The Financial Sector Conduct Authority (FSCA) has proposed establishing a centralised fund to manage the estimated R88.56bn in unclaimed assets languishing in retirement funds, unit trusts and life insurance policies, dormant bank accounts and dividend payments owed to unknown shareholders.
The regulator revealed the proposal on Wednesday in a discussion paper designed to thrash out a solution to SA’s unclaimed assets dilemma, which has its origins in an apartheid-era migrant labour system that was characterised by haphazard record keeping and inconsistent worker identification methods.
An alternative proposal would see the money transferred to the National Revenue Fund (NRF), which houses money received by the national government. This would reduce the cost of setting up a dedicated unclaimed assets fund.
While the chosen solution remains subject to legislative and policy considerations, as well as the outcome of the FSCA’s discussion paper, in the Wednesday news conference the regulator seemed to favour the centralised fund as the best solution given that its sole focus would be reuniting beneficiaries with their unclaimed benefits.
The FSCA also said it might approach the National Economic Development and Labour Council (Nedlac) to nominate board members for such a centralised unclaimed benefits fund, as the body represents a cross-section of stakeholders.
“The main benefit of the centralised fund is that it’s set up specifically to look after the unclaimed assets and find the beneficiaries,” FSCA commissioner Unathi Kamlana told Business Day. “The NRF is where all government money goes ... it’s not tailor-made for managing unclaimed assets. If one can have an accountable body that is dedicated to dealing with unclaimed assets, and which can draw on specific expertise to focus on finding claimants successfully, we would think that is best.”
The FSCA says the estimated R88.56bn in unclaimed assets is made up of retirement fund benefits (R47.21bn); collective investment scheme (CIS) and life industries (R33.49bn); and bank deposits (R3.36bn); as well as R4.5bn in Central Securities Depository participant holdings, which pertain to unclaimed dividend payments from holdings of underlying securities.
The R47.2bn in unclaimed retirement benefits is spread across 1,306 retirement funds and is owed to about 4.45-million members and beneficiaries. Most of this money is held in occupational funds, with the mining, motor, metal and engineering industries being the dominant sectors.
Olano Makhubela, the divisional executive for retirement funds at the FSCA, says the predominance of these industries is a symptom of SA’s apartheid past, in which black people gravitated towards labour-intensive industries due to racial barriers that prevented their entry into other sectors. He also cited the manual administrative systems of that time and “questionable record keeping” by employers and a government bureaucracy that often assigned ID numbers to people in a haphazard or nonsensical manner.
Comprehensive definition
The FSCA proposes that SA adopt a holistic and comprehensive definition of unclaimed benefits, saying that its R88.56bn figure may underestimate the problem due to unreliable data and the lack of a common understanding of what constitutes unclaimed assets. The regulator wants the framework to include retirement funds, life and non-life insurance policies, investment securities, CIS funds (such as unit trusts), and bank deposits irrespective of their term or whether they are in foreign currency.
The regulator also bemoaned inadequate record keeping by financial institutions and intermediaries as well as their inconsistent approach to the identification and treatment of unclaimed assets both within market segments and across the finance sector overall. It highlighted the failure of employers to provide retirement funds and fund administrators with complete details of members and beneficiaries.
“While there is some effort by financial institutions to reunite unclaimed assets with their owners, the efforts made vary greatly from sector to sector and in their extent and effectiveness,” the FSCA said. “While work on unclaimed benefits in the retirement industry is relatively well progressed, other sectors lag.”
While the FSCA said the asset value of unclaimed benefits had increased over time due to rising market valuations and investment income earned, the number of members with unclaimed benefits has actually declined since 2018. The industry is also making progress on tracing, with R37.7bn in unclaimed benefits being paid to more than 1.3-million beneficiaries between 2010 and 2020.
Among the 13 recommendations outlined in the FSCA’s discussion paper, it says it intends to prioritise the monitoring of financial institutions with a high concentration of dormant funds. The regulator also proposes that assets be taxed on the date they are reclaimed rather than the date of entry into a fund.
The FSCA has set a deadline of November 30 for comments.
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.