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The dirty little secret behind SA’s R50bn in unclaimed pension benefits

Speaker after speaker at the People’s Hearing on Unpaid Pensions on Constitution Hill in Johannesburg on Tuesday detailed their Kafkaesque efforts to lay hands on unclaimed pension benefits accumulated over decades of toil.

Just when you think you are getting somewhere with your claim, a new administrator is appointed and the paperwork starts all over again.

One speaker waited seven months to be told by the fund administrator that there was no pension for him.

Andrew Zwane, a member of the Unclaimed Benefits Committee (UPC), which is assisting pension beneficiaries to track down unclaimed pensions, spoke about his frustration in tracking down his pension benefits earned after decades working for companies like African Cables, Fidelity Guards and XPS Services.

“I’ve lodged claims, but nothing has come to fruition. No one is coming forward to explain the way forward.”

While the years and decades roll by, beneficiaries pass on and leave the battle to claim any benefits to their families.

Read: Over 20 000 former government employees have not claimed their pensions

Another speaker, Johannes Moloi (58) from Sharpeville, was a former SA Post Office worker before parts of his operation were swallowed up by Telkom. He was retrenched in 2003 and given a payout of around R280 000, which included the pension fund he had been paying into for decades. None of this made any sense to him – then or now.

“I have three children to look after, and I got a retrenchment package of R50 000,” Moloi told Moneyweb. “I’m also here to fight for the unclaimed benefits of my father, who was an army chef before moving onto SA Rail [later part of Transnet]. He was paying R45 a month into his pension for decades, yet received nothing when he retired. He has passed on now. I think that money is sitting in one of these dormant pension funds, and the administrators are trying to steal it.”

Bruce Kapi of the UPC says millions of South Africans are going around in circles trying to claim benefits they are legally entitled to, but despite assurances from the Financial Sector Conduct Authority (FSCA) that it is doing all it can to track down beneficiaries, the evidence suggests not all administrators share its enthusiasm.

That there is an estimated R50 billion in unclaimed benefits is not in dispute, though UPC members say the figure is likely much higher.

That’s the figure estimated by investigative and advocacy group Open Secrets, which has taken on the issue of unclaimed benefits as one of its campaigns.

Solving the riddle

How unclaimed benefits accumulated to a staggering R50 billion is a little more opaque, and appears to be a uniquely South African riddle.

Poor corporate admin is partly to blame, but a far bigger problem was the number of migrant workers travelling to the mines from Malawi, Mozambique, Lesotho and elsewhere.

Unable to pronounce or spell these workers’ names, administrators gave them more comprehensible names like John or Johannes, names that did not match whatever passed for IDs back in the 1950s and 1960s. Personal circumstances forced workers to return to their rural homes, often forgetting that they had unclaimed pension benefits.

Companies went bust, merged or went through periodic bouts of retrenchment. Pension fund administration passed from one company to another. There was a shift from defined benefit to defined contribution funds, and a further shift from standalone to umbrella funds.

One of the biggest corporate scams, well known to MBA students, was the buyout of companies almost exclusively to get their hands on workers’ pension funds.

The courts have been criticised for siding against pensioners in two of the most prominent cases of recent years: that of two pensioners against the Tongaat Hulett Pension Fund; and that of former Financial Services Board (now FSCA) deputy pension fund registrar Rosemary Hunter against the FSB over its attempts to deregister funds that still had assets owing to former employees.

Read: SA’s twisted history of pension fund plunder

The numbers

In 2021 the FSCA outlined the extent of the problem:

  • There was R45 billion (now reckoned to be R50 billion) in unclaimed pension benefits;
  • These benefits belong to 4.5 million South Africans;
  • There were 6 757 dormant pension funds in the so-called ‘cancellations’ project initiated by the FSCA between 2007 and 2013 (nearly a third were cancelled even though they had properly constituted boards in place); and
  • Dormant pension funds could not pay out benefits, but could still earn fees for the administrators.

More than 16 million South Africans belonged to a pension fund in 2019, with some 90% of members belonging to around 5 000 privately administered pension funds, typically run by the country’s largest financial institutions, according to a study by Open Secrets.

Some insight …

We have an even better idea of the state of unclaimed benefits from the FSCA’s answering affidavit in a (now withdrawn) case by Open Secrets in which it asks the court to ensure the FSCA takes clear steps towards remedying the unlawful cancellation of pension funds.

The FSCA says it launched the cancellations project in 2007 “due to the large number of dormant or orphan funds which undermined the integrity of the retirement funds register and the effectiveness of supervision”.

When she assumed the position as deputy head of pensions at the FSB, whistleblower Hunter raised concerns about the manner in which the cancellations project was conducted. She waged a multi-year campaign within the FSB to force an open and transparent investigation into the cancellation of thousands of pension funds, some of which still had assets in them.

Hunter took her case all the way to the Constitutional Court, but lost in 2017 on the grounds that the FSCA had already launched investigations into the cancelled pension funds.

Some improvement

Hunter says there is evidence of improved administration at the FSCA, with Liberty named as one of the largest administrators involved in irregular cancellation of pension funds – showing much improved levels of transparency and efforts made to reconstitute cancelled funds.

“There’s also a new executive committee at the FSCA, and there appears to be a change in culture, and a greater willingness to address head-on the problem of unclaimed benefits,” adds Hunter.

Liberty says those who believe they are entitled to unclaimed benefits can access the Liberty Unclaimed Benefits service.

Another database is operated by BenX; a free search engine allowing anyone to check whether there are unclaimed benefits. It reckons more than R85 billion is owed to more than five million South Africans.

The FSCA also has an unclaimed benefits database search facility.

Read: How unclaimed retirement benefits can be put to better use

Efforts must continue

Open Secrets says it has withdrawn its litigation against the FSCA in recognition of the fact that court challenges should be a last resort.

“We are nevertheless disappointed that the progress occurred alongside the continued absence of transparency and communication with the public, which we believe to be in violation of the constitutional duty of all state bodies to act transparently and in the broader public interest,” it says.

“Without such openness, unpaid beneficiaries and victims of the unlawful cancellation of pension funds remain in the dark.

“This is the only way that affected beneficiaries will know what is happening to their hard-earned pensions, and that the public can be assured that the FSCA is acting independently,” says Open Secrets.

“We will continue to monitor both the steps taken by the FSCA, and the compliance by the fund administrators.

“We will likewise continue our approach of robust engagement with all relevant bodies, in the pursuit of broader social justice and in support of the interests of unpaid beneficiaries and victims of the unlawful cancellation of pension funds.”

Read: Could you be one of 7 000 people owed money by the Guardian’s Fund?


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