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The PFA rulings unpacked

01 August 2006 Angelo Coppola

Naleen Jeram - the deputy Pension Fund Adjudicator -says that some of the problems concerning RA funds and preservation funds rulings have raised issues that need to be addressed.

He did caution that the current spate of rulings relates to RA funds administered by life companies - the pure unit trust managed funds are not included.

The rulings uncovered several issues, including cessation prior to retirement, reduction of contributions prior to retirement, or extending the retirement age, and premium alteration fees are charged. The rules or the policy provisions are in question.

And then there was the questionable act of charging interest on the loan accounts. It appears that the under writing insurer charges interest, while minimum pension increases were another issue -there must be a minimum increase policy in place and this should be applied to all pension funds, including RA funds.

He also touched on that other well known marketing tactic, the benefit illustration agreement - a forward looking projection based on certain assumptions, since been revised by the LOA, based on best and worst case inflation numbers.

However, the outcome is the same as the member is generally disappointed and the numbers don't match.

Its continued use must be questioned says the deputy PFA, as youngsters starting work today would then require that the projection must run for at least 20 years. It is highly unlikely that any economist can project inflation rates for 20 years, or the performance of markets.

The competitive nature of RA funds was another issue. Jeram says that members should be able to directly join a RA fund. There should be option to move away from the fund, unless there is an empowering rule. The SARS input is still awaited.

Editor's thoughts:

* It's interesting that the PFA chose not to attend. I'm assuming that he was invited. One wonders why he has made himself so scarce, to the life offices and the planners and intermediaries
* The fact that the RA funds in the unit trust sector haven't been targeted yet is significant. Is there a can of worms waiting there?

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