CR122
Annuity – complainant claiming annual increase in annuity payments

Background

The complainant had been a member of a retirement annuity fund. At his retirement age in 2003 he made a compulsory purchase of an annuity from an insurer, and had been receiving monthly payments since then. He did not receive any annual increase in the amount paid, and on enquiry was advised by the insurer that this was because his contract did not have an annual escalation. However, the complainant had read in the newspaper that the Pension Funds Adjudicator (PFA) had made a decision that “we are now entitled to an annual increase”.

Discussion

The PFA determination to which the complainant referred was the matter of Ngubane v SA Retirement Annuity Fund and Old Mutual. The ruling made it clear that it was only applicable to any person who remained a (pensioner) member of the fund after retirement date, and where the fund continued to be liable for the member’s pension. As the Adjudicator states, “it would have been a different matter if the annuity had been purchased by the complainant in his own name”. Where a person remains a member of the fund, he is entitled to be considered for pension increases as a fund member, in terms of the Pension Funds Act. This is because the Pension Funds Act has now incorporated new minimum benefit provisions to the effect that every fund must, starting on the first valuation date after the introduction of the new provisions, determine a minimum pension increase with regard to a formula provided in the Act.

In the complainant’s case however, his membership of the fund terminated on his transfer to a registered insurer, as was made clear in the rules of his retirement annuity fund. The rules state that all annuities shall be purchased from a registered long-term insurer and any annuity shall be owned by the annuitant. It is further stated that “as soon as an annuity is purchased from a long-term insurer as provided for in 6.4.2 the fund shall be discharged from any further liability whatsoever to the annuitant”.

The complainant was thus the owner of the annuity, and the terms of his annuity policy governed the payment of his annuity and any increases. In his case he had selected an annuity which gave him the highest monthly income possible. The terms of the annuity provided for a level annuity, i.e. the same amount was payable every month and there were no increases. He could have chosen an annuity which included an annual increase but then his income would have been less than the amount he was currently getting per month.

Result

The complainant was advised that he was receiving the correct amount of monthly payment and that he could not expect any annual increase.

SM
April 2006