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PFA report – Funds do not act in keeping with the spirit of the TCF

The Pension Fund Adjudicator published her annual report last week. Besides the statistics, indicators and conclusions about challenges faced, the report shares a few case studies as an illustration of these challenges. One specifically highlighted is that funds and administrators are not faring well with regards to the Treating Customers Fairly (“TCF”) outcomes.

“Members of pension funds must be kept appropriately informed before, during and after entering into contracts,” Muvhango Lukhaimane, Pension Funds Adjudicator warned. Lukhaimane said the National Treasury had introduced principles of TCF to guide the relationship between the financial industry and consumers. “TCF requires entities to measure themselves as to whether or not, in doing their business, they are dealing fairly with the consumer by, inter alia, providing them with sufficient and clear information that will enable them to make informed choices when acquiring financial products,” she said.

A case as an illustration of the point

The complainant, Mr M, was unhappy with the quantum of the withdrawal benefit paid to him following his exit from service at Municipality A.
The complainant was employed with Municipality A from 1 October 2007 to 29 February 2016.
Following his exit from service, the complainant was paid a net withdrawal benefit of R276 150.64.
The complainant initially contributed to the Government Employees Pension Fund (GEPF) for 26 years and 9 months before his fund value was transferred to the Municipal Employees Pension Fund.
According to the Municipal Employees Pension Fund, the transfer value bought 17 years and 3 months of service for the complainant and at the time of his resignation, the complainant had 20 years and 3 months total service in the fund.
The Municipal Employees Pension Fund provided an actuarial computation for the purchase of the complainant’s past service and a computation of the withdrawal benefit paid which reflects the complainant’s pensionable service and final pensionable salary.

Although the Pension Funds Adjudicator agreed with the Municipal Employees Pension Fund’s explanation for the reduced amount that was paid to the complainant, she was critical that they failed to inform the complainant that the transfer value was used to purchase the additional pensionable service from the GEPF.

“The issue should have been disclosed to the complainant when he joined the first respondent so that he understands that at the point of exit it won’t simply be added to his withdrawal benefit,” she explained. “The fund had a duty to provide the complainant with relevant information relating to his benefits.”

As a result, the fund contravened the principles of Treating Customers Fairly by failing to disclose relevant information that affects a member’s fund value. “However, the fund subsequently explained the pensionable service purchased with the transfer value and provided a computation thereof,” said Lukhaimane and dismissed the complaint.

She further illustrates the adherence to TCF principles through other educational case studies. “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”.

FSPs should at all times, strive to meet the 6 TCF outcomes.

It is of the utmost importance to note that your approach to TCF is not measured by complying with the contents of a checklist. You are required to demonstrate your commitment through your actions, which includes getting the buy-in from everyone in the business, how you handle complaints etcetera.

The old idiom “Caesar’s wife must be above suspicion” is appropriate in this instance. You must not only be seen to be treating your customers fairly, but they must also actually experience it as such.

Click here to download the educational case studies.

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