R45 billion in pension savings have not been claimed - a new central fund may now be created

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Photo: Getty
Photo: Getty
  • The FSCA says retirement fund administrators sat with R44.9 billion of unclaimed benefits at the end of 2019.
  • The regulator thinks about 40% of unclaimed benefits may never be reunited with their rightful owners.
  • It is backing National Treasury's proposal to create a central fund that will house all unclaimed benefits.

Treasury and the Financial Sector Conduct Authority are considering forcing pension funds to transfer all of their unclaimed benefits into a central fund.

At the end of 2019, unclaimed benefits totalled R44.9 billion, figures presented by the regulator on Tuesday showed.

The FSCA's divisional executive of retirement funds, Olano Makhubela, estimates that "at least a good 40%" of that money will not be reunited with its beneficiaries.

"And it's simply because the beneficiaries are no longer there - either because they have since become deceased or the records are not easily processable to be able to identify the beneficiary. It's something I think we kind of need to start realising," he said.

Retirement fund administrators and the FSCA appear to have beefed up their efforts to trace beneficiaries after former Financial Services Board executive Rosemary Hunter led the fight for beneficiaries all the way to the Constitutional Court.

The responsibility to trace and pay benefits resides with affected retirement funds' boards of trustees.

But the FSCA has also been taking action to trace beneficiaries.

Still, the amount of unclaimed benefits is almost at the same level it was in 2018 when Hunter's court case and her association with the Unpaid Benefit Campaign group brought the issue squarely into the public domain.

Hunter contended that the increase in unclaimed benefits corresponded with the regulator's decision to cancel more than 4 600 dormant retirement funds between January 2007 and December 2013. But the FSCA denied this.

"There might be links, but they're not necessarily the same thing. The unclaimed benefit is a historical issue which goes as way back as the apartheid years," said Makhubela.

Unclaimed funds are growing; what's next?

The FSCA's presentation showed that between 2010 and 2019, R34.3 billion in previously unclaimed benefits were paid to more than 1.2 million people. But over the same period, total unclaimed benefits increased from R11.6 billion to R44.9 billion.

The biggest spike happened between 2013 and 2015. Unclaimed benefits jumped from R21.7 billion in 2013 to R36 billion in 2014 and then R42.2 billion in 2015. Takalani Lukhaimane, the manager of conduct supervision at the FSCA, said the spike was mainly due to two large funds that reclassified R11 billion of their unpaid funds as unclaimed benefits.

The FSCA and National Treasury are now proposing a consolidation of all unclaimed benefits under one fund.

Makhubela said this would address the public perception that retirement administrators are not tracing beneficiaries because they benefit from sitting on those billions.

Also, once all the unclaimed benefit funds are centralised in one place, it could be easier for people who think they or their relatives had unpaid pensions to know where to go. The centralised fund would have dedicated tracing agents and would be run as a not-for-profit fund. The proposal came from Treasury, but the FSCA is backing it too.

"Just to stress that, if indeed we do end up with a central fund, this should not be seen as expropriation. We are not taking the benefits from anyone. A member who has a valid claim will always be able to claim that benefit," said Makhubela.

Why is the money not getting paid to beneficiaries?

Makhubela said retirement funds accumulated these benefits mostly because workers' details were not accurately captured in the past, especially during the apartheid years, which coincided with a boom in migrant labour.

People moving from rural parts of the country and neighbouring countries sometimes didn't provide proper ID numbers, and contact details were sometimes incomplete - cellphones were not in use at the time, either. 

"There's a large number of members whose records indicate an endless number of zeros for their IDs. And so, where do you start tracing?" asked Makhubela.

But Makhubela believes that in the future, the industry won't continue to register new unclaimed benefits. People have cellphones now, and retirement administrators and employers are also working on improving their records.

Lukhaimane said approximately 60% of these unclaimed benefits are in the mining, motor, metal, and engineering industries. She said the FSCA is trying to beef up legislation to make it mandatory for certain information to be collected by fund administrators.

But even with better record-keeping, the FSCA said some beneficiaries will remain who won't claim their money.

Right now, some funds sit with millions of members who have negligible benefits. The benefits are such small amounts that funds don't trace the beneficiaries. And if the beneficiary finds out about the benefit due to them on their own, Lukhaimane said they typically do not follow through with the claiming process when they learn how little they stand to gain.

She said almost 30% of the unclaimed benefits are below R250.

But how does a person who worked for years and left their unclaimed pension in a fund for decades end up with R250?

Lukhaimane said some of these minor benefits come from funds that used to pay interest to members periodically. So, the only unclaimed monies are interest earned in the last month of employment.

Makhubela said another contributing factor was that most beneficiaries were " the lowest of the lowest" paid employees.

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