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An unclaimed assets free-for-all?

12 October 2022 Gareth Stokes

If you or any of your clients have any ‘skin’ in the unclaimed benefits ‘game’, then you best prepare for some heavy afterhours reading, to assimilate the Financial Sector Conduct Authority’s (FSCA) recently published discussion paper on the treatment of South Africa's growing unclaimed assets stockpile. The September 2022 discussion paper, titled ‘A framework for unclaimed financial assets in South Africa’, runs to 70-pages covering unclaimed assets held by retirement funds; the Collective Investment Scheme (CIS) and life insurance sectors; the banking sector; and financial markets.

An all-encompassing and comprehensive solution

The last time we covered the topic, in a piece titled ‘Introducing the unclaimed benefits super fund’, we reported that National Treasury was eyeing the then approximately ZAR45 billion sitting in unclaimed retirement fund benefits. Today we can confirm that their interest has expanded to place a combined, estimated ZAR90 billion in play, with the usual central fund and state-appointed management / supervision framework built around it. It took a team from the FSCA around two hours to explain the proposed framework during a virtual media roundtable event, with industry stakeholders given until 30 November 2022 to submit their comment. This newsletter focuses on the 13 recommendations contained in the discussion paper, interspersed with some of the writer’s thoughts. 

“Today’s conversation comes after a lot of talk about unclaimed benefits specific to the retirement sector; we are broadening the conversation [by sharing] a discussion paper containing recommendations on what the regulator thinks should be done with [a broad cross section of] unclaimed assets,” said Tembisa Marele, Head of Communications at the FSCA, before vacating the podium for FSCA Commissioner, Unathi Kamlana. The Commissioner started his brief introduction by acknowledging the progress made by certain financial sector stakeholders in the unclaimed benefits space; but lamenting the uneven progress across financial sectors. “As a market conduct regulator concerned with customers being treated fairly by the financial sector, this [estimated ZAR90 billion in unclaimed assets] remains an area of strategic focus for the FSCA,” he said, advocating for an “all-encompassing and comprehensive” solution. 

The broad brushstrokes…

The commissioner summarised the broad brushstrokes intention of the framework as being to significantly reduce the value of unclaimed assets and improve customer outcomes across the financial sector by, among other interventions, introducing a common taxonomy amongst financial institutions; implementing ongoing monitoring across the financial sector; and enhanced tracing. The adequacy of data and recordkeeping and poor financial literacy were singled out as major causes of the current situation. Kamlana noted that accurate “data and records remain central to resolving the unclaimed assets [dilemma] in South Africa” before acknowledging that many beneficiaries were for all intents and purposes “untraceable”. It is these assets that the regulators, and National Treasury, hope to repurpose to the benefit of broader society. 

Detailing the 13 specific recommendations 

Here follows an executive summary of the 13 recommendations, with more detail on offer in the FSCA paper… 

  • Recommendation 1: Is that the types of assets to be included within the scope of the framework include retirement fund benefits; bank deposits, irrespective the term and including foreign currency deposits; participatory interests in CIS and life and non-life insurance policies; and securities. Investments, returns, income, dividends or other proceeds in respect of or derived from these assets are also deemed payable or due to customers or their beneficiaries by financial institutions, and thus included in the framework. 
  • Recommendation 2: Is that an aligned approach [be taken] to the treatment of unclaimed assets across all industry segments, alongside the adoption of a common escalation system for the identification of unclaimed assets. Industry would have to agree key definitions for dormant account; lost account; and unclaimed asset [as well as] understand the impact and extent of unclaimed assets across the financial sector. 
  • Recommendation 3: Is to establish a Central Unclaimed Assets Fund to receive and manage unclaimed assets, or alternatively transfer unclaimed assets to the National Revenue Fund… This writer supports a managed repurposing of the affected funds and would love to hear from readers as to which of these suggestions you prefer. 
  • Recommendation 4,5: The framework should provide for (4) “restitution in perpetuity” and (5) “tax neutrality”. Point four seems a trifle moot, given the likelihood of today’s untraceable beneficiary being ‘traced’ 10, 15 or 20-years hence, and perhaps there is an argument for a lengthy prescription period on such assets, especially for small balances. 
  • Recommendation 6: Financial institutions that will already be snowed under by the looming Omni Conduct of Business Report (Omni CBR) are going to hate the sixth suggestion, being that unclaimed asset reporting by financial institutions be standardised in terms of regularity and form. It seems that compliance officers can add ‘death by regulatory reporting’ alongside life’s other certainties, death and taxes. 
  • Recommendation 7,8: These are a pair of common-sense proposals to (7) “establish a centralised data base to assist in the tracing of persons in respect of all industry segments across the financial sector” and (8) “identify a minimum threshold for unclaimed assets below which a financial customer will not be actively traced”. This writer reckons that cleaning up the unclaimed assets dilemma could be massively expedited by simply declaring assets with balances below this threshold as ‘forfeit to the state’! 
  • Recommendation 9,10: These proposals set out to “prioritise the tracing of members in high impact retirement funds and other providers”, which the FSCA describes as financial institutions with a high concentration of unclaimed assets. 
  • Recommendation 11: Aligns nicely with the environmental, social and governance (ESG) theme by requiring that a portion of unclaimed assets be set aside for projects with ESG benefits. The first preference remains to return unclaimed assets to their rightful owners, failing which they should be repurposed for public good. 
  • Recommendation 12, 13: Twelfth in the list is to undertake “coordinated consumer awareness campaigns regarding unclaimed assets, including to promote keeping personal details updated” and thirteenth is “the regulation of tracing agents”. These points will fall upon product providers and regulators respectively and will undoubtedly add costs at each. 

Many unanswered questions

The discussion paper sets out to answer some of the many unanswered questions around unclaimed assets, which Kamlana said include: Do you create a central fund or allocate funds to Treasury? And how do you implement governance structures around a central fund? “We approach the unclaimed assets debate with a clear appreciation and understanding that it is a complex problem; there are a lot of moving parts and various stakeholders are affected … there are no easy and straightforward answers,” he concluded. 

Writer’s thoughts:
The commissioner of the FSCA correctly identifies many unanswered questions in the unclaimed assets debate, starting with whether the assets be managed from a central fund or integrated into National Treasury. Before we tackle the specifics: Do you, as stakeholder in the financial services sector, agree in principle that unclaimed assets be reallocated to projects that offer benefits to broader society? Please comment below, interact with us on Twitter at @fanews_online or email us your thoughts editor@fanews.co.za.

 

Comments

Added by Ayanda, 12 Oct 2022
The entire idea is nonsense and fraught.
It is by no means motivated by a sudden desire to help those who should have benefited. It is patently clear that the idea is to get grubby government agency employees’ paws on the loot.
Unclaimed pension fund benefits have always automatically served the interest of the rest of the fund members - precisely the persons who should benefit, not some other amorphous “public benefit/interest group”. The current rules of GEPF are a good recognition of this principle.
Similarly, Insurance companies with unclaimed benefits automatically invest those funds in the economy along with their surplus/reserve funds, thereby automatically benefiting society at large. Simultaneously, these investments help to secure the insurer itself, thereby automatically serving the very people who should be served by these funds, being the other policy holders of the same insurer - not some Ill-defined, un-related public benefit group selected by employees of the state.
Greater efforts could perhaps be applied to finding unpaid beneficiaries, but that is where it must end. Where in the law, pension fund, insurance contract or system of logic does it say that the state has any right whatsoever to any of these funds, at any time?
Moreover, what claim does the FSCA have that these funds will miraculously be better invested when they are managed by government employees or by special rules applying to these funds alone?
Neither the unpaid beneficiaries nor the country will be better off by proposals to collect up these funds and put them under special rules conjured up government agency employees.
One should never forget that famous man who said “when things are in the hands of the state, they are in a hell of a state.”
The answer to their question : “Do you create a central fund or allocate funds to Treasury?”, is Neither.
Stop these characters from this attempted heist. This is little more than an effort to grab these funds like they did the SASRIA surplus funds in 1998, and with results equally predictable.
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Added by Kit, 12 Oct 2022
Hi Gareth, although I shared my views with you and your audience re the R47 billion of unclaimed retirement fund monies some time ago, I will take some time to provide commentary on this article too as this is quite close to my heart ... My answer is still no to a central fund. Somewhere in there, may be a forfeiture to the State after thirty years which may align with the other unclaimed benefits like in the Guardian's fund?

FYI - There are more unclaimed benefits than in these FSCA governed sectors. e.g. in the Guardians fund under the administration of the Master's offices, retirement funds not governed by the FSCA such as the GEPF etc. FYI - How to find these - www.justice.gov.za for the Master's Offices and the unclaimed benefits list on their website https://www.justice.gov.za/master/guardian-uc-list.html, In terms of the Admin of Estates Act S92, these benefits are forfeited to the state after 30 years.
For GEPF, many of unclaimed benefits can be found in links on the GEPF website per province. Much to work through to identify a possible benefit. I know of someone who has not claimed and we cannot find her information in any of the links. We have even sent mails to which no response.

:-). Why I still say NO? Because so much more can still be done to find the rightful owners of these benefits. NT would love to get their hands on these benefits - much to Fund in a failing state.

A ''yes'' to those that they can definitely not locate, but I know as I know more can be done. Esp. with the likes of the bigger retirement fund administrators such as MIBFA who have been sitting on over ±R20 billion (plus as this is a moving target) benefits of people for decades without the Trustees actively DOING to find anyone. One recent claim of R900,000 was paid out after helping someone, and then they MIBFA found further benefits in another participating employer under their EIPF EISH. Another case of R1.2m (!!!) just recently paid by AF to a person who worked at ABI. The one member with unclaimed benefits has had the same cellphone number since cellphones came out thirty years ago, the surname is a one in a kind... so what have you done to actively trace MIBFA (Trustees) mmm. Opportunity costs of taking out benefit and reinvesting it somewhere else, and also taxed as a withdrawal - R180k withdrawal tax, when person was retrenched 20 years ago from the employer who is no longer in existence. All affidavits submitted and MIBFA apply for withdrawal tax stating that member did not provide proof that he was retrenched - employer no longer in business after two decades and MIBFA blanketly applies for tax as a withdrawal without giving the member an option to transfer tax free until age 55 (retirement). PFA does not apply their mind to this as they are too busy and sides with MIBFA. Need to take this to Tribunal. (just putting this out there as there are mountains of hurdles to cross even when you eventually get to an unclaimed benefit). I should write a book of How To.

I have had conversations with the FSCA re the unclaimed benefits and advised that I can help them to project manage this with the industry, i.e. not just sit around making policies, but actually hands on project management - lots of red tape and 'employment' hurdles. In any event, herewith an article re the unclaimed retirement fund benefits to help your readers with attempting solving the çold cases proactively. https://fpimymoney123.co.za/taming-the-r45-billion-of-unclaimed-retirement-fund-benefits-pt3/

Vent closed... :-)
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Added by WJL Vermeulen, 12 Oct 2022
Way back companies contributed "rand for rand" to your pension fund but should you resign, you only got your own contribution plus about 4% "enkelvoudige" interest back. Those company contributions stayed in the funds.
Are those company contributions claimable in the individuals' name?
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