One of the biggest debates that has been present in the retirement savings industry for many years is that causal events charges are high and are detrimental to the public who want to move jobs and by default retirement funds.
It was once again an issue that the Pension Funds Adjudicator had to deal with during its 2017/18 reporting period. In this case, it was a fund that quoted Treating Customer Fairly (TCF) principles as the reason behind a causal event charge.
While the complaint was dismissed, Muvhango Lukhaimane – the PFA – said causal event charges were obscure and mitigated against TCF principles because they could not be translated into value for members.
Ms J Du Toit (the complainant) complained about the quantum of the causal event charges imposed on her retirement annuity policy when she decided to transfer her fund value to another investment product. The complainant applied for and was admitted to membership of Central Retirement Annuity Fund (first respondent).
The policy commenced on 1 March 1995 with a contractual maturity date of 1 March 2028. The policy was subject to an initial monthly contribution of R80,81 subject to an annual increase of 10% on the plan anniversary.
The policy was subsequently converted to a newer generation plan and the monthly contributions increased to R1 000, subject to annual increase at inflation rate. On 23 February 2017, the complainant requested a quotation to transfer the proceeds of her retirement annuity policy to Allan Gray Retirement Annuity Fund.
She was provided with a quotation which reflected that an early termination charge of R41 193,96 (11,82% of fund value) would be levied.
The complainant contended that her fund value was drastically reduced due to high administration/termination fees. She was dissatisfied with the fact that the early termination charge was levied when she decided to transfer her funds to a cheaper administrator.
Lukhaimane pointed out that the complainant indicated that she should have the freedom of choice to move her funds to another fund that offers cheaper administration fees. She indicated she had lost interest on her investment and her funds were not growing due to high fees. Thus, she stated that she should be able to move her funds to another fund without penalties.
The complainant submitted that it was not her problem if the second respondent (who was not named) paid commission upfront as she was not told that she was bound by the high fees.
The second respondent submitted that as confirmed in the policy contract, it recovered alteration charges from a member’s fund value by cancelling units to the value of the fee when a member took when the plan charges were calculated, the second respondent assumed that the contractual contributions would be paid up to the end of the policy term. In the event that the premiums were stopped or the plan was discontinued, it would no longer be able to recover these costs from future charges.
The second respondent also indicated that these charges were disclosed to the complainant in the product quotation which she accepted when she signed the application form. It submitted that the complainant stopped the payment of contributions prematurely and the policy became paid-up.
The second respondent further submitted that it subscribed to TCF; further, it submitted that the complainant was appropriately informed before, during and after the time of contracting.
Lukhaimane said the complainant was provided with quotations illustrating the charge that would be imposed in the event that she ceased payment of contributions or transferred her fund value to another fund prior to the contractual maturity date.
Lukhaimane said the second respondent provided a breakdown of the complainant’s fund value and the amount imposed as a causal event charge.
She added that the PFA Tribunal was satisfied that the causal event charge levied or to be levied by the second respondent was lawful in terms of Regulation 5 of the Long-Term Insurance Act (LTIA) and within the 30% limits permitted in terms of the provisions appropriate law.
Lukhaimane added that although lawful, the actions of the respondents could hardly be described as being anywhere near the letter and spirit of the TCF principles. TCF is a National Treasury initiative that is intended to culminate in legislation that will guide
the relationship between the financial industry and consumers.
Lukhaimane said the following TCF outcomes were applicable in this matter:
Customers are given clear information and are kept appropriately informed before, during and after the time of contracting; and
Customers do not face unreasonable post-sale barriers to change product or switch provider.
She said that respondents should refrain from quoting TCF principles when levying causal event charges as the charges are obscure and cannot be translated into value for members of retirement annuity funds.
It will be interesting to see how TCF and causal event charges are treated in the future. Please comment below, interact with us on Twitter at @fanews_online or email me your thoughts firstname.lastname@example.org.
This article is published courtesy of FANews https://www.fanews.co.za/article/compliance-regulatory/2/pfa-pension-fund-adjudicator/1026/don-t-hide-behind-the-tcf-shield/25872