Causal Event Charges Challenged – Part I

We recently came across an example of just how loaded the dice are against clients wishing to effect section 14 transfers.

When requesting a quote for such a transfer, the client was informed that the causal event penalty would amount to R9 839.50.

Consider this: The contract is a single premium retirement annuity which incepted on 1 March 1990. The single premium was paid as an internal transfer by the life office. There was no commission paid.

Enquiries as to how the penalty was calculated, elicited the following response:

The actuarial modelling of these types of policies were set-up for premiums to be paid over the full duration of the policy term and in terms of the policy contract, for payment of the basic benefit of the policy to be made payable at vesting date.

The recovery of expenses on this policy was therefore set-up from inception 01 March 1990 based on the initial premium not to be recovered immediately, but to be recovered for full duration of the policy term (33 years) until date of vesting, 01 March 2023.

When we do a section 14 transfer, funds are therefore paid out prior to date of vesting date, for this reason therefore we recoup the rest of our outstanding expenses that can no longer be recouped. The remaining term to run is still 7 years, therefore the cost for the transfer appears excessive.

This nonsensical explanation did not satisfy the client, who responded as follows:

Unfortunately, your reply does not provide any clarity on how the amount was calculated.

Certainly, if you are able to arrive at such a specific sum, there had to be some form of calculation?

This was a single premium policy. There was therefore no “… premiums paid over the full duration of the policy term…”

It was the proceeds of pension fund contributions while employed as a representative of your company. There was no commission paid.

I fail to see what other “outstanding expenses” could amount to nearly R10 000, 26 years after the event.

Kindly furnish me with exact details of how this sum was arrived at.

The response did very little to provide the requested clarity:

Regrettably, this is one of older generation products. The charges on this product were calculated within the premium rate of the policy. The amount indicated to be deducted can therefore not be provided in a form of an itemised statement. This type of breakdown is only applicable on our much newer generation products.

Should you not accept this response you may refer the matter to our Internal Arbitrator.

Despite my nearly 40 years in the industry, I could not make sense of these explanations. What chance would a client have of understanding such gibberish?

On Monday we share with you the client’s letter to the int(f)ernal arbitrator, and its response.

It gets worse…


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