Financial services provider Old Mutual has been given a severe dressing down by the Pension Funds Adjudicator, Muvhango Lukhaimane, for conduct unbecoming of what customers expect from financial institutions entrusted with their retirement savings.
Lukhaimane said she noted with dismay Old Mutual’s reluctance to rectify its error while seeking to absolve itself from liability by claiming its hands were tied.
Lukhaimane was ruling in a matter concerning the conduct of Old Mutual resulting in financial prejudice to the complainant. The complainant had retirement annuity policies issued for his benefit. He was aggrieved with Old Mutual’s failure to correctly and timeously process his retirement instruction. He indicated that he requested a cash lump sum of R400 000. His election ought to have resulted in no tax payable as same was under the R500 000 tax-free threshold.
He averred that his broker received an email from Old Mutual notifying him that it erroneously processed a one-third cash commutation on both his policies instead of the requested R400 000. The complainant did not agree with this and requested that his original request for R400 000 be processed. Despite this, Old Mutual processed the incorrect cash commutation.
He further indicated that four months after submitting his retirement election, two thirds of his retirement benefit had still not been transferred to Glacier Financial Solutions. He stated that he escalated the matter to Old Mutual’s arbitration department to no avail. He averred that Old Mutual does not practise Treating Customers Fairly.
Old Mutual responded to the complaint with a long-winded explanation in which it did not clearly accept liability. It offered an amount of R2 500 to the complainant for the delay in finalising his claim.
In her determination, Lukhaimane said that, based on Old Mutual’s submissions, several tax directives were erroneously applied for in respect of this transaction. The evidence indicates that Old Mutual incorrectly processed the complainant’s instruction by selecting a cash commutation amount equal to the full one-third value on both policies, which was in excess of the amount R400 000 as requested by the complainant.
She said Old Mutual applied for tax directives on both policies based on the incorrect cash commutation amount. In an attempt to rectify its error and ensure that only R400 000 was payable to the complainant as a cash commutation, Old Mutual calculated the full one-third value of Policy 1 to amount R191 640 and the remainder of the cash commutation amount was calculated on Policy 2 to amount to R208 359, thus making up the R400 000 requested by the complainant as a cash lump-sum commutation.
Old Mutual reapplied for a final tax directive on Policy 1 which was issued by SARS on 6 January 2021. However, it failed to first cancel the previous incorrect tax directives. It appears that SARS took into account the various directives (applied for and not cancelled) when it issued the final tax directive for Policy 1 on 6 January 2021. As a result, SARS requested tax amounting R31 570 on Policy 1.
Old Mutual subsequently deducted the aforementioned tax from the cash commutation on Policy 1 and remitted same to SARS. Old Mutual initially indicated that it would cancel the final tax directive issued for Policy 1 and then reassess the complainant’s tax affairs. However, in its correspondence to SARS indicating its reluctance to cancel the directives owing to the “tedious nature of the process”, it got the only advice possible from SARS under the circumstances i.e, not to proceed with the cancellation thereof on the basis that SARS will refund the complainant upon assessment of his tax in 2021.
Lukhaimane said it was clear that the tax directive issued by SARS on 6 January was based on an incorrect request from Old Mutual. The tax directives further did not reflect any IT88 (arrear tax) tax. Thus, the tax deducted was likely as a result of the complainant exceeding his R500 000 tax-free threshold.
Lukhaimane said a tax directive was also issued on 10 February 2021 reflecting tax of R804 payable on Policy 2 proceeds. Old Mutual indicated that this tax directive was applied for after all the incorrect tax directives were cancelled. However, since the active tax directive in respect of Policy 1 was issued prior to the tax directive for Policy 2, and the former remains in dispute, any tax directive applied for thereafter is influenced by the tax directive that remains in dispute.
The complainant requested and expected a net cash commutation of R400 000. However, due to the tax that was deducted from his benefit, he was only paid a cash lump sum of R367 624 (from both polices). Thus, the complainant has a shortfall of R32 375 representing tax paid to SARS on both policy proceeds.
“It is clear that the tax paid in terms of the directives issued by SARS is as a result of the incorrect tax directives applied for by Old Mutual. Old Mutual ought to place the complainant in the position he would have been in had Old Mutual applied for tax on the correct cash commutation amounts.
“This Tribunal is cognisant of the response received from SARS, wherein it indicated that Old Mutual may not cancel the tax directives and that the complainant will be refunded upon assessment of his tax which was in direct response to the reluctance by Old Mutual itself to embark on a process to rectify the situation as it would be ’’tedious”.
“However, this is not a suitable solution as the complainant does not have access to the remaining amount of the R32 375 paid in tax to SARS and may only have access to same upon assessment by SARS at a later stage.
“Thus, this Tribunal must order Old Mutual to refund the complainant directly. Old Mutual should then recover the amount directly from SARS as it is not acceptable that SARS and Old Mutual should have the benefit of convenience of administrative processes at the expense of the complainant being out of pocket.
“While Old Mutual is obliged to pay to SARS the tax requested in terms of the tax directives issued, it appears that Old Mutual fails to take full responsibility for its numerous errors in relation to the complainant’s retirement claim.
“This Tribunal notes that Old Mutual seeks to absolve itself from any further liability and employing corrective measures by suggesting that its hands are tied, and that the matter is now for SARS to attend to. In the meantime, the complainant is prejudiced by Old Mutual’s errors and delays in processing his retirement claim.
“This Tribunal notes Old Mutual’s correspondence with SARS wherein it indicated that cancellation of the tax directive is a ‘tedious process’. This Tribunal alerts Old Mutual to the fact that the option of cancelling same had only arisen as a direct result of its errors.”
Lukhaimane said that upon Old Mutual becoming aware that it incorrectly calculated the cash lump-sum amount to be in excess of R400 000, it requested confirmation from the complainant to proceed on the basis of the incorrect lump-sum amount, instead of rectifying its error and complying with the complainant’s claim instruction.
“This Tribunal is appalled by the behaviour of Old Mutual as same severely prejudices policyholders and forces them into corners they otherwise should not be in.”
Lukhaimane said due to Old Mutual’s failure to provide the complainant with a quote pertaining thereto as required by legislation and in terms of its processes. Old Mutual agreed to refund the amount of R10 331 that was deducted from the complainant’s retirement value on Policy 1 by paying same to Glacier as part of the complainant’s annuity purchase. Therefore, the Plan Amendment Charge, although permitted in terms of the rules of the fund, will not be applied on complainant’s retirement benefit in terms of Policy 1, which is the correct thing to do under the circumstances as the behaviour of Old Mutual denied the complainant an opportunity to make an informed choice.
She pointed out that this was not the first complaint involving Old Mutual’s failure to provide a policyholder with a quotation in respect of early retirement charges (otherwise known as causal event charges) in recent times.
“As seen in this complaint and others received by this Tribunal, that it is only through the persistence of some policyholders that Old Mutual admits to its failure and attempts to place the policyholder in the correct position.
“This Tribunal shudders to think of the countless other policyholders that have merely accepted the deduction of Plan Amendment Charges on their retirement benefits by Old Mutual without being given an opportunity to make an informed decision, thereby resulting in financial prejudice.
“This Tribunal strongly condemns the behaviour of the Old Mutual as same defeats the inherent purpose for which retirement funds have been established. Thus, this Tribunal will refer the conduct of Old Mutual to the FSCA for consideration.
“The conduct of the Old Mutual, as set out in this determination, is not in accordance with what customers expect to experience from financial institutions entrusted with their retirement savings.
“Old Mutual failed to act in accordance with Treating Customers Fairly (TCF) principles by failing to correctly and timeously processed his retirement claim, provide him a quote to enable him to make an informed decision and its recalcitrant attitude towards rectifying same. This Tribunal cautions Old Mutual from creating barriers to claiming and transferring benefits as same does not accord with the principles of TCF.”
Referring to Old Mutual’s ex-gratia offer of R2 500 to the complainant as a gesture of goodwill for the delay in processing his retirement instruction, Lukhaimane said given the behaviour of Old Mutual in this matter and the time spent plus aggravation endured by the complainant, the amount “is a mere pittance, a slap in the face for the complainant”. She added the acceptance of the offer was entirely the complainant’s decision.
Old Mutual was ordered to refund the complainant directly for the tax amount deducted plus interest. Old Mutual was also ordered to compute the loss suffered by the complainant, if any, due to its failure to timeously transfer his retirement benefit to Glacier.