The Financial Services Tribunal has dismissed another complaint by a policyholder whose retirement savings were hit – six months before his retirement date – by the Liberty Lifestyle Retirement Annuity Fund’s decision to cut his capital value by 20% and reduce his interim bonus rate from 6.25% to 5.5% a year from March 2020. (See our article, “Covid-hit property fund is not liable for members’ losses”.)
He was due to retire on 1 October 2020.
Liberty Life said it implemented the reductions as a result of the impact of the lockdown on the retail-focused Liberty Property Portfolio (LPP).
The policyholder, who joined the fund in 1989, had been invested in the LPP for 20 years.
He told the tribunal that the 20% saw his investment losing R1.05 million in value in April 2020. As a result, he switched from the LPP to the Lifestyle Secured Capital Portfolio.
In August, Liberty adjusted the LPP upwards by 6.75%, but he did not qualify for the enhancement because he had switched to the Secured Capital Portfolio.
He told the tribunal that the increase supported his contention that Liberty had acted pre-emptively when it implemented the 20% reduction on 31 March, three days into the lockdown.
“We all know that at that stage there was no loss in income or property values. The loss of rental income started happening end of May 2020. Liberty should have reduced performance and not have wiped the capital.”
The tribunal’s judgment shows that the policyholder contributed R2.64 million to the fund over 31 years. His investment value in August 2020 was R5.46m, compared with R6.34m before the capital reduction.
The policyholder complained to the PFA in June 2020 about the reductions. He also complained that:
- The reductions had been implemented without prior notification; and
- The action taken by fund was incompatible with his personal risk profile, which was conservative.
He asked the PFA to order the fund to restore his capital and instead reduce his investment income.
The PFA dismissed the complaint in November 2020. The Adjudicator concluded the applicant’s investment was subject to market volatility due to the pandemic, and the fund could not be held liable for his financial loss.
The PFA also said it could not adjudicate aspects of the complaint relating the FAIS Act, because these were beyond its jurisdiction.
The policyholder asked the tribunal to order the PFA to reconsider its determination.
Fund not negligent
But the tribunal supported the PFA’s determination, saying the applicant had failed to demonstrate any negligence or recklessness on the part of the trustees that resulted in his financial loss.
It noted that the applicant had a financial adviser when he initially bought the policy and when he switched from the LPP to the Secured Capital Portfolio.
However, in his letter to the chairperson of the tribunal, he says, “I was advised to change my investment to the conservative ‘Secure Capital’ option …”, without saying by whom he was advised, and later states, “Remember, it was on their [Liberty’s] advice to park the money in the secure portfolio!”
He also stated: “Volatility of 20% falls outside of the mandate of a conservative investment” and “My mandate to Liberty was that of a conservative investor, and I have the letter from Liberty stating this to be as such an investment.”
It seems from the tribunal’s judgment that the applicant, either during the hearing or in a different communication, described the LPP as a “moderate” investment, which did not suit his conservative investment profile. (The LPP’s current brochure says it is a moderate investment.)
As the tribunal pointed out, it did not have to entertain aspects of the complaint relating to financial product suitability and the rendering of ongoing financial advice, because these fell outside the PFA’s jurisdiction.
The tribunal noted the applicant’s complaint that he and other investors who were soon to retire had been informed some 32 days after the implementation of the reduction. He said the investors would have been in a better position to make an informed decision about their investment if they had been informed beforehand.
The tribunal’s judgment does not express an opinion on this issue.