Part I of III: Introduction to unclaimed retirement fund benefits
by Carol Lenzi CFP®
An estimated R45 billion of unclaimed retirement fund benefits is sitting in just over 1250 retirement funds in South Africa. This is an unbelievably large amount of money waiting to be claimed by former members of retirement funds or their beneficiaries.
The retirement funds holding these unclaimed benefits are regulated by the Financial Sector Conduct Authority (FSCA) and are believed to belong to around 4.5 million former members.
The R45 billion, however, does include unclaimed benefits from retirement funds that are not under the supervision of the FSCA. Members of these funds would need to contact the administrators of these funds directly (GEPF, SAPO, Transnet, Telkom).
Other unclaimed assets
There are other types of unclaimed benefits or assets such as life policies which have not been paid to beneficiaries on the death of a life insured, or where investments have matured and have not been claimed. This three-part series about the unclaimed retirement fund benefits will, however, only focus on the 45 billion of unclaimed benefits within retirement funds regulated by the FSCA.
Firstly, what is a retirement fund, a member and a beneficiary?
In South African context, a retirement fund collectively refers to either a pension fund, provident fund, pension preservation fund, provident preservation fund or a retirement annuity fund. A retirement fund is an investment vehicle which allows for a person to save towards retirement and has many tax benefits.
A pension or provident fund may form part of an employer’s benefit offering and helps employees save towards their retirement. When an employee leaves the services of their employer, they can opt to transfer their pension and / or provident fund benefits to a preservation pension or preservation provident fund.
A retirement annuity fund is a personal savings vehicle which allows for a person to top-up their retirement savings and is also a means for self-employed individuals to save towards their retirement.
For any retirement fund benefit to have existed for a member, there must have been contributions paid to a pension fund, provident fund or a retirement annuity fund.
A member, in the context of retirement funds, is a person who belongs to a retirement fund and in whose name, contributions are made in order for benefits to be paid in terms of the rules of the fund. A beneficiary is a nominee or a dependent of a member, who may be entitled to the benefit when the member passes away.
Each retirement fund has its own set of fund rules outlining the eligibility criteria for membership on the fund, contributions to the fund and benefits payable by the fund, amongst other things.
Retirement fund law and management of a retirement fund
The Pension Funds Act is the retirement fund law governing most retirement funds in South Africa. The Conduct of Financial Institutions (COFI) Bill, still to be promulgated, includes a change in name of the Pension Funds Act to the Retirement Funds Act and includes other proposed amendments.
Each retirement fund is managed by a board of trustees who act in the interests of members and their beneficiaries. Trustees fulfil their duties in line with the rules of the fund and retirement fund laws.
What is an unclaimed retirement fund benefit?
As defined in the Pension Funds Act, an unclaimed retirement fund benefit is money that has not been paid to a former employee within 24 months of the date on which the money became payable, as stipulated in the fund rules and the Pension Funds Act. In most instances this is 24 months an employee left the services of their employer, also called the date of exit. However, for death benefits payable to a beneficiary under Section 37C of the Pension Funds Act, the benefit becomes unclaimed only if the benefit is not paid within 24 months from the date on which the fund became aware of the death of the member, or a longer period as long as the board can reasonably justify it in writing.
Included in the definition of an unclaimed benefit are benefits left in beneficiary funds, beneficiary trusts, matured retirement annuities, preservation funds, surplus distributions, ‘agterskots’ and also monies in unclaimed benefits pension or provident preservation funds.
A beneficiary fund is a fund that accepts lump-sum death benefits from a pension or provident where the trustees have allocated a portion of the deceased’s death benefit to a minor dependent. A benefit can also be paid to a beneficiary fund in respect of a consenting major child if consensus is reached that the major child is ill-equipped to manage a large lump sum of money.
Unclaimed benefits pension or provident preservation funds were initiated in the definition’s section of tax legislation enacted in 2008/9, allowing trustees of retirement funds to transfer unclaimed benefits in their pension or provident funds to unclaimed benefit preservation funds. Retirement fund administrators established their own unclaimed benefits preservation funds to facilitate transfers out of pension and provident funds they administered. However, the FSCA imposed stringent requirements on trustees of pension and provident funds to ensure that they first exhausted a thorough tracing exercise within their funds before they took a decision to transfer unclaimed benefits out of the pension and provident funds they managed.
From the above it can be realised that unclaimed retirement fund benefits are sitting in many types of retirement funds in South Africa and are administered by quite a number of retirement fund administrators.
The second and third part of this series will delve into why unclaimed retirement fund benefits exist and how to find out if there is an unclaimed retirement fund benefit due to you or perhaps someone you know. Be sure to look out for the next two editions of the FPI Consumer Newsletter which will be available in May and August of 2022.