Edition: June - August 2015
Pay back the money
If the UBFs could, they would. But often they can’t, so they don’t. Londiwe Buthelezi looks at the extent of the problem that causes billions of rand not to reach millions of beneficiaries.
Some R20bn is sitting in unclaimed benefit funds (UBFs) that report to the Financial Servies Board. There they will await apportionment and distribution to about 3,5m former members of retirement funds until the beneficiaries can themselves step forward with claims they can prove, or the funds can succeed in finding them. Many beneficiaries and dependents will never receive their due.
For a fuller picture of the plight afflicting even more workers, mainly impoverished and unsophisticated, add to this R20bn the Guardian’s Fund administered by the Master of the High Court (see box).
Weil . . . difficult areas
Such formidable unclaimed-benefit amounts illustrate poor keeping of member records in retirement funds and muted outcomes in tracing of their beneficiaries. The fault for outdated contact details might lie as much with members themselves as with employers and administrators, creating hurdles and causing costs that frustrate attempts at reaching those to whom the money belongs.
According to FSB estimates for retirement funds reporting to it, unclaimed benefits have steadily increased since 2008 when funds became required to retain the unclaimed benefits in UBFs until beneficiaries are found. Prior to 2007, the benefits could be returned to the fund if they remained unclaimed, to be paid if and when beneficiaries came forward.
Now that funds must retain unclaimed benefits indefinitely, more benefits remain in their UBFs than previously. So, instead of the unclaimed benefits going back to top up a fund for members whose contact details are accurate, they lie in wait for former members whose contact details are obscure.
WHO GUARDS THE GUARDIANS?
It’s supposed to be the Master of the Supreme Court who reports to the Minister of Justice. They aren’t doing a particularly good job.
According to its latest annual report, at end-March 2014 the Guardian’s Fund had a liability to beneficiaries of R8,58bn. Actual payments to beneficiaries amounted to R1,13bn.
During his Budget vote last year, Justice Minister Michael Mashutu spoke proudly of the fund having “serviced” 60 675 beneficiaries with this R1,13bn. What he didn’t say was that the R1,13bn represented little more than 13% of the fund’s total beneficiary liability.
Neither did he disclose the proportion of beneficiaries represented by the 60 675. The annual report also provides no clue. Perhaps neither he nor the fund actually knows. Perhaps it is possible to identify beneficiaries only once individual claims are proven and computed; in other words, leaving huge amounts of money never to find their unquantifiable number of rightful owners.
This is certainly possible, given the frustrations of beneficiaries in attempting to access the fund (TT March-May ’11). It doesn’t fall under the Pension Funds Act and hence is not supervised by the Financial Services Board. A fund in the private sector wouldn’t be allowed to operate with characteristics similar to the Guardian’s Fund. For instance:
- Skills and resources for running a beneficiary trust or retirement fund are not at the Master’s disposal;
- There are no trustees accountable to members/beneficiaries;
- There is no active tracing of beneficiaries;
- Money is invested to earn interest, not to earn capital growth, and interest accrues only for up to five years after an account becomes payable.
The consequences are all the more lamentable given the purpose of the Guardian’s Fund. This, in its own words, is “to protect and manage monies of persons deemed to be legally incapable or lacking the capacity to manage their own affairs as well as undetermined, unknown or absent heirs or untraceable persons”.
Sean Rossouw, chief executive of tracing agency The Data Factory/TDF Fund Administrators, challenges the FSB estimate of R20bn. He believes the figure to be more like R30bn, and even this to be conservative as it excludes surpluses for apportionment: “A large number of funds default in submitting reports to the FSB. Amongst those that have reported, some did not calculate their surpluses. So they’re not yet deemed to be unclaimed.”
HOW IT'S DONE
Gould... serious commitment
In example of best practice comes from Giselle Gould, business development director at Fairheads Benefit Services.
The starting point, she insists, must be the will to ensure optimal success of the tracing effort: “There are more than 20 firms that offer tracing services. That it’s a highly competitive industry offers ample opportunity for funds not only to find the sharpest rates but also to put as much research as they would in selecting the most appropriate administrators and asset managers.”
In this context, “appropriate” relates to such criteria as track record and language skills for communication into respective geographical regions where beneficiaries are to be traced. Also critical is the use of technology for the matching of fund records and tracers’ databases.
“There is no regulation around tracing companies,” she points out. “Because you only pay the tracer on success, the technology must be in place to control risk and ensure that monies are dispensed to the correct beneficiaries.”
The tracing function is normally delegated by a fund administrator to a tracing company. Once the trustees have given an instruction to an administrator, she asks, who then interrogates implementation by the tracing company? Who keeps a constant check on what’s being done, and on necessary improvements in the quality of record keeping?
And since there is information on various databases that can be used for tracing, how are conflicts between the Promotion of Access to Information Act and the Protection of Personal Information Act to be addressed? “What matters most is that the money gets to vulnerable people, like children and those insufficiently literate to look after themselves,” she says.
FBS has developed a matrix for tracing services. It involves particular firms’ regions of focus as well as their respective specialities and their fee structures. This matrix offers the basis for homework in selecting the tracing firm to be engaged. With the system in place, it’s regularly reviewed.
In addition, FBS employs field agents of its own. They’re given bakkies to travel through rural districts, searching for beneficiaries and paying them. Working out of Johannesburg, these field agents go into all areas where there’s a need to find people. They include SA’s neighbouring states to which migrant workers have returned.
“These agents must be proficient in languages that dominate the respective regions,” Gould adds.
ICTS Tracing Services’ experience is that, on average, 40% of the former retirement fund members it’s asked to find are not contactable. While in the past unclaimed benefits were mainly associated with mine and migrant workers, these days a significant number of white-collar workers also have monies sitting in UBFs.
“Some of these people might be entitled to surpluses they never knew about and some people might have moved to another country,” explains ICTS managing director David Weil.
“Some of these people might be entitled to surpluses they never knew about and some people might have moved to another country,” explains ICTS managing director David Weil. “Submission of documents and payments are often problematic. Sometimes it’s simply a question of poor data. For example, we might not even have a date of birth to assist with a person’s identification.”
Tracing is usually on a no-success-no-fee basis. The most common service is “desktop tracing”. This is where a tracer, contracted by a fund or its administrator, runs beneficiary details through its database which is broader than those of credit bureaux. Leads are followed up in a call centre.
This basic service, says Weil, could cost between R150 and R175 per successful trace. It excludes the collection and processing of documents. Rossouw puts the average fee at closer to R200.
On its website, TDF offers a “free” registration service to people who want to check whether they have unclaimed benefits. But this only checks against its internal database. If a person’s details match a potential unclaimed benefit, TDF then assists with the required documentation to claim the monies. The tracing fee is levied directly to the fund (which might recoup it from the benefit eventually paid).
The most resource-intensive tracing service is forensic, worked in conjunction with police, schools, unions, community and tribal leaders. The value of the individual’s benefit, nature of the unclaimed benefit and the amount allocated by the fund for tracing purposes are amongst criteria that can determine the service used.
Freelancer Abie Nyalunga admits that physical tracing is “a costly exercise”. However, he argues that it yields a higher success rate as it can trace up to 80% of potential beneficiaries when adequate resources and infrastructure are deployed: “Compared with the amounts due to beneficiaries, the poverty and high unemployment rates amongst them make it worth every penny.”
Also charging on a ‘no success, no pay’ basis, he points to different categories and rates depending on fund reguirements. Fees can range from R350, for establishig a member’s contact details, to R1 250 for compiling all documents on nominated beneficiaries and death benefits. In rural areas, for instance, he’d work with traditional leaders to recruit tracers from their villages.
To make tracing more cost-efficient, FSB deputy pensions registrar Rosemary Hunter is exploring the possibility of a central database where people can search for potential unclaimed benefits. She also suggests that funds administrators look more intensely at social media to advertise unclaimed benefits and trace beneficiaries.