Transfer delays are unacceptable
During 2007 we often reported that financial advisers were experiencing difficulty in transferring their clients’ retirement annuities from one fund to another. But private savers have experienced similar difficulties. These delays should hopefully be a thing of the past as funds and fund administrators amend fund rules in line with regulations.
Less than a month into the New Year, Pension Funds Adjudicator Mamodupi Mohlala has already ruled on a claim dealing with a delayed retirement annuity transfer. Mohlala ruled in favour of the claimant in the matter of Basson versus South African Retirement Annuity Fund (first respondent), fund administrator Old Mutual (the second respondent) and Investec Investment Linked Retirement Annuity Fund (third respondent) late in January.
Others in the press have hailed this as a landmark ruling. But we tend to share Old Mutual’s view. In their official response to the ruling Old Mutual states: “We do not regard this determination as landmark as it is premised on well established legal principles that an innocent party, in the event of negligent admission, should be placed in the same position he/she would have been in but not for the admission.”
Delaying tactics not acceptable
Basson had requested that the matured value on his retirement annuity be transferred to the Investec Linked Retirement Annuity fund on 1 March 2004. The request was not carried out because the first respondent determined that the rules of the fund did not allow for Section 14 transfers at the time.
It appears that even after the fund rules were amended (1 November 2004) the transfer was not completed. Basson approached the Adjudicator to force the respondents to carry out the fund transfer and to compensate him for the growth he would have benefited from had his funds been moved to the Investec Linked Retirement Annuity fund in an efficient manner. Old Mutual, as the fund administrator should have communicated to Basson that he could transfer his benefits from 1 March 2004. This fact was included in the determination. Mohlala points out that “the administrator (Old Mutual) indicated that the first respondent should have allowed the complainant to transfer his benefits on 1 March 2004 in terms of the first respondent’s rules.” In other words, Section 14 should not have been used as an excuse.
The South African Retirement Annuity Fund (Saraf) submitted to the PFA that: “it realised after some weeks that the complainant wanted to transfer his retirement funds out of the first respondent in terms of section 14 rather than using his retirement benefit to purchase an annuity with a different fund. It further pointed out that its rules did not allow for section 14 transfers at the time when the complainant requested a transfer of his retirement benefit to another fund.” Was Section 14 really a stumbling block?
Have Section 14 changes made a difference?
This case spans the legislative changes in the Pension Funds Amendment bill which allows members of retirement annuities to make Section 14 transfers of their funds to another retirement annuity fund. But even with changes to the legislation, delays similar to those highlighted in this case are common.
After the amendment was passed the debate shifted from whether transfers should be allowed or not, to whether financial advisers recommending their clients make such changes should benefit from trail fees. The debate raged between National Treasury, the Life Offices’ Association (LOA) and various financial advisor representative bodies, including LUASA, FIA, BBF and ABIB.
Toward the end of last year the situation was that Treasury and the LOA were in agreement. Trail fees on transfers between underwritten and non-underwritten RAs would be written out of the Pension Funds Amendment Bill and intermediaries would have to be content with charging clients for their advice. The LOA believes “that intermediaries who advise on such a transfer should be entitled to fair remuneration, but that the fee-for-advice model should be sufficient.” We still await the last word on the matter.
Compensation ordered
When first approached by the Adjudicator, “Old Mutual tried to resolve the matter and offered Mr Basson compensation.” Old Mutual points out that Basson was offered R12 558.98 in June 2005 – and an improved offer of R13 388.40 in March 2007. Each of these offers was rejected by the claimant and the claim had to run its course.
In determining the award, the PFA requested the Investec Linked Retirement Annuity fund to determine a fair value for Basson’s funds. Investec indicated that had Basson been allowed to transfer his matured retirement annuity of R8 235.44 on 1 March 2004 the amount would have grown to R12 755.69 by 15 December 2005, the date on which Basson withdrew from the Investec Linked Retirement Annuity Fund.
Mohlala thus ordered Saraf and Old Mutual to pay Basson the amount of R12 755.69 (being the original amount plus growth in the Investec Linked Retirement Annuity fund) and interest on that amount from March 1, 2004 until date of payment at 15.5% per annum.
Editor’s thoughts: There have been a number of regulatory rulings in the first part of 2008. The FAIS Ombud determination against JDG Trading (Barretts) and the Pension Fund Adjudicator ruling against Old Mutual discussed today leaves some nagging question. How many individuals have accepted decisions to prevent transfers where the transfer should have been allowed? Send your thoughts to [email protected] – or submit them below.
PS: To read Old Mutual’s full response click here
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