this was not a cause for complaint.

The acting Pension Funds Adjudicator Dr Elmarie de la Rey said no fault could be attributed to the second respondent.

“The perceived under-performance of the investment can only be attributed to the type of product in which the complainant was invested,” she said, thereby dismissing the complaint.