Adjudicator orders Liberty Life to reduce RA penalty fees of 34 percent

Liberty Life is the latest life assurance company to be caught out charging excessively high penalties, which life companies levy when a policyholder reduces or stops paying contributions on a retirement annuity (RA) or premiums on a life assurance investment policy.

The increasing incidence of Pension Funds Adjudicator Muvhango Lukhaimane and financial advice ombud Noluntu Bam catching out life companies that charge more than the permitted penalties has resulted in intervention by the Financial

The members, WH and NM, joined the fund in September 2003. WH signed up to retire on September 1, 2025, and NM signed up to retire the following year. Their initial contributions were R1 000 a month, escalating annually at the rate of inflation.

In May 2012, WH and NM reduced their contributions to R250 a month. WH’s fund value at that date was R425 839 and NM’s was R430 269.

Liberty imposed a “causal event” charge (penalty) of R80 901 on WH and of R81 742 on NM. The charges amounted to 19 percent of their respective fund values.

In November 2012, WH and NM told Liberty that they wished to transfer their membership to another RA. Liberty advised that they would each be hit with another penalty of 19 percent.

Lukhaimane says that, although Liberty was entitled to levy the “causal event” charge, it had to do so within the rules of the fund, the provisions of the Long Term Insurance Act and the regulations imposed as a result of the Statement of Intent, which limited the penalties. The statement was an agreement signed in December 2006 by the life assurance industry and Trevor Manuel, who was the Minister of Finance at the time.

An independent actuary called in by the adjudicator’s office to assess the penalties found that the charges levied on each member totalled 34.39 percent, which was over the limit set out in the Statement of Intent.

Liberty Life agreed to reduce the penalties levied on the complainants’ fund values, from 19 percent to 11 percent, if they transferred their policies to an RA of their choice as at May 24, 2013.

However, Lukhaimane says that Liberty Life has not provided her with proof that it has revised the proposed penalty from 19 to 11 percent, and she ordered the company to do so within two weeks of her determination.

Liberty Life spokesperson Mandy Denton says that Liberty has met its obligation to adhere to the adjudicator’s process in resolving the complaint.

“Whilst we respect the decisions of the adjudicator, we have queried this determination and the process, because, in our view, we had committed to taking the appropriate action prior to the determination being made on June 27, 2013,” she says.

Denton says that Liberty Life sent a final response to the adjudicator on May 24, “indicating that we would be reducing the charges”.