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The adjudicator issued another 23 rulings involving RA Funds and the insurers involved

18 November 2005 Angelo Coppola

The adjudicator issued another 23 rulings involving RA Funds and the insurers involved yesterday (17 November).

This brings the total number of RA rulings issued this year to 103. In 6 of the matters it was unnecessary for the adjudicator to issue a formal determination as the parties had reached settlement agreements. In the other 17 complaints, the adjudicator issued formal rulings.

FAIR

In Fair, the complainant is a member of the Central Retirement Annuity Fund which is administered and underwritten by Sanlam Life. The complainant stated that since he was not permitted to change the investment of the underlying policy, he decided, on the advice of an independent broker, to stop making contributions, thus making the policy ‘paid-up’ with effect from 1 March 2003.

The complainant was aggrieved firstly that he was not permitted to change the investment of his underlying policy and secondly with the fees that were charged when he made the policy paid-up. The fund stated that the since June 2001 a wide selection of investment funds had in fact been made available to members. Therefore the complainant had no claim on this score.

With regard to the second grievance, the fund stated that a ‘premium termination fee’ of R27 215.40 became payable when the complainant ceased contributions.

The adjudicator found that there was no authority either in the rules or the policy document to deduct a premium termination fee and ordered the respondents to credit the complainant’s investment account with the fee.

With respect to the other leg of the complaint, it became apparent that when the complainant referred to changing the investment of his policy, he in fact meant changing his investment in the Central Retirement Annuity Fund. Since the rules of the fund do not make provision for a member to transfer to another fund prior to the retirement date, the adjudicator found that the fund could not lawfully permit the complainant to transfer to another fund.

He added however that, in his view, this is an undesirable business practice as it forces members of the fund to remain members even when investment returns (or investment strategy) are much poorer than in other retirement funds.

He suggested that the complainant consider taking the matter up with the Competition Commission.

Lange

In Lange, the complainant became a member of the Central Retirement Annuity Fund (“the fund”) with effect from 1 November 1986. On 1 November 2004 the complainant was due to retire. He elected to receive the one-third cash lump sum and with the balance of R35 736.85, a fixed pension of R324.01 per month.

However he thereafter decided to postpone his retirement to 1 March 2005. On that date the fixed pension of R36 277.92 gave him a monthly pension of R298.76 as opposed to R324.01.

The complainant queried the discrepancy. He also queried the annuity rates which were used in the calculation.

The adjudicator accepted the fund’s contention that a decrease in the interest rate explained why R35 736.85 in November 2004 fetched a greater monthly pension than what R36 277.92 fetched in March 2005.

With regard to the annuity rates, the adjudicator stated that these are not arbitrarily determined but based on a formula that must be approved by the statutory actuary. The complaint was accordingly dismissed.

Deenadayalu

In Deenadayalu, the complainant is a member of the Lifestyle Retirement Annuity Fund. On 1 April 2004 when he reduced his monthly contribution from R1925 to R825, his fund value was reduced by R10 955.84 (from R46 500 as at 26 February 2005 to R35 544.16 as at 30 April 2005).

The complainant contended that the policy document only provided for a monthly fee equal to a percentage of the premiums paid and that the fee of R10 955.84 was unrelated to the premiums paid. Liberty Life, the administrator and underwriter of the fund, argued that when a member ceases contributions prematurely, it is entitled to recoup the initial expenses incurred in respect of the policy by deducting a premium reduction fee.

The adjudicator held that the only charges authorized by the policy document were the ongoing monthly charges expressed, in the main, as a percentage of the monthly contribution. The respondents were accordingly ordered to reimburse the complainant with the premium reduction fee that had been deducted.

Zietsman

In Zietsman, the complainant was a member of the Professional Provident Society Retirement Annuity Fund. When he became dissatisfied with the performance of the PPS fund, he requested Sanlam Life the administrator and underwriter of the fund, to cancel the policy and reimburse his contributions of R23 000.

The adjudicator agreed with the respondents’ contention that the fund was not permitted in terms of either the Income Tax Act or its rules to cancel the complainant’s membership of the fund and to refund his contributions. He went on to say that while the Income Tax Act contemplates the transfer from one retirement annuity fund to another, in the absence of such a provision in the rules of the PPS fund, the complainant did not have this option.

He added however that the complainant may consider approaching the Competition Commission on an allegation of anti-competitive behaviour by the fund in locking members in it even if returns are poor.

Botha

In Botha, the member commenced contributing to the PPS RA Fund in 1983 at R101 per month, escalating each year at the rate of inflation. He elected to retire in 2002, three years earlier than his elected retirement date. He had contributed R69 417 to the fund by 2002. It was quoted by the fund that his fund value would be R328 197 when he retired in 2005. In 2002 this value had decreased to R 173 603.

He was paid a lump sum of R57867 and a monthly pension of R 1124.

The adjudicator found that the fund had levied costs of R46 491 and that the fund had no right to make the deduction in view of the rules of the fund and provisions of the policy documents. The adjudicator also found that any loss in respect of the fund’s poor investment performance was for the account of the member as he had invested in market related portfolios.

Steyn

In Steyn, the complainant became a member of the Central Retirement Annuity Fund with effect from 1 March 2002. In 2004 the complainant’s employer was liquidated and he was unemployed from 1 July 2004. For that reason he was unable to continue paying contributions and accordingly requested that the underlying policy be made paid up with effect from 1 October 2004.

His complaint was that despite having paid contributions of R15 500, the value of his investment account in the fund had been reduced to R5 398.41 when he made the policy paid-up.

The adjudicator held that there was no authority in the rules or the policy document to deduct a premium termination fee. The respondents were ordered to credit the complainant’s investment account with the premium termination fee that was deducted.

Kirsten

In Kirsten, the complainant, a member of the Central RAF was dissatisfied with the “premium termination fee” which was charged by the insurer, Sanlam, when he ceased contributing to the fund in December 2004. The adjudicator concluded that the fund and/or the insurer had no right, in terms of the rules and policy, to deduct R7 320.77 as a “premium termination fee”.

The fund and the insurer were ordered to credit the complainant’s investment account in the fund with that amount.

Munasur

In Munasur, the complainant was a member of the South African Retirement Annuity Fund. During 2003, on account of ill-health the complainant was unable to continue paying contributions and requested the fund to pay him an early retirement benefit. He received a benefit of R79 609.23. The complaint was that benefit was ‘grossly undervalued’.

The complainant requested a benefit based on the return on investment he contended he should have received. It transpired from the underwriter, Old Mutual, that a benefit reduction fee had been applied to the complainant’s benefit on account of his early retirement due to ill-health.

In so far as the benefit reduction fee was concerned, the adjudicator held that the rules and policy provisions do not authorize such a fee and the fund was ordered to recalculate the benefit as if the fee had not been imposed. However the adjudicator held that the better return on investment which the complainant may have earned elsewhere was irrelevant.

The adjudicator pointed out that the nature of the complainant’s investment in the fund was such that he bore the investment risk. This meant that while he would benefit in times of favourable market conditions, he would bear the brunt of unfavourable market conditions.

Gird

In Gird, a member of PPS RA Fund had reduced his recurring contributions from R3000 to R750. A premium reduction fee of R9271.03 had been imposed by the fund’s administrator, Sanlam.

Finding that neither the rules, nor the policy document provided for the charging of a “premium reduction fee”, the adjudicator ordered the fund and the administrator to credit the complainant’s account with the amount.

Mawa

In Mawa, subsequent to lodging a complaint challenging the repudiation of his claim for a disability benefit by the Metropolitan Retirement Annuity Fund, the complainant entered into a settlement agreement with the fund and the insurer in terms of which he was offered and paid R2 500 in full and final settlement of any present and future claims against the respondents.

The Adjudicator held that the complainant was bound by the settlement agreement, and accordingly dismissed the complaint.

In Martin, when the complainant ceased making contributions to the Lifestyle Retirement Annuity Fund after having made recurring contributions of R3 300, the administrator “lapsed” his policy on the basis that the outstanding expenses (R3 400.51) exceeded the full investment value (R2 375.09).

Finding that the accelerated recovery of unrecouped expenses upon the cessation of contributions was not authorized by the rules and the policy document, the Adjudicator ordered the administrator to reinstate the policy, and both it and the fund to credit the complainant’s investment account with R2 375.09.

Fredericks

In Fredericks the complainant joined SARAF on 1 September 1996. The complainant commenced receiving a retirement benefit of R105.60 from 1 October 2000. The complainant was dissatisfied with the monthly pension and wanted her pension to be paid as a cash lump-sum.

The Adjudicator concluded, after examining the rules and the Income Tax Act, that she was not entitled to commute the full amount of the benefit.

Low

In Low, the complainant joined SARAF on 1 October 1977. In terms of the policy the complainant elected as his retirement date 1 April 2013 (“policy A”). On 1 April 1978 the complainant commenced making additional contributions. In terms this second policy he elected to retire on 1 April 2018 (“policy B”).

In February 2005 the fund values were R72 617.75 and R109 631.57 respectively. The complainant wanted to change his retirement date on both policies to 1 April 2005. He was however advised by the fund, through his broker that his policy values on policy A and B will reduce to R58 206.60 and R75 785.21 respectively.

The adjudicator after examining the rules and the underlying policy concluded that the policy does allow for the member to change his retirement age provided it is not in conflict with the Income Tax Act. The adjudicator also concluded that the policy does not specify what charges if any may be charged.

Because the complainant did not instruct the fund/insurer to change his retirement date; the insurer has not charged the fee. The adjudicator said that the function of this Tribunal is to investigate and determine actual complaints. Therefore, the complaint was dismissed.

Theron

In Theron, the member commenced contributing to the Lifestyle Retirement Annuity Fund on 1 July 2003 at R 250 per month. He decided to advance his selected retirement date by 20 months and was quoted to receive a benefit of R4 830 as at 9 February 2005.

Instead he received R2 184 after he had also paid tax of R665. Therefore he received R 1980 less than what he expected to receive. The fund responded that the actual costs that it was meant to deduct came to R3448 in view of Mr Theron retiring earlier than his selected retirement date, but that it would deduct an amount of R 1981 (only) from the investment value to cover the numerous costs endured on the policy.

The adjudicator found that the fund and Liberty had no right to make the deduction of R 1981 as it was not sanctioned in the fund rules nor in the policy documents and ordered the respondents to recalculate the benefit as if the fee had not been deducted.

Engelbrecht

In Engelbrecht, in 1989, the member commenced contributing R100 per month, escalating each year at the rate of inflation to the Central RA Fund, at which time it was estimated that his fund value would be R 35 164 in 2004. When he retired in 2004, the fund value was R 36 301 and this was paid to him in a lump sum of R 12 100 and the balance is being utilized to pay him a monthly pension of R 219.

The insurer had also imposed a policy termination fee of R 8 065.01 in light of the complainant retiring 5 years earlier than the date initially selected by him. The complainant was unhappy about the low monthly pension and questions why the value of the benefit did not increase along with the increase in contributions. He asked that the two-thirds being used to pay him a pension be paid to him in cash.

The adjudicator dismissed his request to be paid the two-thirds of the benefit due to such payment not being authorized in the rules of the fund. Regarding, the policy termination fee, the adjudicator concluded that the rules or the policy provisions do not authorize such a fee and the fund was ordered to recalculate the benefit as if the fee had not been deducted.

Martin

In Martin, the complainant, a member of the PPS Retirement Annuity Fund, terminated his contributions to the fund after having made recurring contributions totaling R24 044.44. The insurer levied a “premium termination adjustment” of R5 990.96, which the Adjudicator declared to be unauthorized by either the rules or the policy document, and ordered that it be credited to the complainant’s investment account.

Ridgard

In Ridgard, the complainant became a member of the Central Retirement Annuity Fund on 1 June 1990. She retired on 1 June 2005 and became entitled to a pension of R1 808.13 per month using the full proceeds of her benefit. Her complaint was that this was almost exactly half of the pension quoted to her when she joined the fund.

The adjudicator accepted the argument of the administering insurer, Sanlam Life, that the illustrative values provided to the complainant when she joined the fund were not guaranteed and depended on bonus rates declared and the rate of inflation.

The adjudicator was furthermore satisfied that the complainant had been adequately informed in this regard. The adjudicator also noted that the complainant received a greater maturity value than that quoted to her 5 years before she retired. The adjudicator also took into account that the complainant had reduced her contribution rate at some point which could have affected the benefit she received.

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