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.