Vuyani Ngalwana, the Pension Funds Adjudicator, has issued a spate of rulings - 77 in total - involving retirement annuity (RA) funds. In many of these cases, Ngalwana ruled against the funds for charging their members penalty fees when they stopped or reduced their contributions to the funds. He found against the funds and their administrating life assurance companies on the basis that these penalties were not disclosed to members in either the funds' rules or the policy documents. Following the rulings, the adjudicator's office has received numerous inquiries from members of RA funds about the information they should seek from their funds. The adjudicator has compiled a set of questions as a guide to RA fund members who wish to know more about their rights and who may want to lodge a complaint against their fund. The full text of the letter, which requests the information that you need about how your fund is managed, is reproduced below. The letter, entitled "Complaints guidelines", may be downloaded in one of the 11 official languages from the Publications section of the adjudicator's website, wwwpfa.org.za
Information members of RA funds must seek from the board of management before lodging an RA fund complaint with the adjudicator
Kindly advise on the following:
1. Is any commission payable by me or from my investment or in any other way to any person or financial institution or financial adviser or broker by reason of my increasing my contributions to the fund every year?
2. If so, what is the basis for the commission? Please point me to a specific provision in the rules of the fund or in the policy documents (that I either signed or were previously brought to my attention - with written proof of your communication thereof to me) that provides for payment of commission every time contributions are increased.
3. In the event of my refusal to agree to such an increase, would any commission nonetheless be payable by me from my investment or in any other way to any person on the anniversary date of my membership or of the underlying policy?
4. If so, what would be the basis for such a commission? Please point me to a specific provision in the rules of the fund or in the policy documents (that I either signed or were previously brought to my attention - with written proof of your communication thereof to me) that provides for payment of commission in those circumstances.
5. Are there any costs payable by me or from my investment or in any other way to any person or institution or company or society by reason of this increase in my contributions?
6. If so, what is the basis for such costs and how are they calculated? Please point me to a specific provision in the rules of the fund or in the policy documents (those that I either signed or were previously brought to my attention - with written proof of your communication thereof to me) that provides for payment of such costs every time contributions are increased.
7. In the event of my refusal to agree to such an increase in contributions, would such costs nevertheless be payable by me or from my investment or in any other way to any person or institution of company or society?
8. If so, what would be the basis for such costs? Please point me to a specific provision in the rules of the fund or in the policy documents (that I either signed or were previously brought to my attention - with written proof of your communication thereof to me) that provides for payment of costs in those circumstances.
9. I want to transfer from this fund to another retirement annuity fund of my choice which is not underwritten and administered by (name of life insurer) as paragraph 6 of Schedule 2 to the Income Tax Act allows me to do free of any income tax implications. The reason for such transfer is that I am unhappy with (name of life insurer's) administration of the fund and I believe I shall be paying much less by way of costs in the fund to which I wish to transfer. Kindly advise on the following:
9.1. Are there any costs that will be levied on me or my investment value or in any other way if I make the transfer?
9.2. If so, what are those costs and how are they calculated? Kindly point me to a specific provision in the rules of the fund or policy documents (that I signed or were previously communicated to me, with written proof of such communication) that provides for the levying of such costs upon transfer.
9.3. Do the rules of the fund expressly forbid transfer from it to another approved (by the Receiver of Revenue) retirement annuity fund? If so, please point me to a specific rule in this regard.
9.4. If I were to stop making further contributions to this fund, are there any costs or charges or penalties that would be levied on me or my investment value or in any other way?
9.5. If so, please point me to a specific provision in the rules of the fund or policy documents (signed by me or previously brought to my attention with written proof of such communication thereof to me) that authorises the levying of such costs or charges or penalties.
9.6. By whom are these costs, charges or penalties (if any) to be levied and for whose benefit are they to be levied? Are they to be levied by and for the benefit of the fund or (name of life insurer)? Please point me to a provision in the rules or policy documents that authorises the levying of such costs or charges or penalty for the benefit of such company or the fund as the case may be.
9.7. Kindly furnish me with copies of all policy documents that relate to my membership of this fund and my investment in any underlying policy with (name of life insurer) or any other institution in which my contributions to this fund may be invested.
10. My retirement age is reflected as (state normal retirement age) in the rules and/or policy documents. May I change my retirement age in this retirement annuity fund from (chosen retirement age) to (state the retirement age to which you wish to change between 55 and 70) without incurring any costs or charges or penalties? If costs or charges or penalties are to be incurred for such change, please point me to a specific provision in the rules or policy documents signed by me or previously furnished to me (with written proof of such communication to me) which provides for the charging of such costs or penalties in these circumstances.
11. Kindly provide me with a clear breakdown of all costs or expenses or charges or fees or penalties of any kind debited to my investment account or deducted from my contributions from the date of the first contribution to date. Also refer me to the relevant rules or policy provisions authorising such deductions.
12. Kindly also advise me of the total contributions I have made to the RA fund to date, showing clearly how much of these go toward funding retirement, disability, death and other benefits, if any, on a monthly basis.
13. Kindly advise whether upon my joining this RA fund, the underwriting insurer incurred a series of upfront expenses which are to be recovered from my contributions or investment value over the term of the underlying policy. If so,
13.1. Kindly provide me with a full breakdown of these costs and the manner of intended recovery.
13.2. Kindly also advise whether the deduction of these costs has been authorised either in the rules of the fund or in the policy provisions.
13.3. Kindly also advise what the total amount of these upfront costs payable over the term of the policy or until retirement age will be.
13.4. Has a "loan account" been opened for the recovery of these costs or for any other reason? Kindly advise of such other reason, if any.
13.5. What annual rate of interest, if any, is charged on this loan account?
13.6. What is the total amount of interest that has been recovered from my investment account or contributions or investment value to date in respect of this loan account or upfront costs or charges? Kindly refer me to the relevant rules or policy provisions authorising the charging of the interest rate?
13.7. Do I have the option of paying these upfront costs from my own private funds? If so, kindly provide me with a detailed computation thereof. If I may not pay from my own private funds, kindly advise why not with reference to the rules of the fund or policy documents.
13.8. Do I have the option of settling this loan account before retirement or before the life of the underlying policy? If not, kindly refer me to a specific provision in the rules or policy documents that forbids me from doing so.
14. What has been the fund's average investment return or growth from the date I joined the fund to date? Kindly show this information on a month-by-month basis so that I am able to check annual average returns myself or with an independent consultant.
15. If I were to reduce my contributions to the fund, are there any costs or charges or penalties that would be levied on my investment account or investment value? If so, kindly advise on the nature of those costs or charges or penalties, as well as the full amount thereof.
16. I wish to bring to your attention that all this information is sought with a view to exercising and protecting my property rights enshrined in section 25(1) of the Constitution.
17. I wish also to bring to your attention that I seek this information pursuant to the Promotion of Access to Information Act, 2 of 2000. This is the national legislation referred to section 32(2) of the Constitution of the Republic of South Africa, 1996. In the result, I have a constitutional right to all the information I seek.
Kindly furnish me with this information before (give them a month) at (address).
Yours faithfully
Rulings against Central and Fedsure RA funds
The latest rulings from Ngalwana involve the Central Retirement Annuity (RA) Fund, underwritten by Sanlam Life, and the Fedsure RA Fund, which is administered by Capital Alliance Life.
Mr DA Paterson, a member of the Central RA Fund, retired three years earlier than the date he chose initially and was charged an early termination fee of almost R24 500 as a result.
Ngalwana ordered the fund to calculate the difference between the amount that would have been available for Paterson to buy a pension had the early termination fee not been deducted and the amount he received, plus interest.
Paterson could choose whether to receive this additional benefit directly or have it transferred to a financial institution.
Ms BA Blumenthal, a member of the Fedsure RA Fund, stopped contributing to the fund just over four years into a membership term of 18 years. She had made recurring contributions of almost R23 200. When Blumenthal stopped her contributions, Capital Alliance Life deducted R9 156 from her fund value for its unrecouped expenses.
Ngalwana ordered the fund and the insurer to credit the complainant's account in the fund by R9 156.40.
He said in both instances, neither the funds' rules nor the policy documents disclosed the termination penalties to the members and therefore these penalties could not be charged.
Complaints to the adjudicator
The Pension Funds Adjudicator has offices in Cape Town and Johannesburg.
If you live in the Eastern Cape, Free State, KwaZulu-Natal, Northern Cape or Western Cape, you should submit your complaint to the Cape Town office. If you live in Gauteng, Limpopo, Mpumalanga or North West, you should direct your complaint to the Johannesburg office.
You may contact the Cape Town office as follows:
Post: PO Box 23005, Claremont, 7735
To contact the Johannesburg office:
Post: PO Box 651826, Benmore, 2010
Tel: (011) 884 8454
Fax: (011) 884 1144
Email: [email protected]