Old Mutual has welcomed the judgment handed down in the Durban High Court on Wednesday upholding the savings and investment company's appeal against the determination of the Pension Funds Adjudicator in the Mungal and Freeman cases.

The court found that it was competent for Old Mutual to apply a market level adjuster, also known as market value adjuster. MVAs are applied when smoothed bonus policies are surrendered during particularly adverse market conditions.

Mike Harper, Old Mutual's Managing Director of Customer Solutions, explained: "MVAs discourage policyholders from taking unfair advantage of an underlying portfolio by choosing to pull out their money when market values have fallen very significantly, thereby receiving more than their fair share of the current value of the assets in the portfolio – to the detriment of all other remaining smoothed bonus policyholders.

"When applicable, MVAs affect surrender, part-surrender and early retirement values and therefore also transfers between retirement funds (so-called Section 14 transfers). Policyholders who hold their investments for the full term are not affected by MVAs, and will benefit fully from the smoothing and guarantees applicable to their policies. Life, severe illness and disability cover are also not affected by MVAs.

"If Old Mutual – or indeed any other life office – were unable to apply adjusters in extreme market conditions, it would not be able to offer smoothed bonus products as it does today.

"Smoothed bonus products are valuable investments aimed at insulating long-term investors from market volatility, such as we are currently experiencing," concluded Harper.

Harper emphasised that Old Mutual is committed to delivering value to its customers, to treating its customers fairly, and to its objective of helping South Africans become a nation of savers.

I-Net Bridge