Unclaimed benefits: Never forget whose money it really is

In an industry where trust is already in short supply, yet another financial services bomb dropped at the end of 2019 when research and advocacy group, Open Secrets, revealed that South African administrators are making a handy profit from over R42 billion in unpaid pension benefits. These funds have not been paid out to their rightful owners, but languish in funds where administrators pay themselves a handy fee for 'looking after' the money.

Because the victims of these activities are often unaware that money is owing to them, the outcry has not been as severe as it was for some of the other recent scandals.

An unclaimed benefit arises when a person is due a retirement benefit, but cannot be located. This is often the result of working for multiple employers throughout one's lifetime, and then settling down in a rural area with limited access to communications, for instance.

Under current legislation, if a person cannot be located within 24 months, their funds must be transferred to an unclaimed benefits fund, where every care should be taken to track them down and reunite them with their money. The reality is that not much effort is expended in locating these individuals by the big players in the industry, as the administration fees they pay themselves serve as a lucrative counter-incentive.

However, because of a number of recent high-profile court cases, liquidators of defunct pension schemes have been made painfully aware of their ethical duty to ensure that as many members as possible are found. This is starting to drive a trend towards using expert unclaimed benefit fund administrators to reunite as many members as possible with their money, as pension fund trustees now appreciate that some administrators may not have their members' best interests at heart.

In contrast with the industry norm of treating unclaimed benefit funds as cash cows, and not a specialised service, independent provider, Fedgroup, has shown remarkable success in tracing the beneficiaries in its Unclaimed Benefits Fund.

"It is critically important to remember that the reason for the existence of an unclaimed benefit fund is to find and pay people their money in the shortest possible timeframe. If you look at our success in tracing and paying our clients, compared to the industry norm, it is clear that many other providers are not taking full responsibility for their fiduciary duties. In fact, many make a weak initial attempt to trace members, and then never again," says Bash Govender, Operations Manager of Group Benefits at Fedgroup.

"Recently, we received benefits from a new pension fund client. Within three months we had found 40% of the beneficiaries. But that is not where it ends. We never consider a tracing attempt complete, no matter how old. We still manage to locate beneficiaries after five years, where other providers have long given up."

Finding members of unclaimed benefits can be a complex affair and every care should therefore be taken to ensure that it doesn't become a costly one as well, as that would erode the value of the final payout.

"We make use of a two-stage process with our tracing agencies to cut costs to a minimum," explains Govender. "The first stage is to see whether we can locate the individual from the existing documentation that we have in our possession. This is the cheapest way to locate a beneficiary, as it is an electronic process.

"If this trace proves unsuccessful, we will perform a foot trace, which is more expensive, but necessary if no other way to locate a member has proven successful. The good news about our relationship with our tracing agencies is that we only pay for successful traces.

"We also have several checks and balances in place to ensure that the service we receive from our tracing agencies is top notch. We have used quite a few tracing agencies and where the performance is not up to our standards, we change providers."

An important consideration for Fedgroup when it comes to protecting their members' interests is not to make use of tracing agencies that also have creditors arms. In many instances, tracing agencies get hold of a beneficiary, only to hand them over to creditors for the payment of other, unrelated debts.

Fedgroup's efforts in locating beneficiaries is supported by its single-view administration IT system that was designed and built in-house, from the ground up. One of the features of this system is that all client interactions across all product lines can be seen on a single screen. Many other providers use old legacy systems that do not speak to each other.

"Recently, a client contacted us because he forgot his password to our Impact Farming App," says Govender. "Although this is a separate arm of the business, when he provided his ID number, our system immediately flagged that he has unclaimed benefits with us and we could pay him his money. It is doubtful whether this would have happened with any other provider in the country."

With many service providers now having to mend their ways due to whistle-blowers and court rulings, it is encouraging to know that the best industry practices model for them to follow already exists.