CR223 Interest – complainant cancelled during the cooling-off


Interest – complainant cancelled during the cooling-off


1. The complainant had signed an application form on 6 April 2005 for a “Sinking Fund” policy. It later transpired that someone other than the complainant or his adviser had completed the investment portfolio detail as “Money Market Fund”.

2. What in effect had happened was that the complainant had transferred money from a Money Market Unit Trust into a Sinking Fund policy on 26 May 2005 but only to be invested in the same unit trust again and that he paid a hefty price for the privilege to do so. In fact a commission of R30 000 on an investment of R900 000.

3. A meeting was held between the complainant and the insurer on 6 June 2005 at which the complainant declared that he withdrew from the investment. At that meeting, according to the complainant, the insurer agreed to refund the capital without costs plus interest until the capital was reinvested in his Money Market Unit Trust account. Unfortunately the rate of interest was not at the same time settled.

4. The complainant claimed interest from 6 June (the date of the meeting when he decided to withdraw from the investment) until 28 June 2005 when the capital sum of R900 000 was paid back into his unit trust account.

5. The complainant wanted interest at the ruling rate applicable at the time. After our intervention the insurer paid interest from the period 27 May 2005 to 27 June 2005. They paid interest at the rate that actually applied to the policy. This amounted to R4 265 and after the four fund taxation rate of 30% was applied to it, it amounted to R2 986,19.

6. The complainant argued that the insurer was not allowed to take tax into account, they should have allocated the gross amount of growth to his account. The insurer countered that the interest was calculated as the actual growth of the units as earned under the policy, which had been the factual situation until the complainant cancelled the policy. They had to pay income tax under the four fund taxation basis and therefore felt that the complainant should bear this item of cost.

7. The Policyholder Protection Rules (PPR) do not provide for interest to be paid where a policy is cancelled because of the cooling-off provision, unless the time requirement of the PPR are breached. In this case the insurer agreed to pay interest but the basis of the interest for payment was not actually negotiated.

8. The insurer’s basis seemed reasonable to this office in the absence of an agreed rate, as this was the interest that the insurer would actually have earned on the money. It was, therefore, the amount of growth or “enrichment” in the insurer’s hands and seemed fair in the circumstances.

9. We, therefore, were of the opinion that we could not uphold the complainant’s complaint for additional interest.

May 2007