It’s hard to make out exactly where culpability lies for the fact that millions of people are still owed billions by life companies that have dragged their feet in tracing these beneficiaries. It’s an indictment on both the companies and the regulator

Efforts to trace the estimated 4.8-million people owed a combined R47bn in unclaimed pension fund benefits are proceeding far too slowly.

The question is why these numbers are so stubbornly high since, on the fact of it, the regulator, the Financial Sector Conduct Authority (FSCA) has put so much work into addressing this problem.

Unclaimed benefits has been a problem for years.

But in February 2017, the FSCA launched a new salvo in the bid to trace beneficiaries. For a start, it established an unclaimed benefit short engine, using both SMS and online platforms, supported by a walk-in client service to help find those with a potential claim.

And yet, the amount in their unclaimed benefit funds has now risen to R47bn.

Olano Makhubela, the FSCA’s executive for retirement funds supervision, says that despite the total values having risen, there has been notable progress. “The increase in the total amount of unclaimed benefits can be attributed to investment returns. The number of unclaimed benefit members decreased by just under 100,000 members between March 2020 and March 2021,” says Makhubela.

That seems commendable – but the question is whether that is fast enough, given that there are still more than 4-million people out there who would qualify for these funds.

This high number is a legacy of several questionable practices — notably, the shoddy record-keeping of the pension and provident funds when it came to those in the low-income brackets.

Much of the problem relates to a specific period in SA’s history, in the years around democracy in 1994, when companies launched pension funds for people who weren’t necessarily aware of this benefit. Some of these beneficiaries had low financial literacy to begin with, while others were migrants who left their job without leaving any contact details.

Makhubela says the FSCA put in place a task team to examine where the country stands on this front, and expects to communicate the results soon. “The industry requires guidance from the regulator on how to deal with certain aspects of unclaimed benefits. Regular meetings will be scheduled with retirement funds that hold significant unclaimed benefits to further understand key challenges and find a solution,” Makhubela said.

If so, you have to ask why it’s taken the regulator so long to figure this out.

After all, this is a problem dating back many years – and has been flagged by numerous people, not least Rosemary Hunter, when she was tasked with oversight of pension funds at the regulator.

If the regulator is only planning to “schedule” meetings with retirement funds now – and if it doesn’t have a grasp of the challenges already – you have to ask just how serious is it about addressing this issue.

A process that took too long

Critics have long accused the pension fund administrators themselves of apathy in the bid to tracing people owed millions sitting in their funds.

But it hasn’t been an easy task, says the Liberty Group, the country’s largest pension fund administrator.

In recent years, Liberty overhauled its administrative systems in a bid to get clarity over what was actually in its ‘legacy funds, that had built up over the past two decades – in part due to the life assurer’s acquisition spree over that time. Liberty formed a fund rehabilitation project, which identified 1,366 dormant funds on its books. Of that, 538 funds had a combined R1,4bn in assets, while 828 funds had no assets and still had to be deregistered. The unclaimed benefits it administers sits in two funds – a pension preservation fund and a provident preservation fund – which were set up in 2009, and each have a board of trustees, made up on one Liberty employee and four independent trustees.

Linda Mateza, Liberty Life’s newly-appointed strategic director for retirement funds, says it takes a lot of work, since each fund has a unique history, and comes with its own complexities. “The skill and proficiency of trustees is also a key success factor. Ongoing engagement with the FSCA is also important, to ensure regulatory compliance and to flag challenges early on,” says Mateza.

Liberty has also run a number of campaigns to get people to come forward – both in conventional media, through road shows, and on social media. But the shoddy way in which the data on the beneficiaries was originally captured remains an achilles heel for administrators. At the time, some companies didn’t have a dedicated human resources function to properly capture the records of migrant labourers, many of whom were hired either for a season or for short periods. Either way, Liberty seems to have learnt its lesson.

Says Mateza: “we strive to collect and maintain accurate and updated member data at various stages in the lifecycle of a retirement fund member, to improve our ability to contact members when they leave their employers.” Over the years, Liberty has managed to trace thousands of beneficiaries, to whom it has repaid R286m. In 2021, it paid R87m in unclaimed benefits to 6,000 people.

Despite this, there is a sense that some companies, and regulators, aren’t treating this as seriously as they should. Rights organisations such as Open Society, as well as by industry lobby group Phakwela are calling for this issue, as well as the deregistration of pension funds, to be treated with far more urgency by administrators and the FSCA.

Mateza says Liberty is in the process of reinstating dormant funds that had been deregistered “in error”, following an industry project between 2007 and 2013 to deregister dormant funds.

Liberty applied for these funds to be reregistered in two phases – first, in 2019, it reinstating 25 funds, with assets of R13.4m; then in 2021, it reinstated another 23 funds with assets of R29.3m. It The company is now preparing to reinstate another 104 funds that were deregistered in error, which have total assets of R102m.

When it comes to providing justice for the millions of people owed money by SA’s large pension funds, it’s a commendable start. But there’s no denying the reality that this process should never have taken so long, nor have been so badly mishandled by both the regulator and life companies. The sooner they can make up for this bungling the better.

THE ARTICLE IS FROM THE JUNE-AUGUST 2022 EDITION OF TODAY’S TRUSTEE