Fine line between fraud and cultural perceptions of money

Adult entitlement to children’s money is a common cultural perception in South Africa, yet could be tantamount to fraud. This is one of the challenges faced by the beneficiary fund industry which manages an estimated R15bn of funds on behalf of minor chil

Speaking at the Institute of Retirement Funds conference in Cape Town today, GiselleGould, business development director of Fairheads Benefit Sevices, said: “In African society people share. While this is a wonderful concept, it can run counter to children’s rights. Guardians and caregivers often assume that funds paid to their bank account for the benefit of children intheir care can be spent as they please. In some instances, guardians do not even disclose to children that a beneficiary fund has been set up for them.”

The solution, Gould said, is to make minors aware of their rights and improve levels of financial literacy among guardians and beneficiaries. Fairheads conducts annual roadshows around Southern Africa, meeting face to face with guardians and caregivers. This year beneficiaries were also encouraged to attend so that they can learn about their rights and how beneficiary funds work.

When a retirement fund member dies leaving minor children, the fund trustees can choose to pay death benefits as a lump sum into a beneficiary fund. The average lump sum is R100 000. The trustees use their discretion, although fund members can recommend the use of such a fund on their nomination form. Accounts are set up in an umbrella beneficiary fund which pays out an income to beneficiaries (usually through their guardian), as well as capital amounts for expenses such as school fees. Once the beneficiary turns 18, they are entitled to the remaining funds.

Ms Gould said: ”Beneficiary fund administrators need to be on the lookout for various types of fraud. Aparticular challenge is to ensure payments continue to be paid to the correct person, as identity fraud is common. Beneficiaries are required to confirm their identity and address details in front of a commissioner of oaths on an annual basis.”

According to Ms Gould, around 75% of all requests for funds from guardians are for school and education-related expenses. “In this way, minors who have lost a breadwinner are managing to get an education,” she said. At a recent Lesotho roadshow, most of the attendees represented child-led households and the workshop facilitators had to explain the importance of going to school.”