Nearly R90 billion in unclaimed assets, says FSCA



The total value of unclaimed assets in SA is now around R90 billion, with roughly half of that being unclaimed pension funds. Collective investment schemes and life insurers hold a further 38% of unclaimed assets.

Speaking to the media on Wednesday, Financial Sector Conduct Authority (FSCA) commissioner Unathi Kamlana said the quantum of funds unclaimed across all financial sectors remains a concern, though good progress has been made in tracing beneficiaries in recent years.

In 2020, 97 227 pension fund beneficiaries were paid out R3.45 billion. This brings the total unclaimed benefits paid during the decade from 2010 to 2020 to about R37.7 billion, to more than 1.3 million beneficiaries.

Despite the increase in value of unclaimed benefits over time, the number of members with unclaimed benefits has declined since 2018.

Source – FSCA

Central securities depository participants (CSDPs), responsible for processing dividend transfers, had unclaimed assets of R4.5 billion belonging to 391 000 account holders in 2019.

Source – FSCA

The five banks canvassed by the FSCA had 5.7 million dormant accounts with R3.36 billion in funds.

Greater vigour needed

While every effort is reportedly being made to track down the rightful owners of these assets, the FSCA recommends establishing a centralised database of unclaimed funds, and a dedicated ‘central unclaimed assets fund’ to receive and manage unclaimed assets.

Alternatively, the funds should be transferred to the National Revenue Fund for management in preference to leaving them under the control of financial institutions.

These unclaimed funds could be invested for the public good, focusing on social, environmental and developmental upliftment.

The FSCA also proposes a minimum threshold for unclaimed assets, below which assets will not be actively traced.

Kathy Gibson, deputy commissioner at the FSCA, said it is unfortunate that the people most impacted by the phenomenon of unclaimed assets are the most vulnerable.

“We don’t profess to have all the answers but want to have robust and wider engagement about how to locate beneficiaries and minimise the build-up of these unclaimed assets over time.”

How did the figure get to R90 billion?

Several reasons were advanced for the build-up in unclaimed assets:

  • Financial institutions’ failure to update contact and personal details of beneficiaries, and to inform them that they have unclaimed assets;
  • Inadequate record-keeping by financial institutions and intermediaries;
  • An inconsistent approach to identifying and treating unclaimed assets across the financial sector;
  • Changes in intermediaries and fund administrators often resulting in admin neglect; and
  • Employers failing to provide retirement funds and their administrators with all the details on fund members.

At the end of 2020, there were 1 306 retirement funds holding unclaimed benefits of R47.2 billion on behalf of 4.45 million beneficiaries, with more than three-quarters of these held in occupational funds.

Where the bulk lies …

The sectors with the highest amount of unclaimed assets are occupational funds in the mining, motor, metal and engineering industries.

According to an Open Secrets report based on 2017 figures, the funds with by far the largest amount of unclaimed benefits are the Metal Industries Benefit Fund (nearly R19 billion) and the Mineworkers Fund (R4.3 billion).

As Moneyweb reported, poor corporate admin is partly to blame for the volume of unclaimed assets, but a far bigger problem [in the past] was the number of migrant workers travelling to the mines from Malawi, Mozambique, Lesotho and elsewhere.

Workers with traditional African names that were hard to pronounce were given names that suited the administrators.

ALSO READ: Dirty little secret behind SA’s R50bn in unclaimed pension benefits

Context

Olano Makhubela​​, head of retirement fund supervision at the FSCA, said it is difficult to explain the concentration of unclaimed benefits in just two funds without talking about apartheid.

“Black people couldn’t be employed in high-paying jobs, so they gravitated towards manufacturing and mining. Record-keeping was a challenge for employers, and people were [sometimes] given IDs that were literally a stream of zeros.”

Migrant workers returned home, abandoning any claim they had to pension fund benefits built up over the years, and admin records got lost – deliberately or otherwise – when companies went bust, merged or retrenched workers.

Fees

A point often raised by those chasing down unclaimed benefits, such as the Unclaimed Benefits Committee (UPC), is the disincentive to actively trace beneficiaries when the fund managers earn such generous fees on unclaimed assets.

That could amount to 2% to 3% a year, equal to between R900 million and R2.7 billion on the R90 billion the FSCA says is unclaimed.

That annual fee income would disappear if the asset owners were found.

At a recent People’s Hearing on Unpaid Pensions on Constitution Hill in Johannesburg, several speakers told of their frustration in trying to track down funds they believed were owed to them.

“I’ve lodged claims, but nothing has come to fruition. No one is coming forward to explain the way forward,” said Andrew Zwane, a member of the UPC.

Some of these assets have been unclaimed for decades, and many of the owners have passed on, leaving it to their beneficiaries to pick up the cudgels on their behalf.

Fear of ‘infiltration’

One of the fears around establishing a new central asset management operation is the potential for infiltration by political or private interests.

The FSCA says this can be mitigated by leveraging structures such as Nedlac, where business, labour and government are represented. “[The] board of the central fund [should be] responsible for taking operational decisions, including levels of reserves to meet future claims and level of distribution,” says the FSCA presentation.

Beneficial owners must have the right to reclaim, in perpetuity, the value of the assets at the point of transfer into the receiving fund, be it a central fund or the National Revenue Fund, as well as any accrued interest between the date of transfer and the date of reclaim.

The reclaim of funds should also be tax neutral, with assets being taxed on the date of reclaim rather than date of entry into the fund.

A standardised approach to monitoring and tracing owners of unclaimed assets is needed, with financial institutions being duty-bound to maintain detailed and current records on matters such as dormant accounts and unclaimed assets.

These records should include the number of accounts and beneficial owners, asset type, individual asset value, age of asset, age and race of a beneficial owner, how the institution has responded to tracing beneficial owners, and the effectiveness of such responses.

This article originally appeared on Moneyweb and was republished with permission.
Read the original article here.