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High level of unclaimed retirement benefits in the mining sector

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A substantial amount of unclaimed benefits lie idle in trade union funds, one of the two most-common types of retirement funds in the South African mining industry.

Unclaimed benefits have long been a problem for the Financial Sector Conduct Authority (FSCA), and although draft legislation is currently under consideration which will result in stricter governance of retirement funds, government has yet to address this particular issue.

Below we consider the reasons for the unclaimed benefits and whether the draft legislation would assist in reducing such unclaimed benefits.

Types of funds

Various types of retirement funds are utilised in various industries in South Africa to assist employees to prepare and save for their retirement. In the mining industry, the most common are large umbrella funds and trade union funds.

Large umbrella funds are suitable for any employer who either lacks a sufficient number of employees to maintain a standalone fund or is looking for economies of scale to generate greater returns on investment for members.

Trade union funds have become popular in the various sectors in which they operate, particularly mining, and particularly among lower-income earners such as mineworkers.

Normally, when employees start work, they are given the option to choose the fund they wish to join, being either the employer’s designated fund (an umbrella fund) or a trade union fund. While employed at that company, employees cannot then change their minds later and opt for the other fund.

What is the appeal in joining a trade union fund?

The answer to this is likely the same as why employees choose to become a member of a trade union. They believe a trade union represents their best interests in the employment relationship and may also represent their best interests in retirement.

Many employees feel it makes more sense to join the retirement fund of their union as the union is already representing them. They may also believe it makes more sense to join a union-affiliated fund as they are already paying membership fees to the union.

Read: Could you be one of 7 000 people owed money by the Guardian’s Fund?

Trade union funds fall under the same laws and regulations as other retirement funds and are therefore regulated by the FSCA.

Most trade union funds are either self-administered (meaning they have been approved by the FSCA to administer the fund themselves) or are administered by large, approved administration companies.

This ought to suggest that, apart from some minor issues, these funds should be free from major issues. Unfortunately, this is not the case.

A huge problem the FSCA has been facing for some time is unclaimed retirement benefits.

Unclaimed benefits include:

  • Withdrawal benefits (usually as a result of termination of employment);
  • Death benefits (where a member has passed away and the beneficiary has not claimed the benefit);
  • Surplus benefits (where the fund has had a surplus distribution to members); and
  • Retirement benefits (as a result of members retiring and not claiming their benefit).

According to the FSCA’s 2020/21 annual report, South Africa currently has unclaimed retirement benefits amounting to approximately R47 billion.

According to the FSCA, although many funds have unclaimed benefits, more than 80% of the R47 billion resides in trade union funds, with the majority in just two funds, one of which is a mining industry fund.

Most individuals who own these unclaimed benefits are low-income mineworkers.

The FSCA, as well as most large funds and administrators, has established procedures for tracing members and disbursing unclaimed benefits, but the number of unclaimed benefits continues to increase.

Why is the level so high in the mining sector?

There may be several explanations why this may be a particular problem within the mining industry.

  1. There seems to be poor record-keeping by many funds as well as employers. Often, the fund and employer do not regularly update the employee/member’s personal information, with the effect that it becomes outdated.
  2. A lack of knowledge and literacy about retirement funds among low-income earners contributes significantly to the problem. Many may not have sufficient literacy to understand the consequences of failing to update their information regularly, and may not receive or understand communication about the fund. As a result, they are often unaware that they are entitled to benefits.
  3. Finally, and although this issue is not unique to trade union funds, the tracing of members seems to be a slow and protracted process, seldom yielding successful results. The majority of funds attempt to trace members every six months, using the same out-of-date information they have always had. Naturally this results in unsuccessful traces.

The result of the above is that members and beneficiaries remain untraced, benefits remain unclaimed, and the pot of unclaimed benefits continues to grow.

Members disadvantaged, funds not

This is however, not to the disadvantage of the funds themselves.

The FSCA states that “asset managers and fund administrators continue to earn fees from these unclaimed assets”.

It has long been the view of the regulator that employers should be active participants in retirement funds, whatever type of fund that might be, including a trade union fund.

The way forward

Active participation by the employer would ensure (among other things) that:

  • Employee information is regularly updated;
  • Unclaimed benefits are monitored regularly, together with fees charged by service providers for administering or managing the unclaimed benefits; and
  • Employees receive communication about their fund and benefits in a manner and language they can understand.

As mentioned above, government has proposed draft legislation that will compel an employer to play a more active role in the governance of the funds in which they participate. We hope this will assist in reducing the amount of unclaimed benefits.

Nicci van Vuuren is a senior associate, and Minenhle Shabalala and Diyajal Ramrajh are candidate attorneys at Webber Wentzel.