Metropolitan’s pension fund blunder

Insurer in court bid to recover funds from a member whose RA value it miscalculated.

CAPE TOWN – There are some questions no one ever imagines that they will have to face. One of those is what you should do if your insurance company contacts you to to say that it has miscalculated your pension and that you are actually only due less than a third of what it had originally given you.

However, for one Moneyweb reader, this is exactly what he is currently having to deal with after Metropolitan claimed that it had made “a bona fide mistake” in calculating the early retirement value of his retirement annuity (RA). The company now wants its money back and is suing for it, plus interest, in the High Court.

The reader, who has asked not to be identified, took out the RA in 1974. In October last year he took early retirement due to disability and requested a quote from Metropolitan on the value of his RA.

The insurer responded with a quote that valued the policy at R2 686 438.08. On this basis, the member elected to take one third – R895 479.36 – as a lump sum and to annuatise the remainder.

Almost exactly a year later, however, he received a phone call from Metropolitan to inform him that he had been overpaid and that the actual total benefit amount on his policy was only R858 134.10. The somewhat bizarre explanation was that the mistake had happened “weens ‘n fout wat per abuis begaan is met die hand berekening” (due to an error being made accidentally in a calculation done by hand).

No explanation has been given for why Metropolitan would be making such a calculation by hand or how its systems could have failed so completely. The only clarity that has been provided is that the insurer used an incorrect number of portfolio units to reach the policy value.

Initially, Metropolitan made an offer to the member that he could keep the overpayment on the lump sum and any monthly premiums already paid to him. It would however cancel his current annuity and replace it with a new one reflecting the correct two-thirds policy benefit of R572 089.40. This would, obviously, significantly reduce his monthly income.

The company however insisted that the offer would only stand for two weeks, after which time it would hand over the matter to its attorneys for the recovery of the full overpayment. When the member requested that he be allowed to obtain an independent opinion from the Pension Funds Adjudicator (PFA), Metropolitan warned him that approaching the ombud would be considered a rejection of the offer.

However, not wanting to make a decision without any guidance, the member sent the matter to the PFA anyway. Metropolitan responded by immediately withdrawing the offer and instructed its lawyers to approach the High Court to recover the full overpayment.

The Moneyweb reader argues that this approach by the insurer has been meant to railroad him without giving him a chance to establish his rights. Metropolitan even made an application to the court for summary judgement, however that has since been withdrawn.

In explaining the company’s actions, a Metropolitan spokesperson told Moneyweb that: “We approached [the member] to resolve the matter during which process he lodged a complaint with the PFA. It is our considered view that [the member]’s complaint to the PFA is not a qualifying complaint for adjudication by the PFA and that the relief sought does not fall within the ambit of the order that the PFA can make. As such the correct forum for us to institute our action is the High Court. As explained this route was only pursued after numerous unsuccessful direct engagements with [the member]”.

However, some senior financial planners have expressed the view that Metropolitan should take the mistake on the chin and move on. The client has made major life decisions based on the policy amount he was quoted and for the company to now request that he pay it back is ethically questionable, particularly in light of the Treating Customers Fairly framework.

A legal opinion obtained by Moneyweb expresses a similar view. While Metropolitan can claim that the member cannot keep money that he is not entitled to, the member can potentially claim damages suffered on the basis of the expectation created by the fund that he was going to receive a certain amount.

The case, which will certainly be watched with interest by financial planners and financial services companies around the country, is likely to hinge on a critical question: whose responsibility is it to check that the quoted value of the RA was correct? In other words, since Metropolitan provided a formal quote, would the member have any valid reason to believe that it could be wrong?

In its court filing, Metropolitan argues that the “defendant was aware, alternatively reasonably ought to have been aware of the mistake”. It does not state how it reaches this conclusion, but it will have to depend on previous statements that reflected lower amounts, even though these were only projections. The amounts on this statements, it will argue, show that it was unreasonable for the member to think that the quoted figure could be correct.

However, the member will argue that there is no onus on him to check his statements, and no proof that he even received such statements. In fact, he claims that they were sent to the wrong address. It also took Metropolitan a year to notice the mistake, so how could it have an expectation that he should pick it up himself?

The challenge Metropolitan may face is arguing why any reasonable person would question the quote it provided. It is, after all, the insurer’s responsibility to calculate the value of the policy and in an old-style RA such as this one with an essentially opaque structure, there is actually no way that a member could calculate the benefit himself.

The company’s application also naturally raises the question of whether Metropolitan has made mistakes on other policies. If it wants to claim that it made “a bona fide mistake” in this instance, might there not be others? And what if those cases involved miscalculations that were too low and deprived members of funds to which they were actually entitled?

Metropolitan’s spokesperson however insisted that this is an isolated case: “The circumstances around this case are unique and we do not expect them to recur in the same way. Our systems and processes are in place to minimise these errors and our people have received further training as a result of this incident to prevent an unlikely recurrence.”

However, if Metropolitan is asking the court to believe that it just got it wrong, it is surely opening itself up to far wider scrutiny about whether it hasn’t gotten it wrong elsewhere. In that light, perhaps a question it should be asking is whether risking that kind of reputational damage is worth the relatively small a mount of money it is hoping to recover.



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Having ‘invested’ in RA’s when I was much younger I am of the opinion that one is better off managing one’s own funds in a self compiled portfolio of shares and fixed deposits with reputable institutions. Here you have proper transparency and full control. That is why I stopped buying any form of pension fund and ‘did my own thing.’ I started doing this many years ago when I started to realise that insurance companies are actually quite inefficient when it comes to managing your funds. I wonder how many other ‘bona fide’ errors have been made where customers have received pensions lower than what they should be entitled to without knowing, because of ‘human error.’

Got to love insurance companies…never ever invest via anything to do with an insurer! Ever!

How to achieve notoriety and reputational damage in one easy mistake

So they want something like R1.8 million back, because someone made a mistake in calculating something by hand? This someone was employed to do this, so the employer either employed the wrong person, and/or failed to train him/her properly and/or did not put in controls to avoid the error. So the employer is culpable and the directors, who earn substantial sums to oversee the company can now dig into their collective Xmas bonuses and pay for the mistake. It won’t hurt them. Anecdote – an elderly man had a with-profit life policy with insurer C (now absorbed in insurer M). Because of some actuarial quirk, the total premiums paid exceeded the sum insured including existing bonuses. Moreover, every time he paid another premium, the cash value of his policy went DOWN. The actuarial boffins confirmed this was correct despite the fact that it flies in the face of logic. The person tasked with telling the client about this flatly refused to do so.

My view, this could not have happened to better insurance company. I also think that their systems are up to magnets and that ”no manual calculation” was done!

I love this….

“The amounts on the statements, it will argue, show that it was unreasonable for the member to think that the quoted figure could be correct”

Is that really the best argument their lawyers could come up with ?
Is it unreasonable for Moneyweb readers to think that this story is correct ?
It’s a well-known fact that many people barely know or understand their bank charges, let-alone what’s happening with their RA’s, with or without the statements.

The reputational damage just this article alone has done is worth far more than the money, irrespective of what transpires henceforth in the case.

Does this mean that Metropolitan does not have a risk management policy for mistakes of their employees in place? and they are insurers?
What type of busisness is this?

Let this be a LARGE wake up call – do NOT invest with an insurance house.
Invest with an investing house.

Patrick, please ask the reader what he contributed monthly and whether there was an escalation every year?
I really want to calculate the growth he received………..

This is not funny at all . 2 Years ago the Bank with the Green Logo
” accidently ” credited my savings account with R100 mill . It took 3 hours of ‘ Investigations ” only to be told ” Sorry it was a Computer Glitch ??? “

Another three issues which I only add now that I’m back from making some coffee by hand calculation – oops, mistake, it’s by hand operation!!!:

(1) He retired last year but the calculation was done by hand???????
Surely Eskom gave them permission to use their calculators. Suggestion – buy some computers and DO NOT forget to buy some UPS’es as well.
(2) As far as I know actuaries check these calculation, especially the old generation RA’s.

(3) How safe is my investment growth with them?
Incidently, thank you Metropolitan, I’ve a policy with you which I have decided, after reading this article, to withdraw to get better and correctly calculated growth elsewhere.

Guess what Metropolitan will charge you for “withdrawing” from your policy? While it all depends on how long it has been in force, you can bet your bottom dollar there will be “penalty charges for a causal event”. This will of course include something to offset the commission that was paid on the policy (probably “up-front” or “annualized” depending on their turn of phrase). The industry has declaimed loudly in the past that these charges have to be recovered against the cash value of the policy. But in recent articles in the press, they have been saying that these charges are “mainly commission” that was paid up-front. What they fail to tell Joe Public is that there are commission regulations which require them to recover any unearned commission from the intermediary who introduced the client. Indeed, if a policy is terminated in the early months of its existence they have to reverse ALL of the commission. This acts as a message to the broker that he/she mustn’t write “rubbish” business. So we end up with a situation where not only does the broker have to “pay back the money” (where have I heard that before?) but the client gets it deducted from his cash value as well.

I trust insurance companies in SA as much as I trust car salesmen. They just rip you off with ever escalating costs, low payouts and emboss it with expensive advertising campaigns, to fool people. I like the comment by NickF56, that it’s better putting money into stocks/fixed deposits, instead of having an RA. You guys should do a value/cost comparison of an RA over a set time, vs the value/cost of stocks over the same period. No contest I’m guessing.

But you do get a tax advantage with an RA. Modern RA’s through appropriate channels such as unit trusts / ETF’s are far better than those life assurance ones. Are life companies still selling those. If so, they should stop as they fly in the face of TCF.

I wonder how many other mistakes they have made which have gone against the investor but they failed to correct as the company never suffered a loss? As the insurance industry is so opaque, we will never know. Also can’t understand why you need an actuary to calculate an investment value, even for early retirement, as surely this must be automated, otherwise the company would need to manually check every manual calculation? I run an investment company and we would never calculate investment values manually. If we did, our clients would (rightly so) leave in drives!

“weens ‘n fout wat per abuis begaan is met die handberekening…”

Langdeelsomme was nog maar altyd moeilik.

(1) it’s an old policy so the charge is small, of course the bonuses must vest during the lifetime of the policy and not only at maturity date
(2) investing privately at a better growthrate will put me in a better NAV in 5 to 7 years time
(3) one day withdrawing at CGT rate instead of income tax rates (when it’s a a LA) will add a lot of value ie a much smaller drawdown
(4) fees during the year are smaller than at the insurance house, and a small difference of only one percent makes a large NAV difference

It boils down to (1) do your homework (2) I must have discipline and not squander the money (3) check regularly (twice a year) on the status of the investment

Never, never, never, never put your investments for your pension in the hands of an insurance company. NEVER! This is the most irresponsible thing you could ever do to yourself.

End of comments.



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