The problem of unclaimed benefits is well known by now. There is reportedly more than R40 billion in unclaimed benefits in the retirement fund industry, and one wonders just how much in unpaid benefits may be sitting in the long-term insurance industry, another story altogether. These figures are not just figures – they have a very real human face, representing unused opportunities and potential personal growth for countless individuals and families around Southern Africa.
There have been some efforts in recent times from the Financial Sector Conduct Authority (formerly the Financial Services Board), to compel retirement funds to do more to pay out unclaimed benefits. This has largely taken the form of the establishment of a national database which can be accessed by members of the public to check whether they have any benefits held in a retirement fund or unclaimed benefit fund.
Civil society groups too have been more active, with the Unpaid Benefits Campaign issuing a list of demands around the issue.
A host of other, less reputable service providers have sprung up around the country promising to help beneficiaries to access their funds, usually for a (substantial) cut of the benefit.
Sadly, all this is not enough and we are yet to see any real traction. There remain some fundamental problems, which we see as follows:
Unclaimed benefits are fertile grounds for attempted fraud. This is because with a little information, it is easy for syndicates to target funds with falsified identity documents, bank accounts and affidavits. And the best part is that the “victim” is none the wiser! Any publicly accessible database, or group which operates on the basis of collecting information from consumers heightens this risk substantially.
Essentially, administrators and investment managers who are charged with finding “missing” members have no incentive to do so. In fact, because they charge fees based on a percentage of assets, there is a dis-incentive to finding the members and paying out their benefits.
A closer understanding of what is required to trace members is needed. Traditionally, the relationship between the retirement funds and their members has been facilitated by the employer or union – and much of the retirement fund’s consulting focus has been on keeping the employer or union happy. However, in the case of unclaimed benefits, the employer no longer has a role to play because the very fact that the funds are in an unclaimed fund means that the member no longer works for the employer.
We believe there is a solution to this seemingly intractable problem. The industry needs to collaborate afresh and commit to establishing a centralised administrator of unclaimed benefit funds which is separate from the fund investment management.
That independent administrator would be well connected and able to assist the FSCA in hammering out a solution and getting collaboration and shared databases from retirement funds.
It would charge a modest monthly administration fee which is rand-based and not a percentage of the benefit, as well as a termination fee once the member has been successfully traced. The administrator’s revenue stream would therefore depend on finding people so that the incentive is aligned with the problem at hand.
The independent administrator would have expertise and innovation in tracing members. Initiatives such as roaming tracing agents in the field and information roadshows in both rural and urban areas would be employed.
If volume and scale were achieved in the form of a national unclaimed benefits administration service, then information and distribution networks could be explored, for example with retail loyalty programmes and government agencies, with proper commercial arrangements in place.
If a centralised unclaimed benefits administration service were formed, there would be automatic sharing of databases across multiple entities.
Most importantly, the independent administrator would have the structure and experience in dealing with members in a “retail sense”, that is directly, as opposed to retirement fund administrators which generally deal with members through the latter’s employer).
Communication would be key. The administrator would have a state-of-the-art contact centre that handles all official languages and others that may be relevant; SMS communication would be commonplace.
As Southern Africa’s largest independent benefits administrator, Fairheads Benefit Services is available to take up the challenge.