He said when he obtained a quote from the second respondent for early exit on his retirement annuity, he was informed of a 22% penalty on his investment if he decided to transfer his funds to another institution.
The complainant's value in the first respondent was R219,606.97. The second respondent quoted a causal event charge of R48,313.53 on the complainant's fund value, thus reducing the value to R171,293.44. The complainant considered this penalty to be harsh. He said he had voluntarily increased his premiums over the years from the original R150 to R5,808. He said had he continued with the original premiums, he would have been paying R326 per month which meant that his investment value would have been significantly less, resulting in much less penalties.
The second respondent submitted that the penalty of 22% was within the limits prescribed by legislation as well as the rules of the first respondent.
In her determination, Lukhaimane said to assess the reasonableness of the causal event charge that the first respondent would impose if the complainant transferred his fund value, the services of an independent actuary were engaged. The actuary found that, as the policy has been in force for nine years out of 38 years and the large extra increases paid in premiums, the proposed causal event charge in the amount of R48,313.53 amounting to 22% of the total fund, was fair and reasonable.
Lukhaimane accepted the actuary's finding that the causal event that would be imposed if the complainant transferred his membership to another institution was fair and reasonable. "In deducting the 22% from the complainant's fund value, the second respondent will be acting in accordance with generally accepted actuarial practice, the provisions of the rules, the provisions of the policy documents, the provisions of the Long Term Insurance Act and the regulations," said Lukhaimane.
Meanwhile, Lukhaimane also noted with concern the weaknesses in regulations in the retirement sector when viewed in light of the six TCF principles. She said most retirement annuity products failed four of the TCF principles in that the products and services sold were not designed to meet the specific needs of the customers.
"In the event that customers fall on hard times, drastic termination fees are imposed, customers are not given clear information before and after contracting of causal event charges, the advice provided is not suitable and customers face serious post-sale barriers in trying to change investment products," Lukhaimane said.
In terms of the proposed legislation, firms are expected to demonstrate that they deliver the following six TCF principles to their customers throughout the product life cycle:
"The complainant submitted that he was not aware of the penalties to be charged when he transfers his membership to another institution, which falls short of the openness required by the TCF principles with which the respondents associate themselves.
"It is on this basis that the TCF principles need to be finalised and enacted into law in order to avoid complaints of this nature," said Lukhaimane.