Consumer Protection and the Regulators

Retirement Annuities are making the headlines, again, but for the wrong reasons.

The most recent determination by the Pension Fund Adjudicator (PFA) made the headlines in Personal Finance, and was followed by a similar story in Moneyweb a few days later.

In the latest finding, the PFA asked an independent actuary to calculate the penalties levied against a client for:

  1. Reducing his premium (15.5%)
  2. Making the policy paid-up (14.5%)
  3. Effecting a Section 14 transfer to another product provider (16.3%)

The total monetary value amounts to R171 684. This was reduced by nearly R50 000 after an independent actuary re-calculated the figures.

In the Personal Finance article, a spokesperson for a leading product provider is quoted as saying:

“The discussions and debates around multiple causal events have not questioned whether it is acceptable or appropriate to implement benefit reductions where there is more than one causal event.

“The debate has been around the quantum of the total benefit reduction across all causal events combined – the concern being that the total benefit reduction should not exceed the limits agreed to in the Statement of Intent agreement.”

This topic has featured regularly in our newsletters since 2009, and nothing much changed since then. It appears that the uncertainty regarding the way in which penalties are applied has yet to be clarified.

In an article we wrote in 2010, we quoted the following excerpt from a Personal Finance article:

The easing up on applying the maximum penalties more than once on a single policy, comes in the wake of the following:

  •  A determination by the then Pension Funds Adjudicator, Mamodupi Mohlala, against a product provider, which had applied the penalty more than once, exceeding the 30-percent maximum allowed, on its RA fund members
  • Jonathan Dixon, the Financial Services Board (FSB) deputy executive in charge of insurance who was involved in drawing up the industry’s Statement of Intent (SOI) on the matter, saying it was never the intention that the maximum penalties could be applied repeatedly. He says this has been made quite clear to the industry through its representative body, the Association for Savings & Investment SA (Asisa).

 Those applying the maximum penalty more than once, say they are entitled to do so because there is no limitation in the regulations on how many times it may be applied.

It would appear that this matter has still not been addressed.

In the wake of the latest finding by the Pension Fund Adjudicator, one has to ask whether this was an isolated case. The examples, quoted in Moneyweb and Personal Finance, appear to indicate the opposite.

In our article in 2010, we concluded with the following quote from Personal Finance:

By the end of 2007, the life assurance industry had paid back about R1.7 billion, directly and indirectly, to policyholders on whom they had inflicted confiscatory penalties of more than 30 percent on retirement annuity fund (RA) policies and 40 percent on life assurance endowment (investment) polices. When the payback is complete, the figure is expected to be close to R3 billion.

 The Financial Services Board (FSB) is about to ask life assurance companies for their most recent figures, up to December 2009.

Our closing comment read:

This will make for interesting reading, given that more than 4 years have elapsed.

Now nearly four years later, it appears that clarity on the application of confiscatory penalties is still sadly lacking.

Perhaps the authorities should consider an industry wide audit to determine what is happening and draft clearer guidelines. This may even lead to another “Statement of Intent” being drawn up.

Treating Customers Fairly is not only applicable to product providers and intermediaries – it is also an obligation of the regulatory authorities.

In fact, much more so, as custodians of those they are appointed to protect.



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