Pensioner offered option to purchase an annuity from insurance company – query concerning the commencement date.
The complainant was the executor in the estate of the deceased pensioner. The deceased had been a member of a company pension fund and had retired in 1979. According to the rules of the pension fund his retirement benefits vested in him on that date and the fund had a liability to pay his pension. At the time of his retirement he had the choice of electing a joint pension for himself and his wife, alternatively electing a single life pension payable for a minimum of 10 years even if he should die before the expiry thereof; should he not die within the 10 years it would be payable until his death. He chose the latter. Payment of his pension commenced in 1979 and he remained a pensioner member of the pension fund.
During August 1997 members of the pension fund were given an opportunity, which the deceased took up, to elect an option to have the pension fund purchase an annuity (the bonus pension) in the name of the member from an insurance company. If a member elected this option the pension liability would be transferred from the pension fund to the insurer and the future pension would be paid and guaranteed by the insurer. The agreement between the pension fund and the insurer reflected the effective date of the transfer of liabilities as 1 October 1997. From that date the pensions that were formerly paid by the pension fund were to be paid by the insurer, the pension fund having paid a purchase price to the insurer in order to purchase, in the case of each member who so elected, an annuity of which the member was the owner.
On 2 July 2001 the pensioner died. The monthly pension (annuity) that he had been receiving was discontinued and the complainant as executor in the estate lodged an enquiry with the insurer, querying why the pension did not continue for 10 years from 1 October 1997 to 1 October 2007. The insurer explained that the commencement date of the pension was 1 October 1979, when the deceased had originally become a pensioner. The complainant considered 1 October 1997, when the bonus pension was purchased in the pensioner’s name, as the commencement date. The complainant did not accept the insurer’s explanation and lodged a complaint with our office, maintaining that a new contract had come into being on 1 October 1997. He maintained that the bonus pension certificate issued to the deceased in October 1997 stated that his pension was a single life pension with a term of 10 years.
We agreed that a new contract had come into being on 1 October 1997. The key question was what the terms of the new contract were.
In a letter dated August 1997 from the chairman of the pension fund to the pensioners, informing them of the option, it was clearly stated that the general terms and conditions of their pension with the insurer would be identical to those of the pension fund. Certain new terms, such as an increase in pension and a 13th cheque, were to be added. In the deceased pensioner’s case, we were of the opinion that the general terms and conditions of his pension included the term that his single life pension, commencing on retirement date (1 October 1979), would be guaranteed for 10 years.
The contract between the pension fund and the insurer confirmed that the effective date of the transfer of liabilities was 1 October 1997. Our view was that the effective date was simply the date for transfer of the pension liability and not the commencement date for a pension benefit becoming due to a member. Thus the term certain could only be reckoned from the retirement date, which is the date the pension became due to the member.
In coming to the conclusion that the terms of the new contract consisted of the same terms and conditions as the previous pension, plus any new terms, we evaluated all the available documentation, including
• An annexure to the contract between the fund and the insurer, being a schedule of the types of pensions payable to the members, indicated that the deceased was to receive a “Type 01” pension, defined as a single life pension – no mention was made of an outstanding term certain, as the term certain on the original pension vesting in 1979 had ended in 1989, so had expired by 1997.
• The bonus pension certificate received by the deceased after the transfer to the insurer in 1997 admittedly indicated that his pension was a single life pension with a term certain of 10 years. However no commencement date was reflected on the certificate. The commencement date must be interpreted to be the retirement date as this is one of the general terms and conditions of his former pension, and not one of the new terms introduced when the election was put to the members.
We made a ruling that the bonus pension certificate as issued by the insurer was not a contract between the insurer and the deceased pensioner but was merely a certificate issued in terms of the contract between the pension fund and the insurer. The terms of the contract between the deceased pensioner and the insurer, as interpreted from all the available documentation, consisted of the same terms and conditions as the previous pension provided by the pension fund, and therefore there was no liability on the insurer to pay annuity payments after the death of the deceased pensioner. The complainant reluctantly accepted our ruling.