A sizeable chunk of unclaimed retirement-fund savings has been moved to unclaimed benefits funds, which have very different track records when it comes to the fees they charge and the success they have had in tracing the rightful owners of the money, the annual conference of the Pension Lawyers Association (PLA) in Cape Town heard this week.

Pension lawyer Rosemary Hunter, of law firm Fasken Martineau, told the conference that unclaimed benefits reported by funds supervised by the Financial Services Board (FSB) in terms of the Pension Funds Act amounted to R34 billion at the end of 2015.

The PLA noted in its conference agenda that unclaimed benefits are probably the largest issue facing the retirement industry.

Virgilio da Silva, a consulting actuary and managing director of Cadiant Partners Consultants and Actuaries, told the conference that some R7.6 billion of unclaimed benefits are in the largest unclaimed benefits funds set up by life assurance companies, retirement fund administrators and other financial institutions.

Your fund may be able to transfer your retirement savings to one of these funds if you leave your fund and do not, within a period defined in the rules, claim the benefit or instruct the fund to pay it to another fund. The fund’s rules must provide for such a transfer before you become entitled to the benefit.

Hunter says a fund that does not have rules allowing for such a transfer cannot, in terms of common law obligations, relinquish its duty to pay you your benefit, unless the fund is liquidated.

The choice of unclaimed benefits fund can have a significant impact on the value of the benefit that may be paid once the person entitled to it has been traced and can be paid, Da Silva says.

He says that when trustees of funds with the relevant rules consider transferring unclaimed benefits to a commercial unclaimed benefits fund, they have to consider a number of factors, because there is no “one-size-fits-all” fund that will provide the “best value for money” for the beneficiaries.

Da Silva’s survey of the largest unclaimed benefits funds found that their success in tracing and paying out to beneficiaries, measured as a distribution ratio of how much is paid out each year, ranged from 1.7 to 30 percent of the benefits held by them at the start of the year under review.

Da Silva says trustees should look for funds that can pay out at least 15 to 20 percent of the benefits held by them each year.

Da Silva also considered the cost structure of the nine largest unclaimed benefits funds, which hold between R278 million and R1.2 billion, and found “huge differences” in the fees charged.

He found that they do not charge in the same way. Some charge a monthly rand-based fee, some charge a fee as a percentage of assets, and some charge a fee based on claims paid. Some have a minimum administration fee, but others do not.

Hunter says a legal issue that retirement funds need to consider is whether or not the original fund or the unclaimed benefits fund can deduct tracing costs and administration fees from the fund account of each beneficiary.

She argues that, because the fund is unlikely to be able to trace and pay all those entitled to the benefits, the fund should estimate what it is likely to pay and use the remainder of the unclaimed benefits to cover the costs.

One unclaimed benefits fund with particularly high investment fees - 2.1 percent of assets under management a year - had a guarantee on the amount invested. But Da Silva says trustees should consider seriously whether such a guarantee was appropriate, or whether it was an easy way for investment providers to enhance their revenue.

In deciding on fees, Da Silva says trustees need to consider how the fees stack up over the time the fund will hold the benefit. Fees can differ depending on whether the benefit is paid out in a year, or whether it takes five or six years to find a beneficiary.

The size of each benefit is also important when considering how the fee is charged. In particular, a fund that levies a set rand amount as a fee will not be as suitable for a low-value benefit as one that charges a percentage of the benefit held.

Da Silva says the lowest fees do not necessarily represent the best value. If the fund has low charges but a poor investment strategy, is badly administered and/or does little, if anything, to trace and pay beneficiaries, the fund will not offer good value.

Da Silva argued that the trustees of a fund should not simply transfer assets to a single unclaimed benefits fund, particularly not automatically on a regular basis, as is often the case. Instead it should choose unclaimed benefits funds that suit different categories of unclaimed benefits.

Hunter questioned whether the appointment of employees of fund administrators to the boards of unclaimed benefits funds could be justified and referred to court judgments questioning the ability of employees to be truly independent. She says these funds should be more stringently managed, because their members and beneficiaries cannot elect trustees and take action when they detect the funds are being badly managed.

Hunter was previously the deputy registrar of pension funds at the FSB. She launched a case against the FSB over its deregistration of over 4 600 dormant funds before their assets, possibly amounting to more than R22.5 billion, had been properly accounted for in the FSB’s records.

In December, Acting Judge Hendrik Jacobs of the North Gauteng High Court dismissed Hunter’s application to compel the FSB or, alternatively, Finance Minister Pravin Gordhan, to investigate her allegations about how the FSB’s chief executive Dube Tshidi and other FSB officials allegedly failed to comply with the relevant laws and FSB codes of conduct, and how Tshidi sought to undermine her investigation of the project to close the dormant funds.

Judge Jacobs said Hunter had other options and did not have to approach the court directly.

Hunter has applied to Justice Jacobs for leave to appeal his findings and orders and if she is denied leave to appeal she plans to petition the Supreme Court of Appeal directly.

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