Independent South African financial services provider, Fedgroup, was recently awarded a tender issued by ARGEN Actuarial Solutions to administer four liquidated unclaimed funds, totalling R180m. ARGEN is an expert in the liquidation of retirement funds and it went through a selection exercise to select an ideal unclaimed benefit fund to house the benefits of untraced members in four of the retirement funds it recently liquidated.
The funds are IF Umbrella Pension and Provident Funds, and Dynam-ique SA Umbrella Pension and Provident Funds. Individuals who were members of those funds are encouraged to contact Fedgroup should they feel benefits may be owed to them.
Fedgroup was invited to tender against many of the large industry incumbents and won based on its proven record and value proposition.
As a specialist operator in the field, with significant experience, expertise and a proven track record in the administration of beneficiary funds, which fulfil a similar mandate to unclaimed funds, Fedgroup is emerging as a prolific driver of much-needed industry reform.
Unravelling the backlog requires specialised skills
Providing these administrative services also requires a mindset that is vastly different to retirement fund administration. “At Fedgroup we understand that beneficiary and unclaimed fund administration should focus on a different need-state and an ethic of care. Both also require a strategy vastly different to retirement fund administration,” says Walter van der Merwe, CEO of Fedgroup Life.
Within the broader retirement fund industry, the Financial Sector Conduct Authority (FSCA) continues to grapple with legacy issues surrounding a lack of industry best practices and good corporate governance of unclaimed benefits.
The issue was recently thrust back into the popular discourse when activist and former deputy registrar of retirement funds at the Financial Services Board (FSB), Rosemary Hunter lost a Constitutional Court appeal against a high court ruling. The appeal sought to compel the FSCA to take action against various private and public sector funds that are sitting on R42 billion in unclaimed benefits in South Africa.
Concerns have also been raised regarding a perverse industry incentive to keep benefits in the unclaimed fund for as long as possible to incur more admin and investment fees. As such, the likes of Hunter and other responsible corporate citizens within the financial services sector have sought to find ways to drive a paradigm shift that will improve compliance throughout the industry.
While the main purpose of an unclaimed fund is to provide a vehicle to safeguard benefits and to trace members or beneficiaries in an effective and efficient manner, a major challenge is a lack of incentive on the part of insurers and administrators. The process to adequately and comprehensively trace beneficiaries and dependants and pay out unclaimed benefits can be administratively onerous, time consuming and costly.
Moreover, many unclaimed benefits comprise small amounts – under R5,000 – and the process of finding someone is intensive and success is not guaranteed. Extremely tight margins in the administration of unclaimed funds also makes providing these services a highly specialised endeavour.
Outsourcing administration eases the burden
“We are, however, able to realise efficiencies from the economies of scale offered by greater volume, through expert and experienced staff, and the application of the appropriate technology. This is driving a shift toward to the outsourcing of administrative services among actuaries, auditors and fund liquidators,” explains Van der Merwe.
He adds that Fedgroup is ideally positioned and equipped to address the industry's unique challenges, thanks to the company's extensive industry experience, its passionate staff, who are committed to providing beneficiary care of the highest order, and its administration system. Fedgroup’s technology was developed from the ground up as an efficient, streamlined and intelligent bespoke industry solution. The functionality and capabilities of the system offer this relatively small financial services provider a key strategic advantage and differentiate it from the incumbent providers.
“Combining these elements with our track record in beneficiary care has helped to elevate our offering within the unclaimed fund space, as our value proposition increasingly resonates with industry stakeholders that want to change the status quo and ensure these funds have their intended impact,” believes Van der Merwe.
“We believe the ARGEN business is an example of how the broader industry now regards Fedgroup as a specialist operator in this field, thanks to our technological capabilities, administrative excellence, and the pioneering role we are taking in providing fund administration as a service. We hope that it will create even greater opportunities to get more of that R42 billion to people who need it most,” concludes Van der Merwe.