FANews
FANews
RELATED CATEGORIES

Beneficiary funds avoid large-scale fraud, but risk remains at the consumer level

02 June 2010 Fairheads Benefit Services
Giselle Gould, business development director of Fairheads Benefit Services

Giselle Gould, business development director of Fairheads Benefit Services

Beneficiary funds, which were introduced in January 2009 as a means of avoiding large-scale fraud such as Fidentia, have led to improved regulatory protection for the assets of “widows and orphans.” But the industry needs to improve risk measures to combat rising fraud within funds at the consumer level.

Speaking today at the second annual pension fund fraud conference in Johannesburg, Giselle Gould, business development director of Fairheads Benefit Services, said that identity theft was an area for concern. This can lead to the diversion of funds into the wrong hands and it is often minor dependants who suffer.

Gould said: “When economic times are tough, fraud tends to increase. Service providers need to be alert and should at the very minimum have in place a fraud and corruption policy, as well as a policy on suspicious transactions. In this way, small-scale fraud can be detected. Administrators need to be aware. For example, if a guardian requests funds for school fees that are far higher that what she has claimed in previous years, this should be investigated. Similarly, when assets are paid out to a beneficiary upon majority age, there should be very strict requirements in respect of original documentation to ensure the funds are going to the right person. It is awful to think of people preying on minors.”

The beneficiary fund industry is in its infancy and it is complex, according to Gould. Consumers and retirement fund trustees alike are still getting to grips with it. Service providers are now bound by minimum communication requirements in terms of circular PF130 and this should help to improve knowledge levels. There are huge challenges however as members have low levels of financial literacy, often cannot speak English and live largely in rural areas where they are difficult to locate and communicate with effectively.

Gould estimates the size of the “death benefit” industry to be between R12 and R15 billion (in some 20 beneficiary funds and their predecessor umbrella trusts), with a further similar total administered within retirement funds themselves. The average lump-sum benefit payout is R50 000 and 90% of claims handled by Fairheads relate to education.

“Service providers thus play an enormously important social role and need to exercise their fiduciary duty to ensure that fraud does not occur within beneficiary funds. With proper policies in place and awareness built into work processes, there is no need for this to be an additional cost burden on members,” said Gould.

Quick Polls

QUESTION

Which aspect do you think is most critical for the future success of financial advisory firms?

ANSWER

Embracing technological advancements
Rethinking fee structures
Focusing on inter-generational wealth transfer
fanews magazine
FAnews June 2024 Get the latest issue of FAnews

This month's headlines

Understanding prescription in claims for professional negligence
Climate change… the single biggest risk facing insurers
Insuring the unpredictable: 2024 global election risks
Financial advice crucial as clients’ Life policy premiums rise sharply
Guiding clients through the Two-Pot Retirement System
There is diversification, and true diversification – choose wisely
Decoding the shift in investment patterns
Subscribe now