On the death of a retirement fund member, the fund trustees, in terms of section 37C of the Pension Funds Act, must identify and trace the member’s beneficiaries. This process is open to fraud.
Karin MacKenzie, the head of the pension law department at Herold Gie Attorneys, says: “Our law recognises a wide range of dependants who potentially qualify for death benefits from pension funds. This includes spouses in customary law marriages and people who were factually dependent on the member (even though there was no legal duty of support). In these circumstances, it is sometimes not even necessary to fabricate a new identity in order to submit a fraudulent claim. Where there are no other beneficiaries to contest the facts, the claim may be hard to disprove, and it may even be the investigation process itself which triggers the submission of false claims.”
MacKenzie says trustees of pension funds require a certain level of proof regarding beneficiaries, which helps to eliminate fraud.
“Beneficiaries are required to submit sworn statements confirming their dependency and relationship to the member. Where surviving spouses rely on civil marriages, the marriage certificate will be required. However, in marriages under customary law, claimants will not have certificates and will have to prove the relationship through other means. They may submit confirmation from the headman of the clan, and in some cases where the customary law marriage is disputed, the retirement fund may need to obtain evidence from an expert in customary law.”
There are increasing levels of protection against fraud, she says. DNA tests, while not unheard of, are not common. This is due, in part, to the expense of the procedure and the sometimes inconclusive results when the DNA of the member is no longer available for comparison.
Retirement funds need to put strict controls in place to guard against internal fraud. Counter-measures include the proper segregation of functions, a good control environment, not taking anything on trust, lifestyle audits of employees and the interrogation of changes to the bank account details of beneficiaries, MacKenzie says.
Death, marriage and birth certificates can be cross-checked with the Home Affairs databases, “although in cases where that department’s own records have been the source of corrupt data it is obviously of limited assistance”.
Dependants are required to provide affidavits and, where necessary, prove their financial interaction with the member through their bank records.
“Other beneficiaries, where these exist, are advised of the claims of their co-beneficiaries and given an opportunity to comment. This will usually expose fraudulent claims, and at least put the fund on notice to scrutinise them carefully.”
Her words are echoed by David Hurford, the director of marketing and consulting at Fairheads Benefit Services, who likens it to a moving feast: “The process of proving beneficiaries are legitimate is really strict because of the high level of fraud,” he says. “We use multi-factoral authentification, but no steps are foolproof. Ultimately, more layers will be added to the process – as syndicates become aware of a new layer and how to defraud it, we need to add another one.”
On a reassuring note, MacKenzie says that any payment a retirement fund makes in respect of a fraudulent claim is an “undue payment”, and does not excuse it from making payments to the true beneficiaries once they are identified. “The fund is therefore at risk in the event that it pays out on a fraudulent claim. It has a right of recovery against the perpetrator.”