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Adding sugar to the Cofi?

Business Day reported on an FSCA briefing for the select committee on finance on Tuesday on the current status of the Conduct of Financial Institutions (Cofi) Bill.

“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 that it should be tabled in Parliament this year. He expects 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 first version of the Cofi 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 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 currently housed in different laws.

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 R37 billion 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.

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 held by trade union-affiliated pension funds.

The industry would be lucky if it managed to trace as many as 45% of the beneficiaries, according to the Olano Makhubela of the FSCA. Actuaries could determine how much is needed for claimed benefits and what could be used for social good, he said.

The FSCA’s recently released 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.”

Funds continue to grow

The Business Day report says 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 South African workers and others from Southern Africa who came to work on the mines. One of the aims is for the funds to be used for social good in communities that supply much of the labour for the mines.

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 payment of the actuarial surplus of a pension fund to past and present members.

Centralising of funds could be controversial

The situation cannot be left as is. It makes sense to make an actuarial determination, based on past experience, and apply the funds in a responsible manner.

As indicated above, National Treasury expects controversy and possibly legal challenges over the centralisation of unclaimed benefit funds and how it should be used.

Unfortunately, government’s inept handling of financial matters during the heyday of state capture and recent events at the GEPF do not augur well should these funds be removed from regulated asset managers and fund administrators. The latter, of course, continue to earn fees from these unclaimed assets and may baulk at the prospect of losing funds (and easy money) for which they are contractually liable.

The looting of funds earmarked for the Covid pandemic showed that those intent on looting state coffers will stop at nothing – not even at something almost sacred such as Madiba’s funeral.

In similar vein, the determination to proceed with the controversial National Health Insurance system despite no idea of what funding will be required smacks of an ideological passion bereft of any realistic perceptions. While the government continues to pursue this pipe dream, the frailest people in the country suffer because of the implosion of national healthcare facilities.

Nowhere is the growing public denunciation better illustrated than in the calls from various civil society organisations on government to strictly monitor the management of funds earmarked for the storm-ravaged KZN. Legalbrief reports that seething resentment over the abuse of Covid-19 relief funds has triggered red lights across society.

The need to redeploy a portion of these funds is not in question – the manner, and application, is what is of concern.

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