Man entitled to payout he expected – adjudicator
The Pension Funds Adjudicator has ordered that a pension fund member get R261 500 more than an actuary wanted to pay, writes Laura du Preez.
The Pension Funds Adjudicator has upheld one complaint and dismissed another where members had complained about being quoted fund values and subsequently being paid a different amount.
In the complaint that was upheld, a member of the Pannar Group Pension Plan, GH Kohne, complained that he had asked his fund’s administrator, Specialist Fund Administrators, for a fund value five months before he retired.
According to the ruling, Kohne was entitled, and elected, to take his defined benefit fund pension as a lump-sum “upliftment” benefit.
In September 2006, he was advised that his upliftment benefit was R6.9 million. In February 2007 he retired and was paid a cash sum of R33 000, and R6.58 million was transferred to two annuities – a difference of R261 500, the ruling says.
Kohne complained that he had not been informed that the benefit had been reduced and he was dissatisfied with the explanation given for the shortfall.
He said the difference in the amount quoted and the amount paid severely prejudiced him, as he had based his financial retirement planning on incorrect information.
The administrator responded saying it was not unreasonable to have expected Kohne to doublecheck the actual value to be paid, but it admitted that the fund could have handled communication to him better.
The acting adjudicator, Elmarie de la Rey, found that the rules of the fund state that when a member elects to take the upliftment value this must be determined by the fund’s actuary. The fund had appointed NMG Consultants and Actuaries to provide it with actuarial services.
De la Rey found that the actuaries had calculated Kohne’s upliftment value in September using the actual difference between his age and that of his spouse, because his pension benefit included a pension for a surviving spouse.
But when the actuaries had calculated his final benefit, instead of using the actual difference in ages between Kohne and his spouse, they had used an assumption that there was a five-year age difference between him and his spouse, resulting in a lower benefit than it calculated five months earlier.
De la Rey says although actuarial assumptions are used to calculate a fund’s liability to its members, and actuaries use different practices, in this case the actuaries used assumptions when the actual empirical data was available.
The rules of the fund do not specify the manner in which the actuarial reserve must be calculated by the actuaries, but De la Rey says the use of assumption when the actual data is available “cannot be justified”.
Although Kohne had complained that he had been prejudiced by being given one amount as a quote and another as final benefit, De la Rey upheld the complaint on the basis that an assumption had been used in the calculation of the final benefit rather than the actual data. She ordered the fund to liaise with the actuaries to determine the benefit using Kohne’s wife’s actual age.
She said the fund must pay Kohne the difference between the benefit calculated in this way and the benefit he had already been paid.
In the second case, which the adjudicator dismissed, Richard Martin complained he was paid about R13 000 less as a withdrawal benefit than the amount he was informed was his fund value two months before he resigned.
Martin belonged to the Bergman Ingerop SA Staff Pension Fund. At the end of April 2004, he was told his fund value was R502 212. He resigned at the end of June that year and was paid R489 198.
The fund was a defined contribution one that makes use of a system of declared, interim and final rates when allocating investment returns, the adjudicator’s ruling states.
The fund told the adjudicator that for the period from September 2002 to September 2004, an interim rate of seven percent applied and this rate was used to calculate Martin’s withdrawal benefit when he requested it in April 2004.
However, in June 2004, the fund’s trustees, in consultation with its actuary, decided to reduce the interim rate to five percent and this amount was then applied to Martin’s benefit when it was calculated for his final benefit after he resigned.
De la Rey found that the rules of the fund provide for its trustees to declare the fund interest and confer a discretion on the trustees to review an interim rate of interest from time to time on the advice of the fund’s actuary.
She therefore found the complaint could not succeed.