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PFA Ruling: Fund Administrator held liable

14 February 2008 Pension Fund Adjudicator

The Pension Funds Adjudicator has issued a landmark ruling in the matter of KANIEWSKI v GLENRAND MIB BENEFIT SERVICES (PTY) LTD (“FIRST RESPONDENT”) and KRUPP ENGINEERING PENSION FUND (“SECOND RESPONDENT”) regarding the first respondent being held liable for financial loss suffered by the member/complainant due to the first respondent’s failure to act upon the member’s/complainant’s directive or instruction to switch her investment from the conservative to the balanced portfolio of the second respondent

Facts

The facts of the matter briefly the following:

The complainant was employed by Thyssenkrupp Engineering and by virtue of her employment she became a member of the second respondent. Members of the second respondent had a right to choose their individual investment options (switches) from pre–determined classes of investment options. The first respondent who is the administrator of the second respondent was tasked with the duty to facilitate such switches.

The complainant herein alleges that she completed and submitted an investment switch from which had an express instruction to the first respondent to change her investment option from investing her funds in the conservative portfolio to investing them in a balanced portfolio. On the 01 January 2004 the first respondent provided her with a benefit statement that indicated that her investments in the second respondent were indeed as at that date in the balanced portfolio. However in 2005 which was the following year the first respondent then changed the complainant’s investment back to conservative from the balanced portfolio. The reason for the change back in 2005 was according to the first respondent due to the fact that the benefit statement that had been provided the previous year on 01 January 2004 indicating that her benefits were invested in the balanced portfolio was a typing error. The complainant asserts that the loss that she has suffered as a consequence of the first respondent’s failure to act in accordance with her directive or election amounts to a negligent or innocent misrepresentation that has caused her financial loss in the amount of R50000.00.

The first respondent denied that it had ever received instruction to vary the complainant’s initial instruction of changing her investments from the “conservative” to the “balanced” portfolio. The respondent further submits that the benefit statement sent to the complainant, which reflects her investment portfolio as being in the “balanced” portfolio as at 1 January 2004, is incorrect, a misprint as it should have reflected her investment portfolio as being invested in the “conservative” portfolio as this was her chosen portfolio. Therefore the complainant’s investments have always been invested in the “conservative” portfolio as per her instruction which was never changed. The respondent thus submits that the complainant should cease claiming that the mistake on the benefit statement gives her right to an investment in the “balanced” portfolio. With respect to the alleged misrepresentation the first respondent asserts that she has not suffered damages as her investments were always in her selected investment portfolio. Regarding the quantum of R50 000 that the complainant contends amounts to the loss that she has suffered as a result of the first respondent’s failure to implement her directive, he submits that this is a bald statement which she cannot verify.

The second respondent denies that the complainant either completed or submitted an investment switch form at the end of 2003 in terms of which she sought to move her funds from the “conservative” to the “balanced” portfolio. Thus it denies that the first or second respondent failed to give effect to the instruction. The second respondent further confirms the error in the complainant’s benefit statement as early as 1 January 2003, which it contends preceded the complainant’s alleged request for an investment portfolio switch. Therefore, it submits, the 2004 benefit statement is not evidence of the requested investment switch.

The complainant approached the Adjudicator for relief on the following terms:

· That the complainant instructed the first respondent to switch investment portfolios with effect from 1 January 2004 and that the first respondent did not and/or failed to comply with this instruction.

· That as a consequence of the first respondent’s failure to execute in terms laid out above the complainant has therefore suffered loss to her patrimony as a consequence of the first respondent’s failure to act in terms of the instruction.

Determination and reasons therefor

The Adjudicator held as follows:

· The first respondent’s denial that it received the complainant’s instructions to effect the investment switch with effect from 1 January 2004 falls to be rejected on the papers. The first respondent’s denial of receipt of these instructions is not reconcilable with the contents of the benefit statement, which it issued to the complainant on 1 January 2004, which indicated that her funds were indeed invested in the balanced portfolio.

· The second respondent’s contention that the complainant neither completed nor submitted an investment switch form at the end of 2003 also falls to be rejected. The second respondent appears to rely on certain rules in support of this contention on a procedure to be followed to effect a switch. There is nothing in the rules that provide that the procedure applicable in 2003 was a sine qua non for an application for an investment switch.

· Therefore the only conclusion on the facts is that the complainant indeed requested the investment switch as alleged.

· With respect to the quantification of the loss in the amount of R50 000.00, it was accepted that this amounts represents

§ the difference between the balanced and conservative portfolio as at 1 January 2004 in the amount of R4 053.30.

§ and the difference between the balanced and conservative portfolio as at 1 January 2005 in the amount of R29 670.27.

Relief

In the result, the order of this tribunal is as follows:

1 The first respondent is ordered to compute the complainant’s investment returns had the complainant’s funds been invested in the “balanced” portfolio over the period 1 January 2004 until 31 May 2005 and the portfolio that replaced the “balanced” portfolio as of 1 June 2005 until 31 August 2007 within 7 days of the date of this determination.

2 The first respondent is further ordered to credit and/or pay such investment returns for the benefit of the complainant, the amounts calculated in paragraph 6.1.1 above, less the amounts already credited and/or paid to the complainant within 7 days of such computation.

3 The first respondent is further ordered to pay interest on the amounts to be paid to the complainant in terms of paragraph 6.1.2 at the rate of 15.5% per annum, reckoned from when the amounts fell due until the date of final payment, within 21 days of the date of this determination.

The full determination can be read here (PDF file 68 kb)

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