A year ago, only a few pension industry specialists would have heard of Vuyani Ngalwana (37), the pension funds adjudicator (PFA). 
I nominally report to the minister of finance, but I have never met the man
He was best known as the editor of Juta's Pension Law Bulletin in his time at the Cape bar, and then as deputy director of the national prosecuting authority's asset forfeiture unit.Nobody could have predicted at the start of 2005 that the PFA's rulings would force life insurance companies to pay out almost R3bn to disgruntled clients.
It is this surprise factor and the reverberations that have shaken up a relatively staid and settled business sector that prompted FM editors and writers to adjudge Ngalwana our top Business Newsmaker of the Year.
Since February this year, the adjudicator has dealt with 150 cases on the conduct of retirement annuity funds, which are administered by life insurance companies. Most of these concerned the poor benefits offered to annuity members who stopped paying their premiums into the fund before the term had ended.
Ngalwana ruled that as there was no provision in the rules of the retirement annuity (RA) funds to charge penalties for early terminations, the penalty charges should be refunded to clients.
What the life offices considered to be confrontational language in the adjudicator's rulings was answered in kind. Gerhard Joubert, executive director of the industry umbrella Life Offices Association, accused Ngalwana of making "uninformed" and "reckless" statements, based on a fundamental misunderstanding of how the long-term insurance industry operates.
The industry's tone has since become more conciliatory. Liberty Life CEO Myles Ruck says it is no bad thing that the life industry has been forced to examine its past business practices. "Would we have got around to changing them as fast without him?" he says. "Probably not."
Ngalwana has deliberately kept out of the debate about the future of the life industry and he has never had a formal meeting with any of the life office CEOs, who understandably see him as quite a remote figure.
Old Mutual SA MD Roddy Sparks says that while insurers have been constantly improving their products, Ngalwana has now forced them to address the shortcomings in older assurance products. "The older RAs were designed at a time when there was far more job stability and it was quite realistic to commit to regular savings over 25 or 30 years," says Sparks. "But these are not appropriate with the growth in job mobility in which financial circumstances change every five years or even more frequently."
Ngalwana says he does not understand why the media focused so intently on the RA cases, which make up less than 5% of his office's workload. He deals with 12 or more types of complaints - such as the quantum of disability benefits, ruling on which dependants are entitled to death benefits, determining whether employers failed to pay contributions into pension funds after deducting them from employees' pay packets, and so on.
But none of these rulings had any significant financial implications for any listed company: the RA cases, in contrast, have wiped billions off the market capitalisation of the life assurance sector. These shares should have directly benefited from the boom in the JSE this year, as most of their net asset value is made up of their equity holdings. But, while the all share index is up more than 40%, the life assurance index has risen less than 17%.
Ngalwana says it is not his business to worry about systemic risk that may result from his rulings. But his decisions will have long-lasting consequences for SA's entire savings industry . As well as paying R3bn in "reparations" for its past bad practices (see Companies page 47), the life offices have been forced to improve their poor disclosure.
The industry practice of using clients' money to fund upfront commissions to brokers and agents is also likely to go. In future, life companies will have to pay out at least 70% of fund values if their clients end their RA contracts early. They have even been forced to improve the payments of endowment policies, which are not covered by the PFA but have been subject to the same upfront intermediary commissions.
The life offices certainly underestimated the adjudicator's tenacity. They hoped the courts would rule that he was meddling in issues that did not concern him - arguing that he had no jurisdiction over the underlying life insurance contracts into which RA funds have invested.
Ngalwana agrees that life insurers, as such, fall outside his jurisdiction. "But I am dealing with life offices in their capacity as administrators of retirement annuity funds, which are undoubtedly retirement funds, all of which are covered by this office," he says.
"In these cases, we have been obliged to rule whether members of retirement funds have suffered prejudice through maladministration."
Ngalwana says he is not a consumer activist, and he resents any implication that he is carrying out a political agenda. "I nominally report to the minister of finance, but I have never met the man," he says.
He has certainly not courted publicity - initially he tried not to talk to the media at all.
"With respect, the time I spend with the FM would be better spent dealing with rulings, and ensuring that we keep our promise to turn around complaints within four months," he says in our interview. "But we soon realised that public awareness and education was critical, and people need to be made aware of their rights."
Ngalwana says he is by nature an introvert. He was never a hard-core activist as a student and he has never believed in preaching his ideas. "It is certainly hard for life offices to argue that I have been campaigning against them, as most of the office's rulings have been in their favour," he says.
He hopes his efforts will lead to a comprehensive review of pension fund law. "I could find only two rulings related to pension fund law in SA legal history; a comprehensive review is now urgent. One needs far more than a Band Aid for a deep wound. As well as the Pension Fund Act itself, provisions in related legislation such as the Income Tax Act need to be reviewed."
Ngalwana also hopes that there will be a rationalisation of the number of forums that deal with pension fund complaints. "There are 13 bodies that overlap with the PFA in some form or another, ranging from the Commission for Conciliation, Mediation & Arbitration to the Financial Services Board appeal board. I would like to see a specialist pensions appeal court."
He says the PFA should model itself more closely on its Australian counterpart, which aims to settle disputes - resolving 69% of Australian pension cases through conciliation.
"Our system is adversarial. It is not our intention to embarrass anyone with our rulings. But, because we do not have the power to settle disputes, we have to make public rulings on every case."
He argues that many of the cases would not have come to his office if the life offices had listened to their clients and kept them informed.
Finance minister Trevor Manuel has been a staunch supporter of the PFA, and they share an interest in protecting the consumer . But Ngalwana will not be able to rely on Manuel as an ally if his rulings undermine the recent agreement between the life offices and the treasury.
That agreement offers all RA members and endowment policyholders who reduced or stopped their premiums to be credited with at least 65% of the investment value (premiums paid plus investment growth, less annual charges) of their policies. This is well short of what the adjudicator awarded, which in most cases was 100% of the investment value. But that would have led to severe financial penalties for all the life companies, which in many cases cannot claw back the upfront commissions they have paid. There also would have been no incentive for customers to continue saving.
Perhaps with hindsight, 2005 will be seen as the high water mark of the adjudicator's power.
Chris Busschau, chairman of the SA Financial Services Intermediaries Association, which represents brokers and agents, says that in five years the life industry will be thankful for the changes now taking place.
"Sales have been flat, even though with an improving economy it should be easier to sell life products," he says.
"Many brokers have preferred to put their clients into products with a better image than life products, such as unit trusts. Life offices now have an opportunity to repair their image; I hope they don't squander it."
