Some unclaimed retirement fund benefits totalling more than R47bn should be used for social good, says Olano Makhubela, the divisional executive for retirement fund supervision of the Financial Sector Conduct Authority (FSCA).
Investment returns are generated on the unclaimed benefits, and amounted to R45bn in 2019 and R47bn in 2020. Most of the unclaimed benefits belong to SA workers and others from Southern Africa who came to work on mines.
The first version of the Conduct of Financial Institutions Bill, which was released for public comment, provides for the creation of a centralised unclaimed benefit fund that could be used for social good.
The Treasury is processing the bill. Treasury deputy director-general Ismail Momoniat, who is in charge of tax and financial sector policy, said on Tuesday it should be tabled in parliament this year. He expects much controversy and possibly legal challenges over centralisation of unclaimed benefit funds and how they should be used, but said the aim is for the funds to be used for social good.
The bill was first released for public comment in December 2018 and the second draft was released in September 2020. It is aimed at consolidating into one law the conduct standards of financial institutions presently housed in different laws.
Makhubela supported the proposal for unclaimed benefits to be used for social good, for example in communities that supply a lot of labour for mines. Actuaries could determine how much is needed for claimed benefits and what could be used for social good, he said.
Central database
According to Makhubela, provision for the creation of a centralised unclaimed benefit fund was removed from the bill. It is proposed it might follow in a separate financial services omnibus bill, the timing of which is unknown. “The proposed provision to centralise unclaimed benefits also explicitly provides for the possibility of using some of the money for social good,” he said.
He said in an interview that the FSCA has set up a central database of workers who are owed retirement benefits. From 2010 to 2020 the pension fund industry paid out R37bn to 1.34-million members or claimants, which means that an average of R3.7bn a year was paid out to about 134 000 valid claimants in this period.
The industry would be lucky if it managed to trace as much as 45% of the beneficiaries, he said.
What adds to the size of unclaimed benefit funds, Makhubela said, is the amendment to the Pension Funds Act introduced about 15 years ago. It required paying the actuarial surplus of a pension fund to past and present members. Many departed members could not be traced.
According to the FSCA the R47bn in unclaimed benefits belong to 4.4-million pension fund members, with 80% of them being held by trade union affiliated pension funds.
Arrear contributions
The FSCA’s recently released the Financial Outlook Study states: “The key reason for the high level of unclaimed funds is that members change jobs without updating their personal information, and they lack the financial literacy to understand the implications, and administrators also have poor records of their member base. Asset managers and fund administrators continue to earn fees from these unclaimed assets.”
Another area of concern to Makhubela that he raised during a FSCA briefing for the select committee on finance was the accumulation of arrear pension fund contributions by municipalities, many of which are in a state of severe financial distress. A proposal in the early versions of the bill was to give the FSCA regulatory authority over employers, including municipalities, with sole reference to their arrear contributions.
Arrear pension contributions by municipalities totalled about R1bn in January 2021. Their pension funds have to have a rule that allows an employer to stop or reduce contributions in the case of financial distress, he said.
Would you like to comment on this article?
Sign up (it's quick and free) or sign in now.
Please read our Comment Policy before commenting.