A campaign to reclaim billions of rand in unclaimed benefits is about to be shifted into high gear. The Unclaimed Benefits Committee (UBC), representing a group of claimants, and the non-profit organization Open Secrets, plan to lobby parliament.
“We will also call for a boycott of financial companies involved in withholding benefits,” said Thomas Malakotse, UBC board member. “Fund administrators have been making secret profits for decades by charging fees on these unclaimed assets, and they are not accountable to anyone. “
The group plans to march to Parliament at the start of the New Year.
In a recent survey, Open Secrets found that there were 42 billion rand in unclaimed pension benefits owed to more than four million South Africans, a country where 44% of retirees live in poverty. If we add the funds not subject to regulation and supervision within the meaning of the Pension Funds Act, the amount of unclaimed benefits is closer to R 51 billion.
Billions then in the financial system belong to people who have not yet been found. There doesn’t seem to be much serious effort to find them either. Michael Marchant of Open Secrets says he is surprised the damning report has not elicited a response from the Financial Services Conduct Authority (FSCA), the regulator in charge of pension funds (formerly the Financial Services Board). Malakotse says UBC has no plans to allow the report to be buried.
This is not a typical story of corruption, says the Open Secrets report. He says this stems from the perverse incentives built into the pension fund industry. The administrators – private companies appointed by the trustees – are responsible for finding unclaimed benefits, but are also those who charge high fees for administering unclaimed benefits. As long as pension funds are not claimed, fund administrators can continue to charge fees year after year.
These funds belong to the millions of employees (and their families) who quit their jobs, unaware they had unclaimed retirement benefits owed to them. Many of them have returned to Zimbabwe, Malawi or other neighboring countries, often decades ago, leaving their retirement benefits behind.
In a discussion paper titled Unpaid Benefits for which Pension and Provident Funds in South Africa are Liable, the former Deputy Director of Pensions for the Financial Services Board, Rosemary Hunter, explains some reasons why so many retirees and their families are not at current of the services which are due to them.
- failure by employers to inform employees that they were members of pension funds
- failure to inform members of the pension fund about the state of funds
- failure by members to inform their dependents that they have benefits owed to them
- the requirement that foreign workers leave South Africa after their work permit expires; and
- the practice of some foreign workers adopting different names to obtain work in South Africa.
Malakotse says it doesn’t surprise him that the regulator and administrators have been slow to find beneficiaries. “As long as the beneficiaries remain unknown, everyone earns billions on these unclaimed benefits.”
Based on a conservative charge of 3% per annum for administering the funds, these unclaimed funds could generate annual fees in excess of R 1 billion for administrators and asset managers.
The Open Secrets report provides a troubling overview of pension fund practices and follows two fairly recent court cases involving pension recipients attempting to hold companies and fund managers accountable. The two cases – one involving retirees from Tongaat and the other brought by Hunter – were against the beneficiaries.
In 2016, Hunter sued his employer, the Financial Services Board, first in the High Court and then in the Constitutional Court for writing off 4,600 pension funds, many of which still contained funds. She lost her case in the Constitutional Court after a majority of judges ruled that the Council had made efforts to investigate the extent of assets and liabilities in the written off funds. The judges also argued that there were other remedies available to Hunter. The judgment has been criticized for breaching the court’s constitutional duty to adequately protect the interests of those harmed by the cancellation of funds.
Malakotse said UBC has embarked on “a new strategic approach” to “make FSCA and administrators accountable and transparent when it comes to canceling funds.”
“We are 100% behind all the beneficiaries who are still deprived of access to these services. My father was told that he was not entitled to any of his pensionable benefits since he started working in the mines from 1948 to 1975. To this day we are still denied access. to its benefits. I was sent from pillar to post by these mine administrators and the FSCA, who claim to have no trace of my father. UBC and Open Secrets will challenge all these administrators and authorities until they accept their wrongdoing, be transparent, and give beneficiaries what they are owed.
The Open Secrets report indicates that more than 6,000 “dormant” pension funds have been canceled since 2007, although some of them still had assets and liabilities.
More than 4,000 of these funds have been canceled at the request of fund administrators who have been “appointed by the regulator to act as representatives or trustees”.
“As trustees, they were obligated to ensure that funds were cleared of assets and liabilities and that members were paid before they were subject to delisting, but that was often not the case. “
The assets of these canceled and dormant funds were transferred to unclaimed benefit funds held by the fund administrator. Since 2008, the assets of these unclaimed benefit funds have increased by over R450 million to R8 billion. Fund administrators continue to earn generous commissions on these assets.
“In 2019, more than 16 million South Africans belong to a pension fund. Of these, around 90 percent are members of more than 5,000 privately run pension funds, most of which are managed by some of South Africa’s largest financial institutions, ”says the Open report. Secrets, titled “The Bottom Line – Who Profits from Unpaid Pensions?”
“Each month, these people give up part of their income to secure a retirement and old age with dignity, and to provide for themselves and their dependents when they can no longer work. These hopes have been dashed for the millions of people who have not received the pensions they are owed. “
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