YOUR SIDE

The SA re­tire­ment in­dus­try, which is val­ued at R3 tril­lion, is see­ing a spike in com­plaints across the board as con­sumers be­come more aware of their rights, as well as the fo­rums for com­plaints. The of­fices of the Fi­nan­cial Ad­vi­sory and In­ter­me­di­ary Servi

CityPress - - Business -

Com­ment­ing on the two re­ports, Fi­nance Min­is­ter Pravin Gord­han says the in­crease in the num­ber of jus­ti­cia­ble com­plaints re­ceived by the Fi­nan­cial Ad­vi­sory and In­ter­me­di­ary Ser­vices (Fais) om­bud’s of­fice in the 2015/16 fi­nan­cial year from 3 699 in the pre­ced­ing year to 4 263 is in­dica­tive of a grow­ing aware­ness among South Africans about the om­bud sys­tem.

The of­fice of the Pen­sion Funds Ad­ju­di­ca­tor fi­nalised 9 970 com­plaints over the past year, com­pared with 6 331 the pre­vi­ous year. There were 3 475 de­ter­mi­na­tions made – an in­crease of 20.74% year on year.

How­ever, Pen­sion Funds Ad­ju­di­ca­tor Mu­vhango Lukhaimane notes that it is still a cause for con­cern that at least 70% of the com­plaints re­late to with­drawal ben­e­fits, point­ing to in­ef­fi­cien­cies in fund ad­min­is­tra­tion pro­cesses.

“This ex­tends to the al­lo­ca­tion and dis­tri­bu­tion of death ben­e­fits, which is re­spon­si­ble for the sec­ond high­est num­ber of com­plaints fi­nalised,” she says.

Fais om­bud Nol­untu Bam says many com­plaints that ap­pear to be about con­trac­tual terms have their ori­gin in un­sound or in­ap­pro­pri­ate ad­vice.

“While there may seem to be no cor­re­la­tion be­tween ad­vice and ac­cess to the of­fice, con­sider the ex­am­ple of a bank cus­tomer who en­trusted pro­ceeds of her im­mov­able prop­erty while house hunt­ing for a smaller home. In less than three months, she had found a home she wanted to buy.

“She signed an of­fer to pur­chase and went to the bank to re­trieve her funds, only to be told she was bound by the con­tract she had signed, which ef­fec­tively saw her money land in an in­sur­ance prod­uct where it had to re­main for 10 years.

“She was made to sign forms ac­ced­ing to heavy penal­ties, af­ter which the re­main­ing funds were paid into her ac­count. The bank em­ployee she was deal­ing with did not di­rect her to our of­fice be­cause the con­sumer was ‘in breach of the con­tract’,” says Bam.

“It was the con­sumer’s per­sis­tent ef­forts to see jus­tice done that led her to us. Fol­low­ing a de­ci­sion by this of­fice, the bank had to pay back the penal­ties con­fis­cated from the con­sumer’s in­vest­ment.”

Bam says that be­cause of the in­tan­gi­ble na­ture of fi­nan­cial prod­ucts, there is of­ten lit­tle op­por­tu­nity up­front for the con­sumer to dis­tin­guish be­tween their needs and what the prod­uct can re­ally do.

“Un­like tan­gi­ble prod­ucts, there is no op­por­tu­nity to ex­am­ine the prod­uct or even to test it. The con­sumer re­lies on the ad­vice of the per­son ad­vis­ing them and ac­cepts their at­tes­ta­tions of what the prod­uct will do.

“By the time the con­sumer awak­ens to the lim­i­ta­tions of the prod­uct, the dam­age has al­ready been done. By then, it is the con­sumer’s rec­ol­lec­tion of the ad­vice against the con­tract doc­u­ment,” says Bam.

CON­SUMERS NOT MADE AWARE OF THE EF­FECT OF PEN­SION IN­VEST­MENT OP­TIONS

“A sig­nif­i­cant num­ber of con­sumers have lost their life sav­ings fol­low­ing ad­vice to in­vest in com­plex in­vest­ments such as pub­lic prop­erty syn­di­ca­tions.

“Al­though the fi­nan­cial ad­vis­ers in­volved boasted decades of ser­vice in the fi­nan­cial ser­vices in­dus­try, in­clud­ing be­ing li­censed by the reg­u­la­tor, it has been found that they knew very lit­tle about th­ese in­vest­ments and were not in a po­si­tion to ad­e­quately ad­vise their clients of the risk of los­ing their cap­i­tal,” Bam says.

What in­ter­me­di­aries fail to com­mu­ni­cate to their clients is the re­al­ity of the sac­ri­fices and changes in life­style that are re­quired if a client has not saved suf­fi­ciently for his re­tire­ment.

“In­stead, in­ter­me­di­aries, to the detri­ment of the client, at­tempt to rem­edy the short­fall in re­tire­ment cap­i­tal by rec­om­mend­ing that clients in­vest in liv­ing an­nu­ities, where they can choose an in­come of be­tween 2.5% and 17.5%.

“They do not in­form the client about the real risk of de­plet­ing the cap­i­tal. A worst-case sce­nario is where clients are ad­vised to in­vest in small un­known com­pa­nies with no track record and no ap­par­ent means to gen­er­ate what ap­pear to be at­trac­tive re­turns.

“There are two prob­lems with the last sce­nario. In the first in­stance, two ma­te­ri­ally dif­fer­ent prod­ucts would be com­pared solely on the ba­sis of a re­turn. This is frowned upon be­cause it is mis­lead­ing.

“The sec­ond is fail­ure to act with hon­esty and in­tegrity, and with care and dili­gence, with no re­gard for the in­ter­ests of the client and the in­tegrity of the fi­nan­cial ser­vices in­dus­try,” Bam says.

IN­CREASE IN UN­CLAIMED BEN­E­FIT QUERIES

Lukhaimane says the spike in com­plaints to her of­fice is largely at­trib­uted to an in­creased aware­ness of the role of her of­fice, as well as pub­lic­ity around un­claimed ben­e­fits.

“Com­plaints show that too many mem­bers con­tinue to ex­pe­ri­ence low lev­els of ser­vice from their funds, be it re­gard­ing the in­fre­quent or poor qual­ity pro­vi­sion of ben­e­fit state­ments, weak ex­pla­na­tions of fund in­for­ma­tion, de­lays in re­quests for trans­fer to other funds or in­or­di­nate de­lays in the pay­ment of re­tire­ment and death ben­e­fits,” she says.

Lukhaimane notes that there is a dis­turb­ing trend to­wards a high num­ber of com­plaints lodged by trac­ing agents.

“Un­scrupu­lous trac­ers charge for their ser­vices and con­sumers need to be aware that they can di­rectly ap­proach our of­fice for as­sis­tance, at no cost to them­selves,” she says.

In an im­por­tant rul­ing, Lukhaimane or­dered the MineWork­ers’ Prov­i­dent Fund to in­ves­ti­gate and pay a death ben­e­fit, al­though the com­plaint was dif­fi­cult as it was re­ceived out of the pre­scribed time limit.

The com­plainant told Lukhaimane that the MineWork­ers’ Prov­i­dent Fund had failed to al­lo­cate and dis­trib­ute a death ben­e­fit of R135 285.07 fol­low­ing the death of her hus­band in November 2001.

Al­though it was al­most 14 years since the man died and al­though the com­plainant had claimed the death ben­e­fit in 2004, there were no records to prove that she had lodged a claim be­fore the ex­piry of the pre­scribed three-year min­i­mum pe­riod per­mit­ted in terms of the Pen­sion Funds Act for her com­plaint to be in­ves­ti­gated.

How­ever, upon re­ceipt of the com­plaint, the MineWork­ers’ Prov­i­dent Fund car­ried out a de­tailed in­ves­ti­ga­tion and dis­cov­ered that cer­tain doc­u­ments were out­stand­ing and had de­layed the process of fi­nal­is­ing the claim.

The fund was or­dered to fi­nalise the claim and pay out the ben­e­fit.

In her de­ter­mi­na­tion, Lukhaimane said the fund’s de­ci­sion to ac­com­mo­date the claim af­ter the pre­scribed three-year min­i­mum pe­riod was “com­mend­able” as it helped re­duce the amount of un­claimed ben­e­fits held by re­tire­ment funds.

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