Case No 11135

• Jurisdiction: South Africa
• Judge: Traverso J
• Judgment Date: 30 August 2005
• Docket Number: 11135
• Hearing Date: 17 August 2005
• Citation: 2005 JDR 1155 (CSpCrt)

Traverso J:

[1]

The facts involved in this case are common cause.

[2]

They are formulated as follows in the minutes of a pre-trial conference held between the parties:

"1.

Prior to 1 September 1998 the Appellant was a pensioner of the A Pension Fund. When the nature of this fund was changed from a "defined benerit (sic) fund" to a "defined contribution fund" pensioners of the fund were given the choice of remaining with the fund and having their pension enhanced by a percentage (such percentage arising from an actuarial surplus) or of leaving the fund subject to investing the amount payable, namely the actuarial valuation of their previous benefits plus a percentage arising from the surplus, in what was termed a retirement income option.

2.

The Appellant chose the latter and on 26 August 1998 entered into an agreement with B (hereinafter referred to as "B")

3.

On 26 August 1998 the Appellant entered into an agreement with B in terms of which he would invest an amount just in excess of R6 million in a "life annuity" with B with effect from 1 September 1998, which would give him an initial guaranteed income of R41, 666,66 per month, the first instalment which was payable on 30 September 1998. This could be revised annually at the instance of the Appellant subject to Appellant being limited at the time of revision to direct B to pay him monthly amounts equal to not less than 5% and not more than 20% annually of the total value of the Appellant's investment on the anniversary of 1 September. Appellant revised the monthly sum to R50 000,00.

...

5.

The two parties further agreed as follows:

(a)

The appellant was entitled to instruct B to vary the investments for which purpose he was to employ a financial adviser and had to declare inter alia, that:

(i)

he accepted full liability for the investment risk associated with his instructions to B and acknowledge that in making his investment decisions no reliance has been placed on any financial advice that may have been given by B;

(ii)

he authorized B to act as his agent in placing the investments in the money market and/or specific unit trusts according to his instructions.

2005 JDR 1155 p2

Traverso J

(b)

The Appellant was responsible:

(i)

for paying B an "up-front" investment fee as well as an annual investment fee equal to 0.05% per annum (excluding VAT) of the value of the investment;

(ii)

for paying the fees of his financial adviser.

(c)

The Appellant was not allowed to make any withdrawals from his investment save for the amounts mentioned in paragraph 3 supra.

(d)

The Appellant was not allowed to terminate his investment in the retirement investment option unless he transferred this investment to another registered insurer.

(e)

On the death of the Appellant an annuity would become payable to his dependants and/or beneficiaries indicated in his contract with B until the total amount invested was exhausted.

(f)

The monthly income which the Appellant would receive would be taxable and B would deduct PAYE therefrom. The growth in the Appellant's investment would be non-taxable."

[3]

The appellant was taxed on the basis that the amount paid to him by B in terms of the contract was an annuity...