The Pension Funds Adjudicator has come down hard on Sanlam for charging a woman a penalty of almost 12% of her retirement savings for transferring them to another retirement annuity (RA) fund, while professing to adhere to the principles of Treating Customers Fairly (TCF).

Although she dismissed the complaint, the adjudicator, Muvhango Lukhaimane, said in her determination that such penalties (what the industry terms “causal event charges”) are obscure and against the principles of TCF.

A life company imposes causal event charges if an investment or RA policy is made paid-up before the term of the policy ends, if the premiums are reduced or stopped, or if the policy is transferred to another service provider.

Ms JT complained to the adjudicator about the penalty on her RA policy when she wanted to transfer her savings to another provider. Her policy, with Sanlam’s Central RA Fund, commenced on March 1, 1995, and the contractual maturity date was March 1, 2028. The initial monthly contribution of R80.81 was subject to an annual increase of 10%. 

The policy was subsequently converted to a newer-generation plan and the monthly contributions increased to R1 000, subject to an inflation-linked annual increase.

In February this year, Ms JT asked for a quotation to transfer the proceeds of her RA to the Allan Gray RA Fund. She was told that an early termination charge of R41 193 (11.82% of her investment) would be levied on her savings of R348 397. 

Ms JT complained to the adjudicator about the high penalty and said she should have the freedom to move her retirement savings to a fund that offers cheaper administration fees. She submitted it was not her problem if Sanlam paid commission upfront, because she was not told that she was bound by the high fees. 

Sanlam submitted that, as stated in the policy contract, it recovered charges from a member’s fund value by cancelling units to the value of the penalty charge when the member took an early retirement benefit, or reduced or stopped the contributions. 

It said most of the expenses were incurred at the inception date of the policy or when the contributions were increased. 

When the charges on the policy were calculated, it was assumed that the contractual contributions would be paid to the end of the policy term. In the event that the premiums were stopped or the plan was discontinued, Sanlam would no longer be able to recover these costs from future contributions. 

Sanlam indicated that these charges were disclosed to the complainant in the quotation that she accepted when she signed the application form. It said it subscribed to the principles of TCF, and the complainant was appropriately informed before, during and after contracting. 

In her determination, the adjudicator said that, on December 1, 2006, in addition to the requirement that causal event charges be computed using generally accepted actuarial principles, the Minister of Finance promulgated regulations in terms of the Long Term Insurance Act that stipulated maximum charges in respect of causal events that occurred on or after January 1, 2001. 

She said the tribunal was satisfied that the quoted charge of R41 193, or 11.82% of the fund value, was lawful in terms of regulation five of the Act and within the limit of 30% permitted in terms of the Act and the Statement of Intent, an agreement signed at the time by the life companies.

However, she said that although lawful, the actions of Sanlam and its RA fund could hardly be described as being anywhere near the letter and spirit of the TCF principles.

She 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.”

“The respondents should actually refrain from quoting TCF principles when levying causal event charges, as the charges are obscure and cannot be translated into value for members of RA funds. 

“This tribunal has, on countless occasions, called for the implementation of the Retail Distribution Review. Although this will still not remove the obscure charges, it is at least a long-overdue development that will ensure that entities like [Sanlam] deliver a semblance of what their products promise.  

“Thus, this tribunal is not satisfied that the levying of causal event charges in this matter is in accordance with the two TCF outcomes stated above,” said Lukhaimane while dismissing the complaint.

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