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Some interesting rulings

12 October 2005 Angelo Coppola

In four of the matters, the parties had reached settlement agreements, therefore, it was unnecessary for the adjudicator to issue formal determinations. In the other 10 matters, formal determinations were issued.

We publish the executive summary on the rulings in the format in which we received them, to avoid any errors creeping in.

In Africa, on ceasing contributions to the Professional Provident Society Retirement Annuity Fund due to financial constraints, the complainant was advised by Sanlam, that his fund value had been reduced to zero resulting in the lapsing of the underlying policy.

The complaint was that having contributed a total of R22, 225.84 to the fund, he received nothing. The respondents contended that when a member ceases contributions, a premium termination fee is payable.

The premium termination fee in this instance exceeded the balance in the complainant’s investment account resulting in the lapsing of his policy. The adjudicator found that there was no authority either in the rules or the policy documents to deduct a premium cessation fee.

Sanlam was accordingly ordered to reinstate the complainant’s policy retrospectively from the date of lapsing. The fund and/or Sanlam were further ordered to credit the complainant’s investment account in the fund with R22 360.88 that was deducted (plus interest) on reinstatement of the policy.

In Owen, the complainant elected to retire early from Lifestyle Retirement Annuity Fund due to financial constraints. On his retirement Liberty Life deducted a withdrawal charge of R24 818.51 from his contributions in the investment account.

Liberty Life contended that in terms of the policy document it was entitled to deduct an amount for expenses which had already been incurred in respect of the policy but which would now not be recovered due to premature termination of the policy.

The Adjudicator found that there was no authority in the rules or the policy documents to make a deduction for ‘unrecouped’ expenses.

The fund was therefore ordered to recalculate the retirement benefit which the complainant would have received had the deduction not been made and to transfer that amount less any payments and/or permitted deductions to the complainant’s new investment in a linked life annuity policy.

In Dempster, the complainant is a pensioner of the SARAF administered by Old Mutual and receives a monthly annuity payment of approximately R219.00.

Due to financial reasons, she requested that she be paid out a lump sum benefit. The adjudicator found that in terms of the rules, only 1/3rd of the benefit may be taken in cash and the balance must be used to purchase a compulsory annuity for the rest her of her life. Thus, the complaint was dismissed.

In Munasur, the complainant became a member of the Central Retirement Annuity Fund in 1976. In March 1992 Sanlam Life, the underwriters to the fund, provided an illustrative maturity value of R880 200 in respect of the complainant’s underlying policies.

On 1 April 2003 the complainant elected to retire (before his chosen retirement date) and received a retirement benefit of R197 646.40 from the fund. The complainant was aggrieved at the discrepancy and requested that the fund be ordered to pay him a pro rata share of the illustrative values.

The fund stated that when the complainant advanced the maturity date of his underlying policies, an early termination fee became applicable. Regarding the illustrative values, Sanlam contended that since these were never guaranteed, the complainant was not entitled thereto.

The adjudicator found that the sections in the rules and policy documents to which the respondents referred did not authorize the deduction of an early termination fee.

With regard to the issue of the illustrative values, the adjudicator held that the fact that the values were not guaranteed and depended on actual growth rates and inflation rates was sufficiently spelt out in the policy documents.

He held that the complainant was therefore not entitled to a proportionate share of the illustrative values. The fund was ordered to recalculate the complainant’s retirement benefit had the early termination fee not been deducted.

The fund and Sanlam were ordered to transfer the recalculated benefit (plus interest) less payments already made and any permitted deductions to the complainant’s new investment with Momentum Life.

In Govender, the complainant became a member of the Universal Retirement Annuity Fund underwritten by Sage Life on 1 May 2000.

His chosen retirement age was 60 years. During November 2003 he instructed the fund to make the “policy” paid-up with effect from 1 January 2004. The fund provided him with a paid-up value of R27 891.81. The complainant turned 55 years on 26 May 2004 and received this amount as an early retirement benefit accordingly.

The complaint was that despite having paid contributions to the fund in the sum of R49 450, he received only R27 891.81. The respondents contended that a penalty of R8964.03 was chargeable on the early cessation of contributions.

In the alternative the respondents contended that the paid-up value constitutes a penalty as set out in the Conventional Penalties Act.

The adjudicator could find no authority in either the rules or the policy documents to deduct such a penalty. The adjudicator further held that since the Conventional Penalties Act contemplates an express agreement between the parties and there was no provision in either the rules or the policy documents for a charge on early cessation of contributions, the Act had no application.

The fund was ordered to calculate the amount that would have been available for the purchase of a pension had the fee not been deducted.

In Horsfield, the member paid contributions from 1990 to 2000 amounting to R18 068 to the Central Retirement Annuity Fund administered by Sanlam. A sum of R7 963 was applied to the cost of risk cover.

When he discontinued contributions the policy was made paid up, and a “policy alteration fee” of R5 264 was deducted from the balance of R14 260. The balance was further reduced by a “termination fee” of R1 483 on the member’s early retirement.

After examining the rules and policy documents the adjudicator concluded that there was no basis to charge these fees and ordered the fund to calculate the amount of the member’s benefit without the penalties and to pay the full benefit in accordance with the complainant’s election.

In van Breda, the fund, without Mr van Breda’s consent, cancelled the debit orders in terms of which he was making contributions to the fund under two different polices as it had not received the necessary tax clearance certificates from SARS for the off-shore investments.

Mr van Breda, complained about the “premium termination fees” levied by Central Retirement Annuity Fund and Sanlam in respect of the two policies, when they were made paid-up at the end of November 2003.

In total the “premium termination fees” amounted to R 25 938.09.

His total contributions to the fund were R 36 142.00. The adjudicator held that the rules of the fund and the policy documents do not provide for “premium termination fees” and he ordered that the member’s investment accounts be credited with the amounts deducted.

In Janssen, the complainant, a member of the MM retirement Annuity Fund, had made contributions totaling R19 334 to the fund. When she received a benefit statement reflecting her fund value as being R12 337, and was given an explanation for the apparent discrepancy, she switched portfolios to the money market and also reduced her monthly contributions to R400.

Subsequent thereto, she accelerated her retirement age. She was charged a fee of R7 263 for outstanding costs as well as R325 as an early cancellation fee.

The adjudicator dismissed the leg of her complaint that was based on the poor investment performance of her chosen portfolio, but set aside the charging of the early cancellation fee and the fee of R7 263 in respect of outstanding costs.

In Briedenhann the member could not afford the monthly contributions of R 1 815 she made to the Central Retirement Annuity Fund.

Sanlam advised her that they would levy a cost of R 35 049 if she reduces these contributions to R 150 per month. As at 1 March 2005, her total contributions came to R54 135.

The adjudicator found that the fund and Sanlam would not be authorized to levy the contribution reduction fees as the rules of the fund and the policy documents are silent on such imposition.

However, the adjudicator held that the relief sought by the member was not a declaratory order on a legal principle. It was rather aimed at securing advice on the proper interpretation of the rules and policy documents as regards the charging of fees.

Therefore, the adjudicator held that he cannot grant such relief as his object is to investigate actual disputes and to rule on them.

Similarly, in Wallace, Mrs. Wallace requested the adjudicator to advise her whether she and her husband would have a claim in respect of costs levied on five policies which were made paid-up five years ago when they left South Africa.

The adjudicator held that the member had not submitted a complaint as defined in the Act and as his object is to dispose of complaints and not to give advice.

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