The Financial Sector Tribunal has upheld a ruling by the Pension Funds Adjudicator (PFA) that a retirement annuity fund was not liable for the losses suffered by a member when it reduced the value of its investments in the Liberty Property Portfolio (LPP) last year.
However, the tribunal could not make a decision about “the second leg” of the fund member’s request for it to reconsider the PFA’s ruling – that he had been inappropriately advised to switch into the LPP – because, as tribunal pointed out, financial advice falls outside the PFA’s jurisdiction.
Following the national lockdown on 30 March 2020, the Lifestyle Retirement Annuity Fund cut the value of the properties in the fund by 20% and reduced the interim bonus rate from 6.25% to 5.5% a year for the rest of 2020.
Liberty Group and the fund told the PFA that the reduction in value was necessitated by the impact of the pandemic on the retail-focused LPP.
The average annual growth rate on the policy from commencement in May 1996 to September 2020 was 7.03%.
The fund member, whose retirement date was 1 May 2021, complained to the PFA that there had been no upfront communication about the decision taken by Liberty Group and the fund. He told the PFA that the fund had communicated the reduction to investors 32 days after it had been implemented.
He said Liberty had not provided investors with enough time to make informed decisions about their investments.
However, when he appealed to the tribunal, the member said the respondents had only informed “internal advisers”, including him, of the decision on 31 March. He contended that if he and other investors like him who were due to retire had been informed before the capital reduction, he would have been in a position to make an informed decision about his investment.
Liberty and the fund told the PFA:
- The fund has a range of investment portfolios, from conservative to aggressive, and it was up to the member, through his or her adviser, to choose a portfolio appropriate to his or her risk profile.
- The underlying principle behind the adjustment was the fair treatment of all investors. “They had to act swiftly to protect the interests of all investors.”
The PFA found that the applicant’s portfolio was subject to market volatility due to the pandemic, and neither the fund nor Liberty could be held liable for his losses.
Off to the tribunal
In his application for the PFA’s ruling to be overturned, the member alleged that he “received false and misleading information from his financial adviser about the risk profile and classification of the LPP”. He said the LPP was a moderate portfolio, which did not match his risk profile. He said he was on a low-risk and conservative portfolio before switching to the LPP.
The complainant joined the fund on 1 May 1996, and he had switched into the LPP in July 2003. In both cases, he had acted on his own accord, because “he was a qualified financial adviser”, according to the tribunal’s judgment.
As with the initial complaint to the PFA, the tribunal revisited the trustees’ conduct in light of section 7D(1)(c) of the Pension Funds Act (the communication of adequate and appropriate information).
The tribunal also pointed to the trustees’ obligation to protect members’ interests at all times, monitor the performance of the fund’s assets to ensure that a good return was achieved, and ensure the fund’s investment managers do not take undue risks.
It referred to the fund’s response to the PFA, in which it justified its actions as a response to the global market collapse and the pandemic.
The tribunal found that the complainant had failed to demonstrate negligence or recklessness by the trustees.
What about the advice?
The tribunal said it was not necessary for it to address the complainant’s contention that he had been inappropriately advised to switch, because it turned on financial product suitability and the rendering of ongoing advice – which falls outside the jurisdiction of the PFA.
According to the judgment, the PFA had dismissed, in June 2020, the complainant’s initial complaint, because the matter was being considered by the FAIS Ombud.
“It is not clear what became of the advisory complaint that was allegedly lodged with the FAIS Ombud,” according to the tribunal.
“The PFA subsequently launched a full investigation into this matter on aspects that related to pension funds and related issues.”
The FAIS Ombud’s office has told Moonstone that the complaint was dismissed in October 2020.
