The solution to unclaimed benefits

A statutory unclaimed benefits fund is, in theory, a good idea but in practice it may be premature and hinder and confuse existing attempts by the private sector to trace beneficiaries.

As far back as 2000, unclaimed benefits were identified as a problem in the employee benefits industry. When the regulator started to investigate it was clear that the problem was more widespread than first thought with unclaimed benefits collecting in banks, life policies and a variety of financial vehicles.

Proposed solution... too late?

Three years ago National Treasury therefore proposed a statutory unclaimed benefits fund as part of its retirement reform plans, and this has been extended to include all unclaimed benefits in any financial vehicle.

That is all good and well, but it may be too late. In the meantime, the private sector has put in place its own systems to trace beneficiaries. Call centres have been set up, advertising is in place and tracing agents are incentivised to track down beneficiaries.

Private sector advantages

The advantage of individual company initiatives is that they are targeted close to the source. For example, a retirement fund administrator is able to send a list of names to a retirement fund client, requesting the fund’s HR department to assist with information of members from records and colleagues, as soon as a benefit becomes untraced.

Furthermore, the rate of success in tracing is reasonable when done as soon as the administrator is aware the benefit has become unclaimed, and tracing agents are incentivised to find a certain number of missing claimants.

Especially in funds where the only assets are of an unclaimed nature, the trustees are keen to clean it up in order to close the fund, or pay unclaimed benefits older than five years over to the Guardian’s Fund.

The slower alternative

In contrast, government bodies can be slow and cumbersome. One needs only cite the Guardian’s Fund as an example of gross maladministration and abuse. A national unclaimed benefits fund is not necessarily stillborn, but I do believe that private sector attempts will probably be more efficient as they are close to the source of unclaimed benefits and have networks in place. The irony is that government would probably outsource the tracing to the private sector in any case.

Recent legislation

The latest Financial Services Laws General Amendment Act promulgated in November 2008, which included an amendment to the Pension Funds Act, makes provision for the establishment of individual unclaimed benefit funds on the part of private sector companies. Once registered, an unclaimed benefit fund may open a bank account, transfer unclaimed assets and be managed as a separate entity with its own board of trustees.

This is a welcome new development as these funds will have a core focus which is to pay out unclaimed assets to traced beneficiaries.

If government has gone as far to legislate for private sector unclaimed benefit funds it simply does not make sense to duplicate and confuse efforts by creating a national unclaimed benefits fund.