The office of the Pension Funds Adjudicator is encouraging retirement funds not to invoke the Prescription Act when dealing with unclaimed benefits, in its efforts to unite beneficiaries with what is due to them. Life assurance companies affiliated to the Association for Savings & Investment SA (Asisa) have pledged not to do so through their adherence to Asisa’s Standard on Unclaimed Assets, which was implemented in June 2013.
According to the annual report of the Financial Services Board (FSB) for the year to the end of 2013, unclaimed benefits in retirement funds amount to about R20 billion.
The Prescription Act governs the expiry of, among other things, claims to debt. It applies to money you owe a credit provider, such as a bank, and to money owed to you, in the form of, say, a benefit from a retirement fund.
For most types of debt, the expiry period is three years. Essentially, the Act states that if, after three years of a debt becoming due, the creditor (the party to whom the money is owed) makes no attempt to claim the amount owed by the debtor, the debtor is entitled to refuse to pay the debt, because the debt has been extinguished by prescription.
However, there are conditions governing when the prescription period begins and when it can be interrupted. One condition concerns at what stage the creditor becomes aware of the debt and the identity of the debtor (see “Knowing that a debt is recoverable”, below). Another is that the prescription period does not apply to children, so it is delayed until a child reaches the age of majority.
A feature of the Prescription Act is that it takes effect only if it is successfully invoked as a defence for not paying a debt. In other words, a debt does not prescribe automatically.
With the distribution of death benefits in retirement funds, the onus is on the fund to take all reasonable steps to identify and trace the beneficiaries (dependants and/or nominees) to whom shares of the benefits may be awarded, to decide on the shares to be awarded to each beneficiary, if any, taking into account their different financial needs, and to pay out those shares.
The Prescription Act really becomes an issue only when dependants who have not been identified and traced by a retirement fund come forward years after a member’s death to claim a share of a benefit. For example, a retirement fund member dies and the fund is unable to trace the member’s widow, his sole beneficiary. If the widow does not submit a claim to the fund, or does not lodge a complaint with the Pension Funds Adjudicator, within three years of her husband’s death, she may forfeit her right to that benefit, unless there are factors that delay or interrupt prescription.
The adjudicator, Muvhango Lukhaimane, says in cases where funds cite only the expiry of the three-year period, her office always checks that there are no factors that may have impeded the running of prescription.
Lukhaimane says her office has no jurisdiction over cases where a fund has legitimately cited prescription as a reason not to pay a benefit, and these are referred to the FSB.
But she says she has asked funds not to use this defence as a reason not to pay benefits.
“In certain instances, pension fund consultants advise funds to respond on the technicality that the claim has prescribed, even though they are holding a benefit for a member or dependant. I raised this issue with the industry earlier this year and have held meetings with administrators that have been advising funds to respond like this. Given the huge problem with unclaimed benefits, we encourage funds not to raise the technicality of prescription, so that we can do our bit to assist,” Lukhaimane says.
Rosemary Hunter, the deputy executive in charge of retirement funds at the FSB, says the FSB does not have the human resources capacity to investigate properly all cases referred to it in which people allege they have been denied benefits due to them.
“But we do investigate what we can, and if we identify funds in relation to which there have been several such allegations, we do try to conduct more intrusive investigations, and we have had some successes in getting claims paid,” she says.
The board of a retirement fund faces considerable challenges when allocating a lump-sum death benefit to a deceased member’s beneficiaries, Hunter says.
First, she says, the board must decide whether to rely on information given to it about the identities of potential recipients or actively investigate whether there are others to be considered. This, in turn, requires the board to decide whether to distribute the benefit to those it knows about, and who may have immediate financial needs, to delay its distribution while it waits for more potential recipients to come forward or while it conducts an investigation, or to make partial distributions and finalise the distribution only after some time.
The board then has to weigh up the veracity of claims by potential recipients as to their financial circumstances and, “with the wisdom of Solomon”, make decisions that a reasonable person would regard as equitable.
The fund could still face a claim several years later by a dependant it did not know about, Hunter says. Whether the fund is liable to pay that person anything depends both on (a) why the dependant did not submit a claim earlier and (b) whether the board took all steps it reasonably could have been expected to take to identify, locate and assess the claims of all potential recipients.
Hunter says the answer to (a) will determine whether the dependant’s claim is time-barred in terms of the Pension Funds Act, which incorporates, by reference, the Prescription Act.
But even if the claim is not time-barred, the claimant may still not be entitled to anything if the answer to (b) is yes, she says.
FUND GETS A PAT ON THE BACK FOR PAYING ‘EXPIRED’ CLAIM
In a recent determination, the Pension Funds Adjudicator, Muvhango Lukhaimane, commended the Mineworkers’ Provident Fund for its co-operation in investigating and paying a death benefit arising from a complaint that had been received outside the three-year prescription period. However, she had some stern words for the fund for not doing more to settle the claim sooner.
In April this year, DO complained to the adjudicator’s office that the fund had failed to allocate and distribute a death benefit following the death of her husband on November 23, 2001. DO said she needed the money to support her children, aged 19 and 17. She said she had claimed the benefit in 2004, and it was almost 14 years since her husband had died.
The provident fund responded to the complaint by saying there were no records to prove that DO had lodged a claim before the expiry of the three-year prescription period permitted in terms of the Prescription Act, in order for her complaint to be investigated.
However, because the claim had the potential to succeed, the fund said it would not rely on prescription as a reason not to investigate and pay the death benefit, which amounted to R135 285.
The fund said that, on receiving the complaint, it carried out a detailed investigation and discovered that certain documents were outstanding and delaying the process of finalising the claim.
The fund also submitted that it required confirmation of whether or not the member had been supporting his mother financially at the time of his death.
In her determination, Lukhaimane says the fund’s decision to accommodate the claim after the three-year prescription period was “commendable”, because it helped to reduce the amount of unclaimed benefits held by retirement funds.
However, she says the provident fund’s board should have been aware of the death of one of the fund’s members, and, in terms of the Pension Funds Act, it had 12 months from the member’s death to identify the member’s dependants and allocate and pay the benefit. “Therefore, the board failed to investigate the matter in terms of section 37C of the Act,” she says.
She says that more than 14 years had passed without the fund completing its investigation, and it had failed to provide a satisfactory explanation for the delay.
“As a result of the respondent’s dilatory conduct, the deceased’s beneficiaries suffered prejudice in that they have potentially been denied access to benefits which may have become available to them had the investigation been completed,” the adjudicator says.
Lukhaimane ordered the fund to complete its investigation and proceed with the allocation and distribution of the death benefit.
KNOWING THAT A DEBT IS RECOVERABLE
Rosemary Hunter, the deputy chief executive of the Financial Services Board (FSB) who oversees retirement funds, says that, in the context of the work the FSB is doing to try to reduce unclaimed benefits, a useful judgment concerning the Prescription Act is one by the Supreme Court of Appeal: Macleod v Kweyiya (2013).
The case concerns a woman who was almost 25 years old when she sued an attorney, who, she said, had negligently settled her claim for damages for injuries sustained in a motor accident when she was four years old on unreasonably unfavourable terms. The attorney relied on prescription as a defence.
Under the Act, a circumstance that delays the onset of the prescription period is if the creditor has no knowledge of the identity of the debtor and of the facts from which the debt arises.
The case revolved around what constituted enough knowledge for a reasonable person to realise that a debt was recoverable.
In this case, the court held that the woman’s knowledge of the fact that her former attorney may have acted negligently arose only when she consulted another attorney (when she was an adult).
The judgment refers to a similar case. In MEC for Education, KwaZulu-Natal v Shange (2012), the court had to consider whether a 15-year-old learner who had been hit with a belt on the side of his eye by his teacher acted reasonably in waiting more than five years to institute action against the teacher’s employer. The learner, by then an adult, became aware of the possibility of a claim by chance. He had initially accepted the teacher’s explanation that it was an accident.
A family friend noticed that he was wearing an eye patch and suggested that he should approach the Public Protector. An advocate in that office advised him of the possibility of a claim against the teacher.
The judge in the case held that the delay was innocent, saying: “He was a rural learner who could not reasonably be expected to know that, not only the teacher was his debtor, but, more importantly, that the [MEC for education] was a joint debtor. Only when he was informed of this fact did he know the identity of his debtor for the purposes of the Prescription Act.”