Muvhango Lukhaimane, Pension Funds Adjudicator.
It is rather unfortunate that while a pension benefit is meant to provide for retirement, pension funds see nothing wrong in making excessive profits whilst eroding any value on the members’ part, said the Pension Funds Adjudicator.
Handing down a determination relating to causal event charges, Muvhango Lukhaimane said funds should embrace the principles of the Retail Distribution Review (RDR) which aim to do away with commission payments which are prohibitive to consumers when they want to exercise their right and terminate their policies or effect changes thereto.
AG Rubin complained that Sanlam Life Insurance Limited (second respondent) had quoted an excessive causal event charge if he transferred from the Sanlam Linked Retirement Annuity Fund to another retirement annuity fund.
The complainant said the penalty charges levied on his policy had resulted in the estimated investment amount of R2 854 132 invested since 1996 only being worth R2 974 195.00 as a termination value in September 2017, which was a marginal return in nominal terms.
He asserted that the fees and charges that he was locked into for more than two decades had devastated his investment as a retirement product.
He submitted that the first respondent and its actuaries should have known all along that the product he was sold could not produce a financial return consistent with a product designed to be a retirement product.
The complainant was also unhappy that the second respondent wanted to charge a termination penalty in the region of R307 851.
He said the levying of termination charges was inconsistent with Treating Customers Fairly (TCF) principles and constituted ‘an unreasonable post sale barrier’. He said the first respondent must allow members to exit without penalties as its product did not deliver what was promised.
ALSO READ: Pension fund rapped for ignoring ‘Treating Customers Fairly’ rule
The second respondent indicated that the complainant had not terminated the plan yet and as such no termination charge had been levied.
It explained that it received a request for the transfer of the complainant’s benefit to another retirement annuity fund.
As a result, an early-termination charge came into play and had to be calculated in terms of the applicable legislation. The termination charge of R330 701.60 as at 24 January 2018 was equal to 9.27 percent of the fund value.
Ms Lukhaimane said the second respondent provided a breakdown of the complainant’s fund value and the amount to be imposed as a causal event charge if the complainant transferred to another retirement annuity fund.
She was satisfied that the causal event to be levied for early termination of the policy was lawful and, hence, dismissed the complaint.
However, she was critical of the fact that while the complainant had been informed at the time of contracting that early termination charges would be imposed, he had no way of knowing how much those charges would be.
“The TCF principles are intended as a tool for self-regulation by the industry to measure themselves as to whether or not in doing their business they are dealing fairly with the consumer. They must provide sufficient and clear information that will enable customers to make informed choices when acquiring financial products,” she explained.
The Tribunal noted that although lawful, the actions of the respondents in this instance can hardly be described as being anywhere near the spirit of the principles.
“The fact that the complainant was not initially provided with the causal event charges on his fund value is an indication that the charges are obscure and excessive; and cannot be translated into value for members of retirement annuity funds,” she explained.
She stated that the imposition of causal event charges in instances where such information is not made apparent to members is nothing short of legalised theft.
“The fact that a settlement was reached in terms of the Statement of Intent does not in any way address the unfairness and absence of value that often accompanies the levying of causal event charges,” Ms Lukhaimane concluded.