Some 4.5 million retirement fund members were owed R45 billion in unclaimed benefits in 2019, according to the Financial Sector Conduct Authority (FSCA). This amounts to 1.7% of all retirement fund industry assets in SA.
However, it is likely that 40% of this will never be claimed, says Olano Makhubela, divisional executive in charge of retirement fund supervision at the FSCA.
It is reckoned that 17% of the unclaimed benefits are valued at less than R100, making it uneconomic to trace the beneficiaries.
SA’s retirement industry has come under public criticism and court scrutiny over the issue of unpaid benefits.
As Moneyweb previously reported, pension fund whistleblower Rosemary Hunter, a former deputy registrar of pension funds at the Financial Services Board (now called the FSCA), waged a multi-year campaign within the FSB to force an open and transparent investigation into the cancellation of thousands of pension funds, some of which still had assets in them.
Hunter took her case all the way to the Constitutional Court, but lost in 2017 on the grounds that the FSCA had already launched investigations into the cancelled pension funds.
ConCourt minority ruling concerns addressed
Makhubela addressed the ConCourt ruling in a presentation to journalists on Tuesday, saying the FSCA had acted on the minority ruling of the judges (who said they would have found in Hunter’s favour) by addressing some of their concerns.
Among these concerns is the conflict of interest in allowing staff of fund administrators to be appointed as trustees of dormant funds without boards, in which role they are supposed to act in the interests of members, but often don’t.
“The FSCA appears to be demanding greater proof that funds have no assets before cancelling their registrations, but from what I can see [it has] not done any more investigations into specific past cancellations,” says Hunter.
“It is at least satisfying to see them doing now what I had tried to get the FSB to do long before I launched my litigation. It is also gratifying to see the FSCA taking action to reduce the extent of the kind of conflicts of interest that riddle the retirement fund industry in SA, by requiring the appointment of independent trustees and auditors, though I think more could be done in this regard – by, for example, prohibiting the use of the same audit firm to audit both the fund and the administrator. That’s a clear case of the fox guarding the hen house.”
Much of these unclaimed benefits tracked by the FSCA goes back to the apartheid years, when workers departed or retired from their places of employment and lost contact with the retirement fund administrators. Some of the funds belong to migrant workers from neighbouring countries, while beneficiaries (though not their dependents) are assumed to have died. Some of the beneficiaries cannot be traced due to poor admin by fund administrators or inaccurate or missing data on members.
Where the benefits are now
At a media roundtable on Tuesday, Takalani Lukhaimane, the FSCA’s manager for retirement fund conduct supervision, said these unclaimed benefits are housed in occupational funds set up by employers for the benefit of employees, or in special purpose preservation funds set up to segregate unclaimed benefits from the rest.
By 2019, some 78.5% of unclaimed funds were housed in occupational funds belonging to 3.6 million members. The balance were in special purpose preservation funds.
The FSCA has set up a search engine to help beneficiaries track down unclaimed benefits.
Between 2010 and 2019 a total of R34.3 billion in unclaimed benefits was paid to 1.2 million members.
About 60% of unclaimed benefits in occupational funds belong to those previously working in the mining, motor, metal and engineering industries.
The impact of Covid
Anton van Graan, specialist analyst for retirement fund conduct supervision at the FSCA, said a survey conducted among employers and employees found 47.5% of funds responding to the survey had sought contribution holidays as a result of pandemic-related disruptions such as loss of income or working hours. Some 12 684 employers sought relief, according to the FSCA, for which their funds were required to amend fund rules (or register new rules) to allow for this.
“We noted that larger employers managed to weather the effects of Covid-19 and continued with the payment of salaries and honouring commitments to preserve fund benefits,” said Van Graan. “The effect on small businesses appeared to be where the most hardship was evident and was particularly observed in most of the umbrella fund arrangements, indicated by requests for contribution relief by employers.”
The greatest number of requests for relief were noted in the manufacturing and services industries, particularly smaller businesses that were participating in bargaining council funds and umbrella fund arrangements.
Listen: Olano Makhubela of the FSCA on developments in the retirement funds sector