A number of retirement funds are taking legal action over funds previously administered by Fedsure over losses suffered by the funds' members.
The Financial Services Board-initiated investigation into the controversial demise of Fedsure two years ago and the consequent loss of R600 million by many retirement funds, has been completed. The investigation was commissioned after a month-long campaign by Personal Finance.
Fedsure faced virtual collapse because of what appeared to have been cavalier investment decisions, including the use policyholder assets to make strategic investments in other financial services companies, such as the failed bank, Saambou.
Investec, which had a significant stake in Fedsure, took it over and broke up Fedsure into different businesses, some of which it subsequently sold off.
This week, the team that investigated the company's collapse, met with the Financial Services Board (FSB) to hand over the report.
Jeff van Rooyen, the head of the FSB, will now, in his capacity as registrar of the life assurance industry, apply to the High Court in Pretoria to make all or part of the report available to the public. The release of any report on an FSB investigation has to be sanctioned by the courts.
Personal Finance sources have confirmed that, as a result of the investigation, the FSB is preparing extensive legislation to give greater protection to life assurance policyholders.
Joubert Ferreira, the president of the Actuarial Society of South Africa, has confirmed that a separate investigation by the society into the actions of some unnamed Fedsure actuaries has yet to be completed.
It is understood that an initial investigation has been conducted and the matter is now to be referred to a disciplinary tribunal.
Retirement funds scrap
In the meantime, an ongoing scrap has been taking place between Investec and a number of retirement funds which were previously administered by Fedsure, and after its break-up were temporarily under Investec.
The affected funds include those referred to as industrial funds, which provide retirement benefits to people employed in the building and other allied industries.
The trustees of the industrial funds have transferred the administration of the funds from Investec to numerous other companies, including Sanlam and Alexander Forbes.
Gary Rademeyer, of Durban-based attorneys Garlicke & Bousfield, which is representing a number of the industrial and other retirement funds, says an application is to be made on behalf of one of the funds to the High Court, under the Promotion of Access to Information Act, for more information from Investec about the losses the members of the funds suffered.
A total of R600 million was removed from all the retirement funds in the smoothed bonus category administered by Fedsure. About half the amount came from the industrial funds.
A non-industrial retirement fund fund has also submitted a complaint to the John Murphy, the Pension Funds Adjudicator, about the losses suffered by its members.
Murphy has confirmed that he has referred back a complaint from another fund because the information supplied was insufficient.
Garlicke & Bousfield also represents a number of non-industrial retirement funds and, Rademeyer says, they intend advising Liberty Life - which has also taken over some Fedsure funds - and the Registrar of Long Term Insurance that certain non-industrial retirement funds intend instituting legal action for the losses that they have suffered.
This week, Investec handed over more information to Garlicke & Bousfield, but Rademeyer says his clients are still not satisfied.
However, Ciaran Whelan, of Investec Employee Benefits, accused lawyers representing the funds of wasting retirement fund members' money by lodging the High Court application. Whelan says Investec had agreed months ago to make information available and further information would be made available by the release of the FSB investigation report.
He says Investec has laid a complaint about some of the lawyers' activities to the Natal Law Society.
Transfer to Liberty
Two weeks ago, Investec and Liberty announced the transfer of a portion of Investec's Employee Benefits business - retirement funds previously managed by Fedsure - to Liberty. This transfer, however, will not include the funds which are the subject of a legal dispute, Liberty says.
Mike Jackson, Liberty's executive director of insurance operations, says that the retirement funds under legal dispute were not included in the business that was transferred to Liberty, because they did not fit in with group's business.
This is because they are not "full service" funds and would therefore not give Liberty the opportunity to provide them with administration, asset management and risk cover.
Jackson says, however, that initially all the former Fedsure retirement funds were offered to Liberty as a package deal.
He says to his knowledge none of the retirement funds that have been transferred are the subject of legal disputes, and if any of the 1 000 retirement funds which Liberty is scheduled to take over are subject to legal action, "Liberty is immunised and Investec will remain responsible".
Some 250 Investec Employee Benefits (formerly Fedsure Employee Benefits) staff will transfer to Liberty as part of the deal, which covers the administration of the retirement funds, investment of the assets and the provision of group life benefits to these members.
Liberty's acquisition of this business from Investec increases the value of retirement funds administered by Liberty by 40 percent.
The agreement is subject to approval by the Competition Commission, and if approved will be effected in three phases.
Liberty has already assumed the group life assurance risk business by way of a reinsurance arrangement and anticipates taking over the administration of funds from August 1 this year.
Once the High Court has sanctioned the take over of the business in terms of Long Term Insurance Act, the business will be formally transferred to Liberty.
Investec's hand-over of the employee benefits side of Fedsure to Liberty appears to be one of the final steps in the break-up of Fedsure.
The break-up also involved the individual life assurance side of the business being given to Capital Alliance.
However, Investec still handles the asset management of the individual life investments which are now administered by Capital Alliance.
Bonuses declared on former Fedsure policies
After a long battle, Capital Alliance has brought order to the chaotic Fedsure administration, which included the administration of Norwich Life policies that were transferred to Fedsure after Fedsure took over Norwich five years ago.
Capital Alliance recently announced sound returns for investors in Fedsure/Norwich smoothed bonus policies. The current bonus rates are:
- Median Portfolio: six percent with the bonuses being fully vesting declared in advance;
- NuSaver Smoothed Bonus Fund: 7.50 percent, which includes the vesting and non-vesting bonuses declared in advance; and
- Deposit Administration: four percent, which includes the vesting and non-vesting bonuses declared in arrears.
Vesting bonuses once granted cannot be removed, while non-vesting bonuses can be removed under adverse market conditions.
The only time a life company has removed non-vesting bonuses in recent years was when Fedsure removed the Norwich Smoothed Bonus Fund non-vesting bonus for 1997 and 1998. The bonuses were reinstated in 2000.
Note:
It was recently incorrectly stated in Personal Finance that Capital Alliance would apply a 40 percent market value adjuster (that is, a reduction the stated value) to any policy that a policyholder wished to cancel before the policy's maturity, as a measure to prevent policyholders bailing out as a result of the Fedsure collapse. This market value adjuster was implemented by Fedsure before Capital Alliance took over the business.
Ian Kirk, the chief executive of Capital Alliance, says the market value adjuster applied by Capital Alliance to the Integrated Smooth Bonus Fund and Norwich Bonus Fund was set at 20 percent. This was applied to prevent policyholders cancelling and obtaining policy values that would result in a financial loss to remaining policyholders, and "never as an unfair means to hold on to business".
Personal Finance apologises for the mistake.