Issue: December 2011 / February 2012
Editorials

COVER STORY

Needs of the needy

Billions of rand are left unclaimed. It represents a money mountain for sitting on, not necessarily for climbing. Unhappily, some peaks appear insurmountable.

Weil...tracing obstacles

Weil...tracing obstacles
Imagine that Santa Claus has started his descent from the north pole with the bag of goodies to fill your festive stocking: a computer tablet, a designer watch, a leather briefcase.... The things for which your acquisitive inclination yearns, soon within your grasp. You’re confident they’re on their way because, spoiled spouse that you are, during the year you’ve been dropping hints aplenty.

Then imagine that, come Christmas morning, nothing arrives. The stocking is empty. Oh dear, you’re likely to say, except less politely. How terrible to be deprived.

Now imagine instead a situation of real deprivation: family members battling for daily sustenance. Terrible for them is when Santa, wanting to deliver a pile of cash they’re owed, can’t find them.

To receive it isn’t a present but a right. Take heart (a bleeding one?) that the family members never knew about their due in the first place. So they wouldn’t share in disappointment similar to that of the spoiled spouse. Some consolation.

Thus does it go with unclaimed pension benefits. In these unclaimed benefit funds (UBFs) lie billions of rand incapable of distribution because nobody has the foggiest notion of where the beneficiaries are. Overwhelmingly, they’re untold thousands of poor people most in need. Some pension funds are understood to have more in unclaimed benefits than they have in benefits for active members.

This sorry situation for individual beneficiaries is amplified by its overall magnitude. For the unfortunate individuals who cannot be traced, the problem seems intractable. For the vast amounts of money left to slosh around in the UBFs, piling up and drawing fees for administrators pending distributions that will never happen, the sheer unproductivity of capital is equally sinful.

Surely it would be preferable, after a reasonable period of unsuccessful attempts to trace the beneficiaries has elapsed – anything from say five to 10 years – that the monies to be better deployed by handover to the fiscus or to increase the benefits of those whose updated contact details are accurately recorded.

Please think about it, National Treasury, urges pensions lawyer Rosemary Hunter. The longer it takes for beneficiaries to be traced, the less probable that they’ll ever be traced. There’s no clear law on when it goes to the fiscus, and no argument seems yet to have been considered on why at least a proportion of it shouldn’t be shared amongst traceable members.

Unclaimed benefits are any benefit not paid by a pension or provident fund to a member, former member or beneficiary within 24 months of the date on which the benefit is legally due and payable under the fund’s rules. They include a benefit payable as a pension or annuity. Monies can be kept in a UBF interminably.

“Some beneficiaries are not even aware that a trust or beneficiary-fund account has been set up for them,” points out Giselle Gould of Fairheads. This can happen if the contact details held by the retirement fund are out of date, or if the fund administrators lose touch with existing beneficiaries. It’s particularly common with beneficiaries living in remote rural areas (TT April-June ’10).

Also, she adds, contact can be lost when children experience a change of guardian: “Most of these beneficiaries are minors, so they have no credit record that can be picked up by the databases that tracing agents use.”

The Pension Funds Act allows for unclaimed benefits to be transferred to an UBF, managed by its own trustees and registered with the Financial Services Board as well as the SA Revenue Service. Being a fund requiring administration, monthly fees are paid per member.

As with surplus apportionment exercises, it can take considerable time and expense for a fund’s former members to be traced. This too involves costs which, according to the rules of some funds, are paid by the member being traced i.e. deducted from his or her benefits.

David Weil, of ICTS Tracing Services, notes that the cost of tracing a member can exceed his benefits: “There’s huge wastage, for example in placing newspaper advertisements. If the person doesn’t read the particular newspaper on the particular day, there’ll obviously be no response.”
How do you trace a beneficiary, Weil asks, when he has no credit facilities and his cellphone is pay-as-you go? Or when he’s left his employer 20 years previously, the company’s been taken over and the fund is now part of another? The departed employee is unlikely to know who’s become the new principal employer.

“The great sadness is that people who most need the money are those most difficult to trace,” he finds, “and they don’t even know that there’s money due to them.” Migrant workers are a case in point.

He’s also critical of trustees who reckon that, once they’ve stuck the money into a UBF and embarked on a tracing process, consider that their job is done: “It’s an easy way for trustees to get rid of their liability and for administrators to make money. So long as the money sits in the UBF, they have an ongoing stream of fees.”

Which implies that there’s little incentive for tracing to be successful. Many of the big administrators do their own tracing. Only a cynic might suggest that their stronger interest is to retain the money in an UBF than to pay it out.

For all that, there are many successful tracing experiences. Andre van der Zee of Trifecta Capital Services mentions several touching examples, like the frail widow in a country town being reunited with R237 000 that she didn’t know had been left by her husband.

He says that TCS has returned more than R500m in unclaimed pension-fund benefits to beneficiaries. Across all categories of unclaimed benefits (see box), TCS has facilitated the payment of over R200m to roughly 20 000 beneficiaries i.e. an average of R10 000 per beneficiary.

There are also many tracing experiences that aren’t successful, and extremely frustrating. In one pension fund alone there’s over R100m lying fallow in unclaimed benefits after approval of its surplus-apportionment scheme. This defined-benefit fund has tried everything possible, from placing newspaper advertisements to engaging tracing agents and using social media, to find former members; to no avail.

The most it could establish was that some had died, some had emigrated, and some preferred that the taxman didn’t know about them. It’s left to battle with unresolved problems on whether it’s obliged to preserve untraced former members’ shares of surplus.

Which begs a series of legal questions, such as whether funds must endlessly hold the surpluses of former members who’ll never be traced. The duty of trustees under the Pension Funds Act is diligently to pay benefits in terms of their fund’s rules. It leaves the funds sitting with piles of cash in unclaimed benefits inclusive of surpluses (in old defined-benefit funds), years of compounding interest and dividends as well as capital growth (in all funds) with nowhere to go.
Something in the system is badly wrong. The niceties of regulatory theory have crashed into the realities of absurd consequences. What a waste.

BEST ESTIMATES

Nobody can reveal with certainty, or perhaps even accuracy, how much is the totality of unclaimed monies. Trifecta Capital Services puts it at around R80bn, growing annually.

This is based on the market knowledge and experience of TCS in performing across-the-board tracing services for banks, life offices and JSE-listed companies in search of depositors, policyholders and shareholders. The R80bn estimate, adjusted for a little double counting, breaks into four main categories:

  • Pension funds R32bn or 40% (partially overlapping with the retirement-annuity sector);
  • Shares R27bn or 30% (dividends and scrip etc, subject to company and stock-market performance);
  • Insurance R16bn or 20% (life and other investment products, including retirement annuities which overlap with the pension-funds sector);
  • Banking R8bn or 10% (deposits in inactive or dormant accounts from which charges are deducted until there’s a zero balance).

Remarkably, there are no official figures. Moreover, the enthusiasm with which payouts are chased rely on the discretionary good-governance principles and service-orientation standards of respective institutions and companies. Some, needless to say, are more committed than others.

GO AND GET IT

There are literally thousands of people entitled to surplus apportionments from the so-called “Ghavalas” funds. Those who can or have been traced are heavily outnumbered by those who can’t or haven’t been. Take the fund of Lucas SA; of its 2 075 former members for whom calculations could be performed, 76% haven’t been traced.

A useful starting point, for those who think they might be entitled to apportionments, is to approach the person appointed to represent the interests of former members in certain funds. He is retired chartered account Raymond Scott Hislop at P O Box 84041, Greenside 2034; telephone numbers 011 477 9084 and 082 570 6124.

The “Ghavalas” funds are those of Cortech, Datakor, Lucas SA, Sable Industries, Power Pack, Mitchell Cotts, Picbel and Prestolite. The FSB has confirmed and verified that R902,1m – portions of which are available for distribution under surplus-apportionment schemes – are being held at financial institutions.