“Disappointing” unclaimed benefits development in amended Act

Giselle Gould, Business Development Director of Fairheads Benefit Services, says that unclaimed benefits in South Africa are already a vast problem. "If retirement fund trustees are able after two years to give up the search for dependants of deceased members, they are in effect relinquishing their fiduciary duty,” she says.

The Financial Services Laws General Amendment Act was published in the Government Gazette on 16 January 2014 and contains amendments i.a. to the Pension Funds Act. The definition of "unclaimed benefit” in subsection 1 now includes the following:

In terms of section 37C of the Pension Funds Act, the trustees of a retirement fund are required, on the death of a member, to identify and trace the dependants of the deceased and use their discretion whether to pay the money into a beneficiary fund, administer it within the retirement fund or pay it directly to the guardian or major. The use of a beneficiary fund is a popular option for minor dependants as it provides effective protection by law for the management of minors’ inheritance, enabling many children to complete their education. Since the inception of beneficiary funds in January 2009, Ms Gould says the industry has grown to an estimated R7 billion.

To date, trustees have not been allowed to pay death benefits into an unclaimed benefits fund. They have been encouraged to trace all dependants and allocate benefits within 12 months. In pratice, Ms Gould says that this can take much longer, particularly in the case of polygamous marriages or relationships where minor dependants may be hard to trace in remote rural areas.

"When unclaimed benefits legislation was initially promulgated in 2008, death benefits were excluded from allowing to be paid into an unclaimed benefits fund, on the basis that these benefits make provision for the vulnerable dependants of the deceased who had lost a breadwinner. Yet now, trustees will be able to close their investigation after 24 months and pay the benefit into an unclaimed benefits fund, adding to the mountain of unclaimed benefits in South Africa.

"Not all retirement funds have their own unclaimed benefits fund. This means the untraced benefit may go into an umbrella fund, in which case the beneficiaries are highly unlikely ever to be traced. We appeal to trustees to attend to their investigation and make the allocation as swiftly as they reasonably can,” she says.

Ms Gould believes the Act amendment may have been prompted by the trend towards consolidation in the retirement fund industry. "Funds can be closed if they do not house any unclaimed benefits. While this may be convenient from a regulatory point of view, it is prejudicial to dependants.”