Some 4.5 million pension fund members were owed R45 billion in unclaimed benefits in 2019, according to the Financial Sector Conduct Authority (FSCA). This equates to 1.7% of all assets in the retirement fund industry in SA.
Yet 40% of this is likely never claimed, says Olano Makhubela, divisional executive in charge of overseeing retirement funds at the FSCA.
It is estimated that 17% of unclaimed benefits are valued at less than R100, so it is not profitable to track the beneficiaries.
The SA retirement industry has been the subject of public criticism and judicial scrutiny on the issue of unpaid benefits.
As Moneyweb previously reported, pension fund whistleblower Rosemary Hunter, former deputy pension fund registrar at the Financial Services Board (now called FSCA), launched 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.
Hunter took his case to the Constitutional Court, but lost in 2017 on the grounds that the FSCA had already launched investigations into the canceled pension funds.
ConCourt Minority Ruling Addressed Concerns
Makhubela addressed ConCourt’s ruling in a presentation to reporters on Tuesday, saying that the FSCA had acted on the minority ruling of the judges (who said they would have ruled in Hunter’s favor) by addressing some of his concerns.
Among these concerns is the conflict of interest in allowing staff of fund managers to be appointed as inactive fund trustees without boards, in whose role they are supposed to act in the interests of members, but often do not.
“The FSCA seems to be demanding more proof that the funds have no assets before canceling their registrations, but from what I can see [it has] I haven’t done any more research on specific past cancellations, ”says Hunter.
“It is at least satisfying to see them now doing what I had tried to get the FSB to do long before I started my litigation. It is also gratifying to see the FSCA take steps to reduce the scope of the kind of conflicts of interest that plague the South African retirement fund industry by requiring the appointment of independent trustees and auditors, although I believe more could be done at the same time. respect. – for example, prohibiting the use of the same audit firm to audit both the fund and the administrator. That is a clear case of the fox guarding the henhouse. ”
Much of these unclaimed benefits tracked by the FSCA date back to the apartheid years, when workers left or retired from their workplaces and lost contact with pension fund managers. Some of the funds belong to migrant workers from neighboring countries, while the beneficiaries (although not their dependents) are assumed to have passed away. Some of the beneficiaries cannot be traced due to mismanagement by fund managers or inaccurate or missing data on members.
Where are the benefits now
In a panel discussion with the media on Tuesday, Takalani Lukhaimane, FSCA manager for the supervision of the conduct of retirement funds, said that these unclaimed benefits are in occupational funds established by employers for the benefit of employees, or in special purpose preservation funds established to segregate unclaimed benefits. the rest.
By 2019, about 78.5% of unclaimed funds were in occupational funds belonging to 3.6 million members. The rest was in preservation funds for special purposes.
The FSCA has a seeker to help beneficiaries locate 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 who previously worked in the mining, motor, metals, and engineering industries.
The impact of Covid
Anton van Graan, an analyst specializing in supervision of the behavior of retirement funds at the FSCA, said that a survey conducted among employers and employees found that 47.5% of the funds that responded to the survey had sought contributing vacations as a result. pandemic-related outages, such as loss of income or working hours. Some 12,684 employers sought help, according to the FSCA, for which their funds had to amend the fund’s rules (or register new rules) to allow this.
“We noted that the largest employers managed to weather the effects of Covid-19 and continued to pay wages and meet commitments to preserve the fund’s benefits,” Van Graan said. “The effect on small businesses seemed to be where the greatest difficulties were evident and was particularly seen in most general fund arrangements, indicated by requests for tax relief from employers.”
The largest number of requests for assistance was in the manufacturing and service industries, particularly the smaller companies that participated in the negotiating council funds and general fund agreements.
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