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The thin edge if the wedge?

31 May 2006 Angelo Coppola

The PFA office clarifies certain issues following the offices most recent ruling concerning smoothed bonus products and surrender values.

The pension funds adjudicator issued a landmark ruling dealing with the operation of a smoothed bonus policy, in the case Mungal v Protektor Preservation Fund and Old Mutual.

According to the PFA this case involves the first ruling against a preservation fund, underwritten by an insurer, which follows the same principles as the series of rulings against the retirement annuity funds issued during the course of 2005.To read more about this click here.

We asked Karin MacKenzie, the senior assistant adjudicator three questions.

A mention was made in the ruling concerning the SOI signed by the Finance Ministry and the big life offices - is the adjudicator saying that Old Mutual mis-used the SOI for its own benefit?

A: I think the Adjudicator was rather indicating that the SOI was not relevant to the present complaint, and the fact that MLIs were dealt with in that document could not be used to sanction their application in this particular case, where it was not authorized by the rules.

2. Are we about to see another SOI for the smoothed product sector - in terms of early surrender of these policies and a settlement for people who were unfairly penalised in the past?

A: It must be remembered that the Adjudicator is not a party to the SOI. If it turns out that the unauthorized application of these penalties (MLIs) is a wide-spread practice, then substantially the same stakeholders that participated in the SOI may decide to negotiate a similar type of settlement deal if they think it appropriate.

3. So who is going to answer the questions asked by the PFA?

A: Hopefully the Registrar of Pension Funds, the Registrar of Long Term Insurance, and National Treasury.

Editors thoughts:
* The offices contention that there may be scope for another SOI is interesting.
* We asked several of the industry players to answer the questions that the PFA posed. We got some interesting comments some for the record and others not. These will be published in the next couple of days.

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