Stop disguising life policies as RAs - PFA

Pension Funds Adjudicator Muvhango Lukhaimane

Muvhango Lukhaimane said she had been informed by retirement annuity funds and their administrators that these are "old style policies" are no longer being sold.

"For as long as these types of products remain in the market, members' retirement aspirations will continue to be undermined, whilst the industry's image remains tarnished," she said, adding the situation can be reversed if the retirement funds industry placed the needs of members first.

Lukhaimane was commenting in a determination after receiving a complaint from a member who was under the impression that she would be paid a "guaranteed amount" of R34,753, but in fact was only paid a retirement value of R2,167.95.

The woman (name withheld) of Bloemfontein complained about how her retirement annuity's maturity value was computed by Lifestyle Retirement Annuity Fund (first respondent) and Liberty Life Ltd (second respondent).

The complainant joined the Meestertrust Fund, a retirement annuity fund administered by Rentmeester Insurance (Pty) Ltd on 1 October 1988 with the intention to remain a member until 1 October 2011, a period of 23 years.

Rentmeester was subsequently acquired by the second respondent. Following the acquisition of Rentmeester, the Meestertrust Fund was amalgamated into the first respondent with effect from 1 March 2007.

Terms and conditions remained unchanged

The retirement annuity policy purchased by the first respondent on behalf of the complainant incorporated a guaranteed life cover until 1 October 2011 for an amount of R34,753.00. The premiums comprised of a fixed amount of R30 per month. When the Meestertrust Fund was amalgamated into the first respondent, the terms and conditions of the complainant's policy remained unchanged.

When the policy matured, the complainant was paid a retirement value of R2,167.95.

The complainant was aggrieved that she was not paid the guaranteed amount of R34,753 and said she was "misled" into buying an endowment policy whereas she intended to acquire a guaranteed retirement annuity policy that would pay her R34,753 on maturity.

She submitted that on maturity, she approached the second respondent for payment of the guaranteed amount, only to be informed that the guaranteed amount was only payable if she had died before retirement.

She added that if the second respondent had made a mistake and sold her the wrong product, she should not be prejudiced by it.

The respondents submitted that the policy was universally costed with a recurring contribution of R30 per month. The investment link selected was the smoothed bonus. They said there was no mistake about the type of product that she had acquired, which was a retirement annuity fund and not an endowment fund.

They submitted that there was also no misrepresentation by the second respondent as the complainant got the product that she applied for which was a retirement annuity.

The respondents said the policy was universally costed which meant that the premium was to cover both the retirement annuity and the life cover.

They submitted further that as the complainant grew older, the premiums rate for the life cover increased and exceeded the premiums paid. When the policy matured the complainant was paid the correct retirement value in terms of the first respondent's rules.

Lukhaimane said the issue for determination was whether or not the complainant's maturity value was correctly computed in terms of the first respondent's rules and the policy document.

Gist of the complaint

"Regardless of the type of policy that the complainant signed for, the gist of the complaint is not about the type of policy but content of the agreement.

"The complainant's submission is that what she understood by a guaranteed amount for the premiums that she was paying, is that she was securing for herself a guaranteed amount of R34,753.00 as a retirement value.

"The respondent submits to the contrary that what the complainant signed for, was that the guaranteed amount was only payable on death before maturity as per the benefits stipulated in the policy.

"They submitted that as the investment value was not guaranteed but was determined by the actuary.

"In essence the product that the complainant acquired was predominantly a life policy with a residual retirement fund value.

"This is apparent from the respondents' submission when they indicate that as the complainant grew older, the premiums she was paying were no longer sufficient to meet the increased life premiums and the retirement value was utilised to sustain the life policy."

Lukhaimane said the rules of a fund were supreme and binding on its officials, members, shareholders and beneficiaries and anyone so claiming from the fund.

The Office of the Pension Funds Adjudicator took the liberty of consulting an independent actuary to verify whether the investment value accords with accepted actuarial principles. The actuary confirmed that the investment value was in accordance with accepted actuarial values.

In dismissing the complaint, Lukhaimane said: "This Tribunal is satisfied that the complainant was paid in accordance with the rules of the first respondent.

However, she added that the Office of the Pension Funds Adjudicator also took cognisance of the fact that even though the complainant was paid in terms of the rules and the policy document, the product that was sold to the complainant was patently flawed.

"It was a life policy disguised as a retirement annuity. That is the reason why it had to feed off the investment value of the retirement annuity to sustain itself.

"This was also noted by our independent actuary who commented that 'the policy certainly looks odd', without disputing how the investment value was arrived at.

"This Tribunal has been informed on numerous occasions by retirement annuity funds and their administrators that these are old style policies that are no longer being issued.

"The current complaint demonstrates that for as long as these types of products remain in the market, members' retirement aspirations will continue to be undermined, whilst the industry's image remains tarnished, which situation can be reversed if the participants in the latter are willing and place the needs of the members first," said Lukhaimane.