Causal Event Charges Back in the Spotlight

The latest determination by the Pension Fund Adjudicator (PFA) brought the levying of penalties on retirement annuities, when changes are effected, to the fore again.

I was unable to obtain a copy of the actual determination, but extracted the following information from articles in Personal Finance and on News24:

  • In 2011, the client asked Liberty whether or not there would be penalties if she were to make her RA paid-up or transfer it to another fund. Liberty informed Ms M that there would be no penalties.
  • She then sent a request to Liberty to make her RA policy paid-up. Liberty did not adhere to the request and continued collecting premiums. In January 2013, the client noticed that deductions were still going off, and advised Liberty of the error.
  • The RA was made paid-up, but a causal event charge of R16 758.92 (20.92% of the fund value) was levied.
  • When the client queried this, “…Liberty said it was not applying a penalty but a ‘deduction of unrecouped expenses’.”
  • Liberty then offered the complainant an amount of R2 000 for poor service, but this was rejected by the client.
  • The PFA’s view on the matter is that Lliberty “is being disingenuous in its explanation of what is an unequivocal statement to the complainant that no penalties are payable”
  • Lukhaimane says Liberty was “at pains to try to distinguish the difference between penalty charges and unrecouped expenses. The reason why it is unable to do so is because there is none.”
  • Lukhaimane says that, in terms of the rules of fund, the fund was entitled to levy penalties when Ms M made the policy paid- up, but, because Liberty had told Ms M that no penalties would be applied, it could not then levy the penalties.

There is, of course, an in-depth investigation by the FSB into the practical application of the conditions of the Statement of Intent. We commented on this in an article titled FSB Directive on Causal Event Charges in October last year.

Directive 153(A((ii) (LT) was issued, setting out very clearly how causal event charges were to be calculated. These conditions are discussed in the article mentioned above.

Furthermore, the Registrar instructed product providers who previously applied Part 5 of the Regulations in a manner inconsistent with the Regulations and the guidelines provided in Directive 153, to investigate each and every contract, whether still on books or not, and to make the necessary adjustments. Details of this had to be reported to the Regulator, who would conduct an independent audit of the responses to ensure that there is not systemic non-compliance or serial errors. Where it appears that there are problems, the Regulator may call for a complete audit.

Failure to take action as instructed could lead to suspected transgressors being referred to the Enforcement Committee.

It appears that there was little uniformity in how various product houses applied the rules prior to the publication of Directive 153. This was evident from inconsistencies which came to the fore in determinations by the PFA and the FAIS Ombud.

The actions by the Regulator will ensure that all those who were wronged, will see their situations rectified, and not only those which came to the fore, often by chance.

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