PENSION FUNDS AMENDMENT BILL, 2007
The LOA appreciates the opportunity to comment on the Pension Funds Amendment Bill (“the Bill”).
Our comments focus on those aspects of the proposed amendments which we believe are pertinent to the Statement of Intent (SOI) entered into between our member offices and the Minister of Finance in December 2005.
Our comments follow the clause numbering used in the Bill.
Section 14(9) – Transfers between retirement annuity funds
For the sake of greater legal certainty and better protection of all concerned, in particular the member or non-member spouse, we propose that the "request" in paragraph (a) be made a "written request".
The purpose of paragraph 14 (9)(b) is, we believe, to prevent switches (churning) between retirement annuity funds being done for the sake of "fees or commission of any nature". However this will only prohibit the upfront commission on the transfer and not ongoing commission, called “trail” commission that may be payable if agreed to by the client. Underwritten funds are subject to commission regulations under the Long Term Insurance Act, 1998 and may not pay such “trail commission” but non-underwritten funds can and it is usually based on a percentage of the assets under management. We are concerned as this opens up the potential for advice bias based on commission. Underwritten funds who currently allow RA transfers have already experienced this. Clients can be disadvantaged as in many cases the changes they would like to make to their investment portfolio can be done within the existing RA fund without expending these costs.
Therefore to also prevent such switches being done for the sake of "trail fees" or higher permissible "trail fees" after the transfer, we propose that paragraph (b) be amplified to prohibit such "trail fees" after the transfer which are in excess of what legally would have been permissible had the transfer not been done.
This amplification could be worded along the following lines:
(b) No fees or commissions of any nature, other than fees payable by the transferring member or non-member spouse personally and any fees payable to the registrar, are payable by any party to the transfer, or by any agent or mandatory of such party:
(i) in return for the facilitation, intermediation or recommendation of the transfer; or
(ii) for financial services rendered by a Financial Services Provider or Representative after the transfer in respect of the transferred interest of the transferring member or non-member spouse which exceed the fees or commission that would have been permissible for such services had the transfer not been done.
We propose, in addition, for the protection of members and non-spouse members, that a requirement be added in section 14(1) that in the case of such individual transfers the Registrar must be satisfied that the member or non-member spouse concerned has been duly informed regarding the prohibition and limitation of fees and commission that may be paid in respect of the transfer and the transferred interest of the member or non-member spouse.
It must also be highlighted that in many cases there are considerable systems alterations needed to cater for potentially large scale applications for transfer. It is therefore requested that retirement annuity funds and their administrators be afforded a period of six months after commencement of the proposed Amendment Act to effect the necessary systems changes to allow transfers to and from other retirement annuity funds.
Section 30A - Submission and consideration of complaints
It is not clear why the words “for consideration by the board of the fund” are being added. The section when read with the definition of “complaint” clearly also envisages complaints against an employer participating in the fund. It is also not clear how the board of the fund can consider complaints lodged with a participating employer (if the employer omits to forward same to the fund).
Section 30C – Appointment of Adjudicator
We reiterate our proposal in our comments on the draft Bill, that consideration be given to requiring consultation with the Pension Funds Advisory Committee, in regard to the appointment of the Adjudicator, Deputy Adjudicators, and Acting Adjudicators, as opposed to merely consultation with the Financial Services Board. This would be consistent with the process in respect of the Ombud for Financial Services Providers (FAIS Ombud).
As pointed out in our prior submission, subsection 30C (6) is potentially open-ended as there is no time limit within which the Minister is required to appoint an acting Adjudicator pending the appointment of a new Adjudicator. The appointment as Acting Adjudicator should preferably be for a limited period (say 6 months).
Section 30J - Procedure for conducting investigation
We repeat our submission that Section 30J (1) must be amended in accordance with the provisions of section 27(4) and (5) of the FAIS Act,
As stated in our initial submission Section 30 J(3) must either be deleted or substantially amended to ensure that the Adjudicator can be regarded as an “independent and impartial tribunal” , as required by section 34 of the Constitution. The Adjudicator’s function is to act as a judicial officer, and not as a commission investigating “…a matter of public concern”, as contemplated in the Commissions Act.
We wish to again record our belief that it will be in the interests of all parties to ensure that an attempt must be made, in the first instance, to resolve disputes by conciliated settlement, as is required of the FAIS Ombud in terms of Section 27(5)(b) of the FAIS Act, and that determinations need only be issued where such settlement cannot be achieved. We believe that this will significantly improve the level of mutual understanding of the respective points of view of members of the retirement funds industry, the Adjudicator's office, and the general public, and will reduce the likelihood of litigation. The fact that an actual determination has not been issued does not prevent the tribunal from bringing problematic cases or trends to the attention of consumers by way of annual reports or other appropriate communications.
Section 30P – Access to court
As pointed out in our initial submission, the proposed amendment to sub-section 30P(2) is an unwarranted restriction of the jurisdiction of the High Court and is neither in the interest of justice nor to the advantage of members. The present dispensation allows a member, who may not be legally represented in the proceedings before the Adjudicator, to advance new evidence to the Court in respect of his/her complaint, provided such evidence pertains to the original complaint. The proposed amendment will deprive a member of this opportunity in the proceedings before the High Court. Regard being had to the res judicata principle, the member will also not be able to thereafter lay another complaint.
We point out that Section 165(1) of the
Constitution stipulates that the judicial authority is vested in the courts and
that Section 169 provides that a High Court may decide any matter other than
those which only the
“The High Court's jurisdiction over constitutional matters is conferred by s 169 of the Constitution, which constitutionally entrenches the High Court's jurisdiction to entertain constitutional matters. That jurisdiction is not absolute - the High Court has no jurisdiction in circumstances where this Court has exclusive jurisdiction to decide a constitutional matter, nor does it have jurisdiction where Parliament has assigned the determination of the constitutional matter to another Court of similar status to the High Court. However, it is clear that Parliament may restrict the jurisdiction of the High Court only where it assigns the relevant constitutional jurisdiction to a Court of similar status to a High Court”.
Section 173 of the Constitution furthermore provides that the High Court has the inherent power to regulate its own process. We point out that both the Supreme Court of Appeal and the High Court, when sitting as courts of appeal, have the power to hear further evidence on appeal (See Herbstein and Van Winson-The Civil Practice of the Supreme Court in South Africa-Fourth Edition, page 909) and there does not appear to be any reason why a High Court should be prohibited from hearing further evidence when adjudicating on a determination of the Adjudicator.
In this regard we believe it important to also point out that whilst the rules and prescribed procedures in the Magistrates Court or the High Court normally ensures that all relevant facts are canvassed, the informal procedures before the Adjudicator may often result in important information not being placed before the Adjudicator by a complainant when formulating a complaint.
We therefore wish to repeat our submission that there is no reason to depart from the current dispensation, and that the proposed amendment should not be effected.
Ms Anna Rosenberg
Deputy Executive: Legal & Policy
Life Offices’ Association of SA
Tel: 021 421 2586