BUSINESS MAVERICK OP-ED
New laws around R48bn unclaimed pension benefits expected to be finalised in 2021
The National Treasury has prepared important new legislation to make it easier to distribute and access the R48bn in unclaimed benefits tied up in pension funds. But potential beneficiaries will probably have to wait until 2021 to see what the proposals entail.
The National Treasury has prepared an amendment bill in terms of which it is proposing to Parliament amendments to various financial sector laws, including the Pension Funds Act.
It announced in February it planned to centralise unclaimed benefits in a single fund and establish a central registry of all members. Unfortunately, the draft omnibus bill has not yet been published for comment and now it has reportedly been put “on hold”.
Parliament is limiting the number of bills it will consider this year, taking into account the difficulties associated with its operations during the Covid-19 pandemic. So, apart from some paperwork shuffling, not much more is expected to transpire around unleashing the R48-billion in unclaimed benefit holdings this year.
As announced in the Budget Review in February, the draft bill includes a proposal to amend the Pension Funds Act to provide for the establishment of a national unclaimed benefits fund under the control of the Financial Services Conduct Authority (FSCA).
The Treasury said at the time that the current fragmented system of unclaimed benefit funds is ineffective when it comes to finding people.
In addition, money in a centralised fund containing all unclaimed benefits could be used to invest in infrastructure until it is claimed, it said.
Retirement funds are sometimes unable to trace beneficiaries, resulting in the money remaining unclaimed for long periods and usually being transferred to privately run benefit funds. Insiders told Business Maverick that experience and research have shown that close to 25% of beneficiaries won’t ever be traced.
Rather than remaining “dead capital”, the government has indicated that these investments are being considered for the mobilisation of funding for infrastructure. It was planning to introduce legislation in 2020 to centralise such unclaimed benefit funds and establish a central registry of all unclaimed benefit members, but this seems unlikely to happen this year.
Business Maverick asked Ismail Momoniat, head of tax and financial sector policy, what substantive changes are being proposed in the omnibus bill.
Momoniat said the plan around unclaimed benefits is nothing new as it was announced in the minister of finance’s Budget speech, but with Covid-19 much of the follow-through of those announcements made in February has been placed on a “slower path”.
“We have been focusing on other amendments like tax legislation to assist with government’s response to the crisis,” he said.
With the focus on Covid-19, he says that the retirement reform proposals will probably only be made available for public comment next year and that he does not expect any significant announcements to be made in the Medium-Term Budget Policy Statement in October in this regard either.
“Making changes to pension funds legislation takes time, as it affects long-term investments,” he added. “It can’t be rushed.”
“Other challenges in establishing the combined fund is that it is tied up in many different structures that need to be unlocked with hard legislation and appropriate and individual fund rules amendments that need to be approved by the FSCA.
“A lot of people will challenge it, for sure. We are also talking about other people’s money, so it will have to be handled with care.”
As far as can be established, the unclaimed benefit billions only include funds held in private hands and not those which fall under the Government Employees Pension Fund. The GEPF is subject to its own piece of legislation. According to the GEPF’s annual report for the financial year to March 2019, an amount of R1.7-billion in unclaimed benefits remains on their books.