The contentious issue of projections at point of sale versus actual maturity values came to the fore again in a recent Tribunal ruling on whether the Pension Fund Adjudicator was correct in agreeing with the insurer on the maturity value.
Detail of the policy
| ● | The policy commenced with Protea Assurance Company Ltd on 1 September 1991 for a term of twenty-eight years with an initial monthly premium of R50.00 with a 15% annual increase. |
| ● | In 2013, the applicant became a member of the Momentum Retirement Annuity Fund. |
| ● | In September 2018 Metropolitan and Momentum merged and the applicant’s Odyssey contract was transferred from the “Odyssey All Equity” Portfolio to “The Deferred Maturities” Portfolio. The fund value at the time was R176,522. |
Original advice, communication and client’s interpretation
The applicant submitted that at application stage he was advised that upon the maturity of his policy, he could either choose an annual pension in the amount of R112,274 or a cash lumpsum benefit of R233,995 plus an annual pension in the amount of R74,831.
At retirement, he was informed that his maturity value only amounted to R169,000.
The applicant contended that his intention was always to purchase a retirement annuity and not to earn interest on an investment. He further stated that he had contributed to the first respondent for twenty-eight years and was informed that his benefits would not be impacted by any changes. He insisted on being paid the illustrative value of a policy as per the policy document.
PFA’s reasoning at arriving at its determination
The office of the PFA made reference to the Central Retirement Annuity Fund matter where the court held that “Projections do not amount to contractual obligations and to the extent that they are fair and reasonable and are not binding on the issuing insurer as they are based on assumptions which may or may not materialise.”
The PFA further pointed out that the ultimate value is influenced by the payment of contributions, the escalation of such contributions, completion of the policy terms as well as market fluctuations. Therefore, the PFA found that the Fund’s original decision was justified and acknowledged that the fund value as at January 2019 was R181,020.
However, the applicant claimed that he has been ill advised on how the maturity value is derived at. Various communications however illustrate the opposite:
| ● | A communication dated 15 August 1990 talks about “projected values” and that the amount that he will receive “depend(s) on the actual investment performance and not on these hypothetical figures.” |
| ● | A further letter dated 12 March 2013 advised him that “although there were some changes to his contract, these changes would not affect any of his contractual benefits or premiums on the contract”. |
The Tribunal’s decision
“This appears to be once more a typical instance when a member of the public was not informed of the nature and structure of a retirement annuity as well as the nature and purpose of the various documents presented to him/her when introducing such annuities,” the Tribunal pointed out.
The Tribunal could not fault the decision of the PFA. “It is evident that the applicant was entitled to the maturity value as at retirement, and not the illustrated value.”
The application for review was dismissed.
The Tribunal stressed that the applicant should have been placed in a position where he understood that the illustrative values are mere projections and that the value at maturity was dependent on a wide range of factors.
In our view, this matter has been addressed more than adequately by the industry. If the client elects not to read correspondence or make enquiries where there is an obvious disparity between his expectations and what the annual reports show, it is hardly fair to blame the FSP.
“I can explain it to you, but I cannot understand it for you.”
Click here to download the Tribunal case.
