Old Mutual Life Assurance Co SA Ltd v The Pensions Fund Adjudicator; - Old Mutual Life Assurance Co SA Ltd v The pensions Fund Adjudicator

• Jurisdiction: South Africa
• Judge: Sishi J
• Judgment Date: 15 October 2008
• Docket Number: 7248/06, 7343/06
• Court: Durban and Coast Local Division
• Hearing Date: 01 February 2008
• Citation: 2008 JDR 1334 (T)

Sishi J:

Introduction

1.

The Applicant brought two applications before this Court in terms of Section 30P of the Pensions Funds Act No.24 of 1956 as amended ("the Pension Funds Act"). In respect of both

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applications, the Applicant seeks the setting aside in terms of the Pension Funds Act of the determinations made by the Pension Funds Adjudicator. It appears that both cases raise the same issue, namely, the entitlement of the Insurer to apply a Marketed Level Adjustor in determining the surrender value of an insurance policy held by a Pension Fund where the member of the Fund withdraws from the Fund before the original contractual maturity date, either by seeking the surrender of the policy and by advancing the retirement date. In view of the similarities of the facts and the issues involved in respect of both matters, it is appropriate to deal with both matters at the same time in this judgment. In this judgment, Case No.7248/06 will be referred to as "the Mungal matter" and case No.7343/06 will be referred to as "the Freeman matter".

Relief sought in the Mungal matter

2.

In the Mungal Application, the Applicant seeks an order:

(a)

Setting aside the determination of the 1st Respondent dated 31st May 2006, under case No. PFA/KZN/2658/05/KN in terms of Section 30 P of the Pension Funds Act;

(b)

Declaring that in the determination of the surrender value of Policy No.11356493, issued by Applicant to 4th Respondent on 22 January 1998 ("The Endowment Policy"), it was competent for Applicant to apply the Market Level Adjustor;

(c)

Declaring that the method of assessing the surrender value of Policy No.11356493 did not give rise to a complaint within the meaning of that expression in Section 1 of the Pension Funds Act 24 of 1956;

(d)

Granting such further and/or alternative relief as to the Honourable Court seems meet and;

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(e)

In the event of any of the Respondents opposing the relief sought herein, an order directing that such Respondent pay the costs occasioned by their opposition, such costs to include those consequent upon the employment of two Counsel.

Relief sought in the Freeman matter

3.

In the Freeman application, the Applicant seeks an order:

(a)

Setting aside the determination of the 1st Respondent dated 31 May 2006 under Case No. PFA/KZKN/2799/2005/KM/ch in terms of Section 30 P of Act 24 of 1956;

(b)

Declaring that, in the determination of the early retirement value of Policy No.9317075, issued by Applicant to 4th Respondent in 1994, it was competent for Applicant to apply the Market Level Adjustor;

(c)

Declaring that the method of assessing the early retirement value of Policy No.93137075 did not give rise to a complaint with the meaning of that expression Section 1 of the Pension Funds Act 24 of 1956;

(d)

Granting such further and/or alternative relief as the Honourable Court seems meet; and;

(e)

In the event of any of the Respondents opposing the relief sought herein, an order directing that such Respondent's pay the costs occasioned by their opposition, such costs to include those consequent upon the employment of two Counsel.

4.

In both applications, the relief sought is opposed by the 2nd Respondents, namely Mr Mungal and Mr Freeman. It is not opposed by the Pension Funds Adjudicator, and the respective Registrars have indicated that they abide the decision of this Court.

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5.

It is appropriate to first deal with the undesirable conduct of the Pension Funds Adjudicator of filling opposing affidavits in respect of both matters. In the Mungal matter, the Pension Funds Adjudicator has filed a Notice of Intention to Oppose accompanied by a 32 page opposing affidavit. In the Freeman matter, the Pension Funds Adjudicator has filed a Notice of Opposition accompanied by a 37 page answering affidavit. The reading of these affidavits, reveals nothing more than an attempt by the Adjudicator to defend his own determinations. The Pension Funds Adjudicator has been warned in a number of cases not to file opposing affidavits, such conduct by the Adjudicator is undesirable. (See Orion Money Purchase Pension Fund (SA) v Pension Funds Adjudicator and Others [2002] 9 BPLR 3830 (c) at 3831I – 3832D; Pretoria Portland Cement Co. Ltd and Another v Competition Commission & Others 2003 (2) SA 385 (SCA) at 402G – 403B).

The facts relevant to the Mungal application

6.

Protektor Preservation Provident Fund ("the Protektor")is the Pension Fund of the type known as an underwritten fund in that its assets only consists of claims against one or more insurers arising from the insurance policies taken out by the Fund. In the case of Protektor, the policies are underwritten by Old Mutual, which also administers the Fund. Mungal was formerly a member of Protektor. A contract of insurance was concluded between Old Mutual and Protektor, in respect of insurance benefits payable to Mungal. Mungal was the life assured under the policy Protektor, the policy holder and beneficiary. Upon the policy maturing, Old Mutual was obliged to pay the proceeds thereof to Protektor, which would use such proceeds to pay Mungal, the benefits due to him under the rules of Protektor.

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7.

Protektor rules provide for the payment of benefits in three circumstances, namely, upon the member reaching retirement age, upon the death of the member and upon the member withdrawing from the Fund. Withdrawals from the Fund are governed by rule 6, read together with paragraph (A) of the definition of "accumulated credit" in rule 1 and rule 8(4) which deals with the policy options chosen by Mungal and provides that the cash value of the policy at the date of surrender will be the appropriate surrender value which will depend on the value as at the date of the underlying portfolio.

8.

Upon a member's withdrawal, the surrender value of the policy taken out in respect of that member is paid out by Old Mutual to Protektor. Clause 5 of Part 3 of the policy contains the following provision relating to the determination of the surrender value:

"The amount of surrender value will be determined by Old Mutual at the time of surrender, and will take into account disinvestment costs, recovery of un-recouped expenses, any debts against the policy and legal limits enforced".

9.

The amount of the surrender value is determined by Old Mutual at the time of surrender in accordance with such actuarial principle as may be applicable. It is not in dispute that it is necessary to make the valuation by using actuarial methods. The Applicant contends that this includes taking into account if appropriate a Market Level Adjustor. This is disputed by the 2nd Respondents.

10.

It is evident from the founding affidavit in the Mungal application that on various occasions during the period 2000 to 2003, Mr Mungal sought information regarding the value of his policy. The information was provided and it was repeatedly indicated that there was a difference between the "cash value" (or surrender value) of the policy and the fund value thereof. Mr Mungal queried one of these quotations, he was specifically informed that the

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difference between the two figures that had been furnished was due to the application of a Market Level Adjustor. The response from Old Mutual as appears from annexure "PDB14" of the founding affidavit reads as follows:

"The reason for the reduction was because there was a Market Level Indicator done as the market was doing badly, from 1 March 2003, 15%. Because the market was doing better from 1 March 2003 it changed to 10%".

11.

In March 2003, Mr Mungal submitted a withdrawal advice form to Protektor, advising of his intention to withdraw from the Fund. He was thereafter on three separate occasions furnished with quotations indicating the value of his policy. Correspondence was exchanged between the parties relating to Mr Mungal's proposed withdrawal. It is clear from these quotations and the correspondence that Mungal was made aware that the value of the policy that would be paid to him, on surrender, would be lower than the cash value thereof. Mr Mungal thereafter proceeded to withdraw as a member of the Fund. In June 2004, the surrender value in the amount of R230 384-62 was paid to him by Protektor.

In March 2005 Mungal referred the complaint to the adjudicator. The complaint was set out as follows:

-

Old Mutual had applied a Market Level Adjustor which reduced the value of his policy;

-

The value shown in the statement of 30 June 2003 was the same as that of the statement of 30 June 2002 - he contended that the former should have been higher than the latter.

The second part of the complaint is not relevant for the purposes of this application.

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12.

In May 2006 the Adjudicator issued a determination in terms of whereof he ordered that:

-

Old Mutual was not entitled to apply the Market Level Adjustor, when determining the surrender value of the policy;

-

The sum of R29 592,04 by which the surrender value had been reduced as a result of the application of the Market Level Adjustor was to be repaid to Mungal.

The facts relevant to the Freeman application

13.

The 4th Respondent, the South African Retirement Annuity Fund (SARAF) is a Retirement Annuity Fund which operates exclusively by means of individual policies issued to it by Old Mutual in respect of each of its members, as contemplated in Regulation 28 (3) of the Pension Funds Act. During 1994, Mr Freeman became a member of SARAF and Old Mutual consequently issued a Flexi-Pension Policy to SARAF in respect of Mr Freeman being Policy No. 9317075. The aforesaid contract of insurance was concluded between Old Mutual and SARAF. Mr Freeman was the life assured. In terms of the policy contract, the...