ALLAN GREENBLO: Small amounts for small people in small funds are worth chasing
Liberty has taken the lead in having benefit funds that were deregistered erroneously reinstated so that the beneficiaries, who are mainly poor, can receive what is due to them
It’s stupefyingly complex – as well as expensive, time-consuming and frustrating – to join members or dependents with their money in the unclaimed benefit funds (UBFs) of various retirement fund administrators. For such a long time has record keeping been sloppy (going back in some instances to the 1990s), or inadequate (lacking ID numbers and contact details), that in overwhelming instances the odds are deeply stacked against the beneficiary being found for payment of the benefit.
At last count, according to the latest annual report of the Financial Sector Conduct Authority (FSCA, formerly the Financial Services Board), there were 1,275 retirement funds, owing an aggregate of R42,8bn in unclaimed money to over 4,7m beneficiaries. Add funds that the FSCA does not regulate, such as the huge Government Employees Pension Fund and the Transnet funds, and the amounts respectively shoot through these levels.
There are myriad reasons, in different combinations, for this unsavoury state of affairs. Members have not updated their contact details and employers haven’t pushed them to do so. Administrators have been lax. Funds have merged or disappeared, as have employers. And so on. The result is a stuff-up of note, resulting in financial prejudice for millions of people who’re mainly poor.
Under the sheer weight of work, the wheels turn slowly. For one, according to its website, Liberty has about 100,000 members and R1bn of assets in its UBF. By virtue of previous takeovers of corporates which had ancillary fund-administration operations, Liberty became the biggest administrator by number (as opposed to value) of retirement funds.
Most were small and, like their then parents that Liberty bought, not terribly well run. The biggest UBF by value is probably the R1,5bn at Alexander Forbes, which is now proposing that money for beneficiaries considered untraceable should be used in investment strategies to “promote decent outcomes for investors and greater benefits for society”.
Should beneficiaries eventually show up, they could still be paid. In the Forbes experience, almost half the money in its UBF has been there for over eight years, during which tracing has been attempted more than once.
A tiny corner in the mountain of unpaid benefits consists of retirement funds which, because they were deemed not to have assets or liabilities, had their registrations cancelled. That they represent merely a fraction of the R50bn industry problem doesn’t lessen the deprivation for those to whom money is owed. A few thousand rand can make an appreciable difference to the life of a migrant who worked on the SA mines.
Are small amounts for small people in small funds worth chasing? Yes, says Rosemary Hunter. Having discovered that many deregistered funds in fact had assets and liabilities, making the cancellation of their registrations erroneous if not illegal, she was practically hounded from her position almost from the start of her appointment as FSB executive for retirement funds in 2013.
Yes, the Liberty group must have said too. At around the same time it began investigations into the funds it administered. From what was discovered, Liberty took the lead in effecting the reinstatement of wrongly cancelled funds. More than this, notes Liberty Corporate CEO Tiaan Kotze, “we’ve been putting significant effort into enhancing the data to increase the likelihoods of successful tracing and paying”.
Where the funds were found to have assets and liabilities, their registrations should never have been cancelled in the first place. So far Liberty is the only administrator to have pursued reinstatements. The necessary route has been through high court applications that the FSCA has not opposed.
The first batch of successful applications, in 2018, was for 25 funds whose assets cumulatively amounted to about R35m. The second batch of 10 funds, for which applications will be heard in the high court next April, together have about R33m in assets. Later there’ll be a third batch of over 110 funds, with a combined asset value of perhaps R130m, depending on the progress in cleaning their records.
As the funds are brought back to life, the FSCA has for distribution of assets placed them under “Section 26 trustees”. These are trustees that the regulator is entitled to appoint, under section 26 of the Pension Funds Act, where a fund has no properly constituted board or cannot properly constitute a board.
The gnawing frustration is the delay in getting benefits paid to members, finds Kotze: “The original 25 funds are in a position to start the distributions, but the section 26 trustees are required to hold back until there is full accounting for assets and liabilities. We’d be happy to make preliminary payments on the understanding that we’ll make good on any additional assets that might still be found.”
That seems a logical and painless way to break the deadlock between the administrator and the trustees. After all, the beneficiaries have already waited such a long time for their money that they shouldn’t have to wait another day longer.
The next issue is whether other administrators of funds that were similarly cancelled in error will have to follow Liberty’s example. Better that they make the call for themselves than that the FSCA makes it for them. Some pretty large funds remain unattended.
• Allan Greenblo is editorial director of Today’s Trustee, a quarterly magazine mainly for the principal officers and trustees of retirement funds
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