Part II of III: The DAWN and DUSK of Unclaimed Retirement Fund Benefits
In part two we focus on how these unclaimed benefits have accumulated to such a large amount, who is responsible to match these benefits with the people entitled to them and what regulations have been put in place to alleviate a further build-up of unclaimed benefits.
But first, we go back in time …
In 1956, South Africa saw the dawn of the Pension Funds Act which governed the country’s first retirement fund. In the following decades, as more retirement funds were set up, they evolved with improved benefit offerings and administration processes. Today, there are over five thousand occupational and privately administered retirement funds in South Africa under the watch of the Financial Sector Conduct Authority (FSCA).
How did these unclaimed benefits get to such a large amount?
The majority of these benefits belong to employees who did not claim their retirement fund benefits at the time of leaving their employers. This was mainly because these employees did not know that they had been contributing to a separate retirement fund while working at their employer, even though there were deductions off their salary slips. As employees changed employers over the next half-century without claiming their benefits, these benefits accumulated, incrementally, to be around the R45 BILLION it is today. These unclaimed benefits may also be a ‘surplus distribution’, which was an additional amount allocated to former members of a fund and may also consist of death benefits due to the passing away of members’ dependents and beneficiaries.
In part one, we shared the many retirement fund administrators who hold these unclaimed benefits in their various types of retirement funds, including beneficiary funds.
Some reasons why these benefits became unclaimed
- Ignorance of employees who contributed to a pension or provident fund
- Benefits were transferred to preservation funds and unclaimed funds and remain unclaimed
- Employers who did not provide sufficient member information to administrators
- Administrators who accepted contributions with insufficient member information
- Employers closed their doors and employees believed that they lost their contributions
- Dismissed employees believed they were not entitled to their contributions
- Employees who were only paid their employee contribution but not the employer’s contribution
- Employees emigrated or returned to their rural homes without first claiming their benefits
- Employees who passed away having not told their dependents about their retirement benefits
- Historical lack of communication all round with members of a retirement fund
- Integrity of the member data leading to the challenges of tracing former members
- Failure of Trustees to focus on tracing members in their Funds with unclaimed benefits
- Lack of accountability from employers to assist in tracing their former employees
All of the above snowballed, to the ± R45 BILLION of unclaimed retirement fund benefits we have today.
Who is responsible to trace these members?
Trustees of retirement funds have a fiduciary duty to find former members and beneficiaries with unclaimed benefits. They typically employ tracing agents to help with this task, however, because of the incomplete and insufficient member data provided to the tracing agents, the search soon turns stale.
However, having said this, there are retirement funds where Trustees do not seem to be doing enough to ensure that these members and beneficiaries are traced. For example, there are almost two million members with around R19 billion of unclaimed benefits in only two retirement funds. The unclaimed benefits in these two funds represent almost half of all the unclaimed retirement fund benefits in South Africa. Have the Trustees of these two funds done enough to trace former members with unclaimed benefits and has the Regulator held these Trustees accountable to ensure that they are actively tracing former members and their beneficiaries?
Also, because sometimes people can be skeptical when they are contacted by credible tracing agents on behalf of retirement funds, they can be reluctant to cooperate when they receive the unknown calls and e-mails advising them of their unclaimed benefits.
In recent years the FSCA has been on a nationwide communication drive to inform people about these unclaimed benefits, albeit with more focus in the rural areas. In 2017 a centralised unclaimed benefit search engine or database was set up on the FSCA’s website, together with ‘SMS’ facilities and a call centre, more of which will be discussed in the third part of this series.
In the end, Trustees rely on members or their beneficiaries to come forward and provide sufficient information that they belonged to a retirement fund that did not pay out a benefit. Which is somewhat counterintuitive.
So, what more can be done, and by who? We will explore more alternatives in part three.
A typical profile of a member with an unclaimed benefit
This could be the person sitting next to you on the bus or in the traffic, it could be your husband, your wife, your parent or grandparent. These benefits could belong to anyone who was a member of a retirement fund since 1956. More than likely anyone between the ages of forty and a hundred years – if they are still alive. And if a member is not alive, then a dependent or beneficiary of the deceased member who belonged to a retirement fund and did not claim or had a surplus distributed to them, after being paid a benefit. But how do you know whether this could be you? And where does anyone start with finding out? We will tackle this in the third and final part of this series in August 2022.
Administrators and employers had to up their game
Regulation 33 of the Pension Funds Act was introduced in 2001, which compelled employers and retirement funds to ensure that sufficient employee information was provided when making contributions to a retirement fund. Information such as an employee’s full name and surname, their unique identity number etc. These critical details enabled a member to be identifiable and traceable by a retirement fund at any stage.
With the introduction of the Default Regulations which came into effect 1 March 2019, retirement funds had to implement an in-fund preservation strategy. This meant benefits would automatically be preserved within the pension or provident fund unless a member opted to do something else with them. With the improved collection of member information and communication between the employer, the member and the retirement fund, the accumulation of unclaimed benefits in retirement funds was alleviated.
Although Regulation 33 addressed the integrity of the data of retirement fund members from 2001 onward, this still left the industry to deal with the existing R45 BILLION of unclaimed retirement fund benefits that has accumulated since 1956. And as years go by, trying to match these benefits with the members and beneficiaries entitled to them becomes more challenging.
How do you know if you don’t know?
From the above, it is clear that there are still many people entitled to benefits who are not aware that there is money lying unclaimed in retirement funds. How do you know if you don’t know?
In the third part of this series guidance relating to the first steps to take to determine whether there is an unclaimed retirement fund benefit due to you or your loved ones will be provided. We will also explain the search functionalities available through the FSCA and retirement fund administrators’ websites and delve into government’s proposed centralised unclaimed benefit fund which is included in the Conduct of Financial Institutions (COFI) Bill.
Created by: Carol Lenzi CFP®
Find a Financial Professional @ https://fpimymoney123.co.za/find-a-financial-planner/