The Pension Funds Adjudicator (PFA) issued a further 14 rulings relating to retirement annuities (RAs) this week, of which four were settled by the life companies. This brings the total number of RA rulings to 68. According to the PFA’s office, it has seen a substantial increase in the number of complaints received over the past six months. Last year the office received just more than 200 complaints a month; that figure has increased to more than 400.
Although this increase cannot be fully attributed to the high-profile RA rulings, the public debate must have had some impact on increasing consumers’ awareness of their rights as well as the staggering costs of investment products. The life companies affected, namely Old Mutual, Liberty and Sanlam, are making provisions in terms of payments that they may have to make as a result of these rulings.
After last week’s 22 rulings were handed down, a very public spat broke out between the Life Offices Association (LOA) on one side and the PFA and Minister of Finance Trevor Manuel on the other. The LOA accused the PFA of not fully understanding the life industry and coming to the “incorrect conclusion”. The minister responded by putting his full weight behind the PFA and making very clear his view on the life industry, commenting that the National Treasury and the Financial Services Board are currently examining reform proposals relating to cost structures and penalty charges in the retirement fund industry.
Because the LOA was not party to these talks, it would seem that, unless it acts quickly to address the issue of costs, it has created, in the words of the minister, “the impression that the long-term insurance industry does not concern itself with issues of equity and fairness”, and could find itself on the receiving end of aggressive legislation by government. The Treasury has indicated before that it would prefer the industry to reform itself, but that it would not shy away from intervention if necessary.