PFA takes the bull by the horns with important determinations
Recently we have shared a few of the financial services industry’s latest determinations. These determinations brought to light the seemingly dishonest state of the financial services industry, whereby a few intermediaries and insurers were taking advantage of policyholders and were acting unethically.
And while the ruling in some of these cases are yet to be handed down, it seems as if the authorities are taking a hard stance on unethical practices in an attempt to restore the industry’s image.
Pay it back
A clear case of this is the recent determination of the Pension Funds Adjudicator (PFA) who ordered an underwriter and administrator to get its house in order and to pay back all moneys wrongfully taken from a policyholder after certain assurances were given to her.
Ms CE McDonnell complained that penalty charges were levied on her retirement annuity when she made her policy paid-up, despite Liberty Life (the second respondent) giving her a prior undertaking that no penalties would be charged if she terminated.
The complainant applied for and was accepted as member of the membership of Fedsure Retirement Annuity Fund on 1 October 1995, with the intention to remain a member until 1 October 2026. Fedsure was subsequently acquired by Capital Alliance which was also taken over by the second respondent.
On 9 May 2011, the complainant, with the assistance of her financial adviser, approached Lifestyle Retirement Annuity Fund (the first respondent) and the second respondent to enquire whether or not there would be penalties if the complainant were to make her retirement annuity paid-up or if she were to transfer the money to another fund. The respondents informed her that there would be no penalties charged.
Relying on the second respondent’s response that no penalties were going to be charged, the complainant sent a letter indicating that she was making her retirement annuity policy paid-up and that the second respondent should cease deducting premiums from her account.
The respondents failed to cancel this policy and continued to receive premiums from the complainant’s bank via a stop order. After the complainant finally got the stop order cancelled, the respondents effected termination penalties of R20 000 on the complainant’s fund value which obviously reduced the complainant’s fund value. The respondents said that when they gave McDonnell their assurances about not charging any penalties, it was in reference to surrendering policies.
The PFA did not accept this defence saying that Liberty Life was being disingenuous in its explanation of what was an unequivocal statement to the complainant that no penalties were payable.
Liberty Life was very clear when it assured McDonnell that absolutely no charges would be implemented. If it wanted to make a differentiation between surrendering policies and recovering losses, it should have done this at the start of discussions and not after the money was deducted.
The full version of the determination can be read here.
A case of double identity
There have been a number of reports uncovering fraud cases whereby false death certificates and bodies are presented to companies in order to claim pensions benefit payouts. Such a case has recently been handled by the PFA after a provident fund failed to prove that it ruled rightly in a case of mistaken identity.
When the deceased Mrs Radebe died in 1999, she had no nominated beneficiaries. In 2002, Mrs BM Radebe, the aunt, notified the respondent of a child of the deceased, by the name of GJ Radebe. She asserted she was the child’s guardian.
The aunt provided a copy of the death certificate of the deceased and a copy of the birth certificate with ID number 810114 0747 088. This birth certificate was for a female child with the names GJ Radebe.
The respondent duly paid the benefit to the aunt in monthly instalments for the child’s benefit. The benefit was to be paid until it either got exhausted or if the child completed schooling or reached majority age. The respondent then made a lumpsum payment of R129512.46 to GJ Radebe when she reached majority age.
The complainant in this case, a male also named GJ Radebe, then approached the respondent claiming that he was a child of the deceased and was entitled to a lump sum payout. He then presented the respondent with two ID numbers. One was the same as the number that the respondent made a payment to, while the other one was a completely different number.
When the respondent questioned the complainant about this, he said that he was originally allocated an ID Number which was set aside for females but the Department of Home Affairs has rectified this. The respondent felt that the complainant was taking a chance and refused to pay him.
But the PFA was not so lenient on the respondent. When the complainant approached the PFA with his complaint, the PFA clarified the case of mistaken identity with a simple phone call to Home Affairs. It added that a criminal claim had been made by a person who was not the rightful decedent of the deceased. The respondent could have clarified this by making a simple phone call to Home Affairs proving that ignorance is no excuse for unethical behaviour. The respondent was ordered to pay the complainant the amount of R129512.46.
The full version of the determination can be read here.
Important documentation merely a guideline
The case above could have been avoided if the deceased clearly named her beneficiaries in her nomination form. We have discussed this issue in a previous newsletter, highlighting the importance of this document for this very reason.
However, it must be pointed out that while important, this document is merely a guideline and other extenuating circumstances will take precedence when determining a benefit payout.
Mr LG Nsukazi who passed away on 5 March 2012 was employed by the Pixley Ka Seme Municipality and was a member of the Municipal Gratuity Fund (the first respondent). A death benefit in the amount of R407 739.37 became available for distribution to the deceased’s dependants.
According to the nomination form, the stated dependants would be compensated as follows: his mother 40%, his sister 30% and two children 15% each. However, the mother only received 1% of the death benefit. According to Sanlam other beneficiaries, who were not named on the original form, became part of the picture. In order to make up the money to be paid to these dependents, the mother had to receive a smaller payout.
This was contested with the PFA. Sanlam, however, pointed out that it took the following into consideration: the age of the dependants; the relationship with the deceased; the extent of dependency; the wishes of the deceased captured in the nomination form; and the financial affairs of the dependants including their future earning capacity potential.
Sanlam added that the deceased’s children and minor sister were all dependent on the deceased and had no earning capacity in the near future because of their tender ages. The PFA ruled that Sanlam was right in acting in the way that they did because the law says that the primary purpose of the Pension Funds Act was to protect those who were financially dependent on the deceased during his lifetime. It is also clear that the mother could possibly find new employment while the other dependents could not.
It is clear then that pension fund benefits are very rarely a clear cut issue. While one can understand that the other dependant’s had to be legally compensated, to make up this payment purely from the mother’s allocated money is a bit unfair. Yes the nomination form is merely a guideline, but it surely should hold significant weight when ruling around beneficiaries and their compensation?
The full version of the determination can be read here.
Editor’s Thoughts:
While
there are calls for industry bodies to take harsher action against companies
who knowingly participate in fraudulent activities. The PFA has shown its
intent to penalise companies and individuals who knowingly engage in fraudulent
activities. We need to remember that the PFA is in a position where a lot of death
benefit cases might not be clear cut, which can lead to some parties feeling
hard doe by at times.
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