The needle on reducing South Africa’s massive pot of unclaimed retirement-fund benefits has not moved in recent years despite heightened focus on the problem by both the regulators and the retirement industry – in fact, the regulators say the situation has worsened.
However, it is expected that digitisation of member data, advances in AI-driven data-enrichment technology, increased co-ordination among funds, and a proposed centralisation of data, while not necessarily reducing the backlog, will relieve the problem for current and future fund members.
The industry is sitting with billions of rands in unclaimed savings lying in funds indefinitely. According to a 2022 discussion paper, “A Framework for Unclaimed Financial Assets”, published by the Financial Sector Conduct Authority, R47 billion in unclaimed assets were held in 1 306 retirement funds on behalf of 4.5 million South Africans and migrant workers from neighbouring countries.
A recent online discussion, hosted by EBnet and chaired by EBnet editor Nathalie Burrows, examined the problem from both sides: government and industry. While reflecting a genuine intention to unite savings with their rightful owners and dispelling the popular notion that funds are purposefully sitting on unclaimed benefits to collect fees on them, the panellists agreed that the problem is far more complex than most people realise.
Defining the problem
What is an unclaimed benefit? Confining the issue to retirement funds, according to the Pension Funds Act it is any amount due to a member or beneficiary that remains unpaid or uncollected for 24 months or more after the date it was payable.
However, a difficulty with this definition, stemming from the introduction of the two-pot system, is that forced preservation on resignation is resulting in more savings sitting in more funds for longer. Paid-up members are, in many cases, letting their savings lie dormant until needed in retirement.
Are funds doing enough?
On whether funds are doing enough to trace beneficiaries and disperse benefits, the FSCA was of the view that they could be doing more.
Takalani Lukhaimane, manager for retirement funds conduct supervision at the FSCA, said the problem was getting worse. In its on-site visits of retirement funds, the regulator generally found a “passive” approach to unclaimed benefits. “They hand the cases over to tracing agents, and in some cases, there is no proper monitoring of what the agents are doing,” she said.
In legacy cases, poor-quality member data, where ID numbers and even surnames may be missing or incorrect, is the most glaring problem. However, poor data is not confined to these cases – Lukhaimane said employers continued to send incomplete member information to funds.
She said trustees were responsible for funds obtaining a minimum level of information on each member. “But no-one is reporting this. We’ve had one fund in the past three years coming to us saying ‘our employer is not giving us all the information we’re required to have’,” Lukhaimane said.
Tracing challenges
In defence of retirement funds, Thembelihle Khoza, chief executive of Motor Industry Fund Administrators, Michelle Acton, executive head of customer at Old Mutual Corporate, and David Weil, chairman and chief executive of the ICTS Group, said AI-driven technology was proving effective in enriching poor-quality data, but even where there is sufficient information to trace a paid-up member or beneficiary, funds and tracing agents face considerable obstacles.
Khoza said conventional tracing was not moving the needle: it took too long and involved unnecessarily onerous documentation requirements. Funds also faced a massive fraud problem, often ending up paying the wrong people.
Acton said that where efforts were made to enhance data and trace beneficiaries, trust was an issue, and when forms were sent out for the beneficiaries to complete, the proportion of forms returned was exceptionally low.
Speaking on behalf of the tracing agents, Weil agreed that there was a “huge amount” of mistrust by potential beneficiaries, with documents regularly not being returned. In many instances it boiled down to a literacy problem – people didn’t even know they belonged to a fund or were entitled to a benefit. “And we’re not even talking about deceased cases,” Weil said, “which adds a further level of complexity.”
Often, Weil said, the costs of tracing exceeded the benefit payable, highlighting another challenge: while high in number, many individual benefits are for low amounts.
Ways forward
Acton and Weil believed the focus should be on current and future fund members, not legacy cases. “A good portion of legacy benefits are never going to be traced, and we must come to terms with that,” Weil said.
Poor data should cease to be an issue. A major spin-off of the two-pot system is that it has boosted member engagement with funds, Acton said.
“We can say thank-you for two-pot in many ways, but one of the big ways is engagement. Members are going in and checking their fund values and savings-pot values, which means they have registered [on an app or website] and have given details somewhere,” she said.
Acton said the landscape had fundamentally shifted. “Our quality of data is a lot better, our engagement with members is better, and awareness and transparency are better than they have ever been,” she said. The challenge in this new era of preservation was distinguishing between which benefits were genuinely unclaimed and which were paid-up but would be claimed at some point.
The discussion also raised the controversial issue of the government creating a centralised fund for unclaimed benefits, as suggested by Finance Minister Enoch Godongwana in his February Budget Speech.
But this was quickly corrected by Alvinah Thela, chief director for financial sector development at National Treasury.
“Our thoughts are correctly around centralising but not having a central fund. We are looking to centralise the management and administration of unclaimed benefits – and we are talking about all unclaimed assets, not just retirement fund benefits – hopefully improving record-keeping and having a single customer-facing approach,” she said.
