Lack of legislative clarity has left the life industry and its clients in limbo and set the industry back by up to a year in terms of issues around retirement annuity (RA) penalties.
An Old Mutual client’s complaint to ITInews, an online life industry newsletter, highlighted this issue when she said that Old Mutual was refusing to credit her RA policy in accordance with a ruling by the Pension Funds Adjudicator (PFA).
Old Mutual disagreed with the PFA ruling and has referred the matter to the high court. The client feels that this constitutes bullying tactics as she cannot afford to represent her case and has questioned the “teeth” of the PFA if it is unable to enforce its rulings. Old Mutual argues that the PFA ruling is incorrect and that it has the right to appeal.
This raises two issues. Firstly, despite an apparent solution to the RA debacle last year by the signing of the statement of intent and a commitment to repay R3billion to clients, the industry is back to square one, awaiting legislation to clarify the situation.
The second issue is that, while everyone should have the chance to appeal a decision, not everyone can afford to. Deputy PFA Naleen Jeram hopes the issue of legal costs when appealing pension fund decisions will be finalised as part of the pension reform process.
The problem in the Old Mutual client’s case and, according to the Life Office Association, several other such cases is that the RA industry is in legislative limbo.
The issue last year came down to the fact that, according to the life industry, it is governed by the Long-Term Insurance Act, which allows it to re-coup costs for early termination.
The PFA says the life industry’s RA policy documents do not fully disclose these fees and, therefore, they cannot be deducted. Initially the life industry went to the high court to appeal the PFA’s decisions, but in light of public opinion it decided to settle the matter and requested that legislative clarity be reached as soon as possible.
At this stage, the statement of intent, on which legislation will be based, is not law. So the PFA is not bound by the agreement. Subsequently, the PFA has encouraged complainants to raise the issue with their life companies according to the statement. Many have settled, but some complainants were not happy with the agreement and asked the PFA to make a ruling.
While the National Treasury is committed to having legislation in place by October 1, at this stage it will not be drawn into when the legisÂlation will be passed. Until then, the industry and its customers hang in the wind.