Your rights in a Retirement Annuity
Retirement Annuities (RA) funds have to be approved by SARS and must be registered with the Financial Services Board (FSB) in terms of the Pension Funds Act. This Act provides you, as a member of an RA fund, with a fair amount of protection. You are also afforded protection under the Long Term Insurance Act, because in most cases when you join an RA fund you indirectly become a life assurance policyholder as well.
However, this distinction between being a RA fund member and a
life assurance policyholder has become blurred in recent years. McCulloch says recent rulings by Vuyani Ngalwana, the Pension Funds Adjudicator, have focused the attention of trustees of RA funds on the distinction.
In terms of the Pension Funds Act, RA funds must have trustees, who tend to be appointed by the financial services company that established the fund. The trustees have a fiduciary (legal) duty to approve and amend the rules of the fund, ensure the money in the fund is properly managed and that the benefits are correctly paid out. You have no say in the election or appointment of the trustees, but it is becoming more common to have at least two independent trustees on the boards of RA funds.
If you have a problem with your RA fund, you can complain to:
- Ngalwana;
- Charles Pillai, the Financial Services Ombud (in cases of poor advice);
- Piet Nienaber, the Ombudsman for Long Term Insurance; and
- Jeff van Rooyen, the Registrar of Pension Funds and the chief executive of the FSB, which regulates the retirement industry.
Pension funds adjudicator rejects penalties
In a spate of determinations, Vuyani Ngalwana, the Pension Funds Adjudicator, has ruled that life assurance company-sponsored retirement annuity (RA) funds may not penalize you for reducing or stopping your contributions to RA funds.
The basis of Ngalwana's rulings is that the rules of an RA fund must provide for such penalties, which, he says, they do not.
He has also criticized life assurance companies for muddling the distinction between membership of an RA fund and the life assurance policy that is bought on behalf of an RA fund member from the life assurance company that sponsors the RA fund. Ngalwana says a member's contract is with the fund and not with the life assurance company.
Ngalwana has issued determinations against RA funds sponsored by Sanlam, Liberty Life and Old Mutual. The RA funds (and their sponsoring life companies) have appealed to the High Court against Ngalwana's rulings. They argue in their appeal documents that:
- Ngalwana does not have the jurisdiction to make the rulings. The life companies say that because life assurance policies were issued via their RA funds, the fund members' complaints should be heard by the Ombudsman for Long Term Insurance and not by the Pension Funds Adjudicator.
The ombudsman's office was set up by the life industry, while the adjudicator's office was established by statute.
- Complaints about penalties levied for reducing or stopping contributions are not defined in the Pension Funds Act.
Ngalwana has rejected both these arguments, saying the life assurance companies and their RA funds are using technicalities to appeal against his rulings.
To learn more about the top ten things to know before buying a retirement annuity