Are causal event charges excessive?

The office of the Pension Funds Adjudicator has had to deal with several complaints regarding excessive causal event charges.
 
Pension Funds Adjudicator Muvhango Lukhaimane said: "This is the single biggest problem and complaint that I have."
 
A causal event charge is a fee that is charged on a policy if the policy is transferred to another service provider or cancelled, or if the policy is paid in full, or if the policy premiums have been reduced to recover from expenses that were sustained at the beginning of the policy.
 
Causal event charges
 
Lukhaimane reveals that the policy companies that charge these fees say that they are charging for commission, set-up fees, and ongoing administration fees.
 
"The problem that members of pension funds have, retirement annuities in particular have with this, it that the costs as not disclosed as such to you. They tell you that they're going to deduct these things for the life of the policy; they tell you in some obscure manner in that regard. 'If you terminate prematurely we are going to charge you premature termination charges'," she adds.
 
According to current legislator, pension funds and retirement annuities cannot charge in excess of 30% of the policy amount. Lukhaimane explains that this means that companies can charge their policyholders a termination fee of anything from one to 30% of the policy value.
 
Lukhaimane states that these companies are meant to develop rules which guide what is charged and how these fees are determined.
 
"You will see that in some of my determinations I say that I referred to an independent actuary for them to have a look at this [the fees that are charged], because that independent actuary, they will be able to give the scale of how they [the companies] work this out."
 
Lukhaimane believes that the causal events charges that these companies charge their policyholders are excessive. "They are charging for something that you are not getting value out of."
 
According to Lukhaimane, treasury recently stated that they want to evaluate these charges. However, she notes that there is a long gap between an issue being discussed and it being ratified.
 
Hauptfleisch complaint
 
One of the recent complaints to be resolved came from Mr D Hauptfleisch, who claims that a causal event charge was deducted from the policy that he had with the Professional Provident Society Retirement Annuity Fund, even after he had been advised that there was no penalty fee would be deducted when the value of his policy was paid to his spouse in a divorce agreement.
 
In the case of the Hauptfleisch complaint, the Pension Fund Adjudicator stated: "The complainant [Hauptfleisch] was previously provided with policy documents which indicated that an alteration fee would be imposed in the event of the premature termination of the policy."
 
According to Hauptfleisch, he was aware that there was the possibility of a causal event charge for the early termination of the policy. This prompted Hauptfleisch to contact the Professional Provident Society Retirement Annuity Fund (the first respondent) to enquire about this.
 
The adjudicator concluded that "while the first respondent acted unlawfully in providing the complainant with incorrect information, it took reasonable steps to guard against the occurrence of this.
 
Therefore, it did not act negligently in providing the complainant with incorrect information."
 
The adjudicator ruled that Hauptfleisch could not claim damages for the incorrect information that was provided to him, as he had on previous occasions, and therefore the policy could not be reversed on these grounds.
 
Procedure for lodging a complaint with the Pension Funds Adjudicator
 
The website for the office of the Pension Funds Adjudicator details the process that you must go through when lodging a complaint against a pension fund.
 
Before lodging your complaint with the Pension Funds Adjudicator, you must first submit your complaint in writing to the respondent (the fund that you have a complaint about). Once you have submitted this complaint, you must give the respondent 30 days in which to resolve the issue.
 
If the respondent does not adequately handle the issue within this time period, you can then lodge a written complaint with the office of the adjudicator. The complaint must include:
 

• The full name, identity number and contact information of the complainant (you)
• The full names, registered numbers and contact information of the respondent
• The relationship between you and the respondent
• The complaint issue: What legal wrong has the respondent enacted upon the complainant
• How the wrongdoing against the complainant can be rectified

 
A complainant can submit the documentation for a complaint with the Pension Fund Adjudicator via the website.