Court ruling clarifies death benefit timeline

A recent judgment by the Supreme Court of Appeal has provided clarity on the timing of the allocation of death benefits by pension funds.
The court ruled that the allocation of a deceased pension fund member’s death benefit to beneficiaries and/or dependants should be determined not at the time of the member’s death but at the time of distribution.

This means that if circumstances change after the member’s death, but before the money is distributed, the fund needs to take this into account in its final decision of who gets what.
Pension funds have a year within the date of a member’s death to trace dependents and distribute the money accordingly. However, section 37C of the Pension Funds Act, which governs the distribution of death benefits, is not clear about the date on which the allocation should be based.
The judgment was made in the case Fundsatwork Umbrella Pension Fund v Guarnieri and Others on May 31. Fundsatwork is Momentum’s commercial umbrella fund.

On the death of member Massimiliano Guarnieri in a car accident, the board of the fund determined that 42% of the benefit of about R1.1 million should be allocated to Guarnieri’s ageing mother, who suffered from Alzheimer’s disease, and the rest should go to his estranged wife and his children.
However, between the date of Guarneri’s death and the finalisation of the distribution, his mother died.
The fund paid Guarnieri’s mother’s portion of the benefit into an annuity set up by his sister, Barbara Swart, who was the sole beneficiary of the annuity.
Guarnieri’s wife, who had begun divorce proceedings against her husband but was legally married to him, and the couple’s two children contested the decision of the board.
They took their case to the Pension Funds Administrator, who ruled the board needed to reapply its mind to the decision, taking into account the change in circumstances.
According to court papers, “the board then made exactly the same decision as previously in regard to the distribution of the death benefit”.
Mrs Guarnieri and her children challenged this by way of an application to the Gauteng Division of the High Court. The court found in the family’s favour, ordering the fund to redistribute the amount allocated to Guarnieri’s mother to Mrs Guarnieri and her children.
Unhappy about having to redistribute the benefits, the Momentum fund took the case on appeal.
In an article in law firm Norton Rose Fulbright’s Financial Institutions Legal Snapshot newsletter, director and pension fund specialist Michelle David, writes: “The Supreme Court of Appeal, after a careful analysis of the tenses used for the verbs in section 37C, found that there was no justification for reading into the definition of ‘dependent’ the qualification ‘at the date of death of the member’.
“The language of the section and the purpose of the section, which is to benefit people entitled to support, means that it is the date of the distribution that is relevant. The fund has 12 months to trace dependants.
“The situation can change during this time in many different ways (for example, the spouse could remarry, children could become self-supporting, dependants might die).
“It was held that the approach of the board was not sensible. The purpose of section 37C is to provide some protection for dependants, both existing and potential.
“The obvious time at which decisions should be taken in that regard is when the determination is made. At that stage the board will have completed its enquiries and will be in a position to assess the relative present and future needs of dependents it has identified.
“The persons who benefit must be beneficiaries at the time the distribution is made.”
The judge dismissed the appeal, with costs.
The amount was reallocated to Guarnieri’s wife and children.


Over R16m paid to ex-miners by UIF

OVER R16 million has been paid over to former mineworkers by the Unemployment Insurance Fund (UIF) in the Northern Cape.
The spokesperson for the Department of Employment and Labour, Kebalepile Khula, said that the payments for unclaimed benefits were paid out to 4 135 ex-miners, since last year.
He said that the campaign aimed to benefit ex-mineworkers who left the employment of mines prior to April 1, 2002.
“The UIF team has successfully concluded follow-up visits in the Namakwa district. The next focus of the campaign will be in the John Taolo Gaetsewe district, from July 1 to 4, to finalise all claims taken in the past financial year.
“The Department of Employment and Labour urges all potential applicants to bring along an identity document, access card from their previous mine employer, an IRP 5 from their previous mine employer, old blue card, previous salary advice or any proof of mine employment for verification.”
“The services are rendered free of charge and potential applicants and the general public must be wary of any information regarding the ex-mineworkers which comes from other sources and always verify it by calling 0800 843 843.”


ASISA members unite customers with unclaimed assets worth R8 billion in 2018

Members of the Association for Savings and Investment South Africa (ASISA) united policyholders, beneficiaries, investors and heirs with unclaimed assets worth R8.1 billion in 2018. The forgotten assets were held in 71 233 risk policies, savings and investment policies, annuity polices and accounts in Collective Investment Scheme (CIS) portfolios.
Rosemary Lightbody, senior policy adviser at ASISA, says despite the efforts already made by member companies, it is estimated that unclaimed assets worth R17.1 billion held in 147 221 products still need to be reunited with their legal owners.

Lightbody explains that ASISA members will honour claims on unclaimed policy benefits and investment proceeds no matter how long it takes for the policyholder, beneficiary, investor or heir to come forward. This effectively means that ASISA members will not rely on the Prescription Act in cases where valid claims are made that would otherwise have prescribed.
ASISA this week released the first update on the tracing activities of its members since the enhanced version of the ASISA Standard on Unclaimed Assets came into effect on 1 January this year. The Standard was first introduced in 2013, but was only applicable to long-term insurance members. In 2016, the reach of the Standard was extended to include CIS management companies and Linked Investment Service Providers (LISPs). The Standard does not apply to retirement annuity policies and preservation fund products, which are dealt with in terms of the Pension Funds Act.
The Standard encourages the use of enhanced tracing procedures so as to keep unclaimed assets at a minimum level and guides members on how to treat unclaimed assets.
What are unclaimed assets and what happens to them?
Lightbody explains that it is not always obvious that a policyholder or investor has forgotten about their assets or that heirs and beneficiaries are unaware that they could have a valid claim.
“When customers reach an advanced age, for example, our members cannot make the assumption that they have died. They may be alive and well and wanting their policies and investments to remain in place, or they may have passed away and their beneficiaries and heirs were unaware that a policy or investment  existed. It is for this reason that the Standard does not define unclaimed assets, but expects ASISA members to investigate the circumstances and establish what the position actually is.”
The Standard encourages member companies to remind customers of their entitlement to assets following appropriate trigger events such as a policy reaching its maturity date, a risk benefit claim having been approved, communication being marked as undelivered or a customer reaching the age of 80. The Standard also encourages member companies to take appropriate action such as:
  • Attempt to make telephonic and electronic contact with customers following a trigger event;
  • Attempt to trace customers via internet and social media searches; and
  • Engage external tracing agencies.
Lightbody points out that ASISA member companies are required to retain records that allow the tracing process to be audited and verified by the company’s internal compliance and audit functions.
According to the Standard, once an ASISA member company concludes that all reasonable efforts to trace the customer, heirs or beneficiaries have been exhausted over a three year period, the assets may be utilised for socially responsible investments with commercial returns such as Enterprise Supplier Development Funds. However, valid claims in respect of those assets will still be met. For products where the investment risk is carried by the company, the company may invest unclaimed assets as it deems appropriate. Where the customer, heir or beneficiary would carry the investment risk, the company must aim for investment returns in line with reasonable expectations.
Customer responsibility
Lightbody reminds consumers that it is their responsibility to ensure that the relevant financial institutions have their updated contact details and beneficiary nomination forms on record.  “This will ensure that assets are paid to the rightful owners when they become due,” she concluded.


Asisa members unite more than R8bn in unclaimed benefits with rightful owners

Benefits worth R8.1bn that were previously unclaimed were reunited with the relevant beneficiaries and investors in 2018, the Association for Savings and Investment South Africa (Asisa) says.
According to a statement from Asisa, the forgotten assets were held in 71,233 risk policies, savings and investment policies, annuity policies and unit trusts.
While a sizable chunk of unclaimed benefits found their rightful owners, a senior policy adviser at Asisa, Rosemary Lightbody, says an estimated R17.1bn worth of benefits in 147,221 financial products remains unclaimed.
Asisa members will honour unclaimed benefits no matter how long it takes for the rightful owner to come forward, despite the Prescription Act.
"The unclaimed assets referred to … are held in risk policies (life, disability, income protection and dread disease policies), savings and investment policies (endowment policies), annuity polices and accounts in collective investment scheme (CIS) portfolios," Lightbody says.
She says financial institutions have adopted a standard on unclaimed benefits that "encourages the use of enhanced tracing procedures so as to keep unclaimed assets at a minimum level and guides members on how to treat unclaimed assets".
Assurers and investment houses cannot assume that when, for example, a customer reaches an advanced age, they have died.
"They may be alive and well and wanting their policies and investments to remain in place, or they may have passed away and their beneficiaries and heirs were unaware that a policy or investment existed," Lightbody says.
"It is for this reason that the standard does not define unclaimed assets, but expects Asisa members to investigate the circumstances and establish what the position actually is.”
The standard does not apply to retirement annuity policies and preservation fund products, which are dealt with in terms of the Pension Funds Act, Lightbody told Money. 
Some unclaimed retirement fund benefits were in the spotlight in 2018 as a result of financial institutions closing dormant funds containing benefits.
However, if you believe you have a legitimate claim to a life policy, an investment policy or annuity policy, for instance, there are steps you can take.
What can you do?
While there are procedures and processes that must be met by Asisa member companies, Lightbody says that consumers who believe they have a claim for a benefit should contact the relevant companies.
A list of Asisa-member companies is available on Asisa's website. On the website under "contact", there is an "unclaimed benefits" section.
When it comes to claiming, Lightbody says "companies will require proof from the person making the inquiry that he or she has a valid interest in the information about the policy or investment account".
You can ask for information if you remember that you had a policy or investment with a specific company, or because you believe that a deceased relative had a policy or investment with a specific company.
"Companies are unlikely to entertain opportunistic requests," Lightbody warns.
It is your responsibility to make sure that all relevant financial institutions have your latest contact details and beneficiary nomination forms on record.
What must Asisa member companies do?
According to the standard on unclaimed benefits, Asisa members must keep records that allow the tracing process to be audited by the member company's internal compliance and audit functions.
In instances where the company has tried for three years, and exhausted every avenue, then the standard has made provision for how the unclaimed funds must be handled.
"[Where all avenues have been exhausted for three years,] the assets may be utilised for socially responsible investments with commercial returns such as enterprise supplier development funds," Asisa's statement says.
"However, valid claims in respect of those assets will still be met. For products where the investment risk is carried by the company, the company may invest unclaimed assets as it deems appropriate. Where the customer, heir or beneficiary would carry the investment risk, the company must aim for investment returns in line with reasonable expectations."

More than R17 billion remains unclaimed in forgotten unit trusts and policies – here’s how to find out if you are owed money

Last year, South African financial companies traced the owners of unclaimed policies and investments to the value of R8.1 billion – but the recipients of more than 147,000 policies and unit trusts have still not been found.
Accordingly, some R17.1 billion remains stuck in unpaid policies, the Association for Savings and Investment South Africa estimates.
Companies are obliged to search for investors for at least three years after assets are categorised as “unclaimed”.
First, there needs to be a “trigger event” that requires a company to investigate whether a customer’s contact details are still current and what they want to do with their investment.  

“Trigger events” include when a payment made to a customer is returned by the bank, or, for example, when a customer turns 80. That triggers the requirement to get in touch and check that all details are up to date.
Depending on the outcome of the investigation after the trigger event, the company may categorise the asset as “unclaimed”. Once this happens, they have three years to search for the owner. 
It’s remarkable that in this age of social media, companies are still struggling to find people, says Rosemary Lightbody, senior policy adviser at ASISA. “Still, we see that even while companies are spending much effort and time, including paying for tracing agents,  they are not getting hold of beneficiaries.” 
It is thought that many of the unpaid claims are for deceased investors, whose heirs and other beneficiaries may be unaware of their investments. Also, some older investors may have developed dementia, and may have forgotten about their policies.
Emigration is another factor, with investors moving overseas and not alerting local companies.
“Some of them may also not think that the rand value of their investments here is worth the hassle of completing forms and migrating the money,” says Lightbody.
According to ASISA rules, once all reasonable efforts to trace the customer, heirs or beneficiaries have been exhausted over a three-year period, the assets may be used for socially responsible investments.
But ASISA members have also committed to pay out unpaid claims at any point, no matter how many years have passed – as long as you can prove that you are the legal beneficiary of the claim.


A first step towards justice for South African pensioners

Between 2007 and 2013, more than 6,000 pension funds in South Africa were cancelled in a process littered with errors and oversights. Today, Open Secrets has written to five of the country’s largest pension fund administrators to demand swift action to reinstate pension funds that have been incorrectly cancelled. This is the first of many necessary steps of ensuring accountability for a shameful decade in pension fund administration that has harmed many vulnerable pensioners.

The regulatory body that is meant to protect South Africans from unscrupulous financial service providers is the Financial Sector Conduct Authority (FSCA) — South Africa’s new market conduct regulator.
On 4 March 2019, the FSCA took an important first step in ensuring that thousands of pensioners and their dependents will be paid what is owed to them. While it comes 10 years after errors were first identified, the FSCA has now issued directives (in the form of a circular, which can be found here) to all pension fund administrators (companies such as Liberty and Alexander Forbes) to urgently reinstate pension funds.
Specifically, these corporations must go to court to undo the cancellation where a fund has been erroneously deregistered before 1 April 2018. Legally, only courts can reinstate these incorrectly cancelled funds.
The circular also demands that corporations explain to the FSCA why these mistakes were made. Yet it comes late in the day, and only after various activists and organisations such as Open Secrets and the Unpaid Benefits Campaign protested and wrote to the FSCA to ask why it was not compelling companies to approach the courts to have funds reinstated urgently. This circular is an important step forward, but it is not enough.

The urgency stemmed from the nature and magnitude of the problem. In what was called the “Cancellation Project”, the Financial Services Board (FSB — which was replaced by the FSCA) and large pension fund administrators cancelled more than 6,000 funds that they saw as “regulatory dead wood”.
They did so as fast as possible, by deregistering “dormant” pension funds that had seemingly ceased to operate. While the legal duty on both the fund administrators and FSB was to take the utmost care in finding out whether the funds still had any beneficiaries, assets or liabilities before cancelling them, the approach was characterised by cutting corners and cancelling funds as quickly as possible, often through unlawful means.
As a result, subsequent investigations have said that in 98% of the cancellations reviewed, the Registrar of Pension Funds cancelled funds without having the information needed to be satisfied that the fund in question genuinely had no more assets or beneficiaries to pay.
This is not surprising when you consider that the most common approach to cancelling funds was to choose an employee at a fund administrator such as Liberty, make them the “sole trustee” for up to a thousand funds, and then ask them to submit funds for cancellation as soon as possible. The companies, who were able to charge fees in relation to these funds, never raised an objection.
But there were objections, most notably from pensions lawyer and subsequent whistle-blower Rosemary Hunter, who joined the FSB as Deputy Registrar of Pension Funds in 2013 and stopped the Cancellation Project. Unfortunately, by that time more than 6,000 funds had already been cancelled. As would emerge later, funds numbering at least in the hundreds, but probably many more, had been cancelled in error while still having assets and members to pay.
Fund administrators such as Liberty have since publicly announced that they made at least 130 errors and have “discovered” funds that still had assets and members when they told the FSB the funds did not, resulting in their cancellation.
Another prominent administrator — Alexander Forbes — obtained the deregistration of funds that it knew were still owed refunds from “secret profits” that the FSB had ordered Forbes to repay in 2006.
To illustrate the nature and extent of the problem, take a fund identified in a subsequent investigation by pensions lawyer Jonathan Mort, which was cancelled by Liberty when as much as R26-million had not been accounted for. Mort argued that but for his investigation (and by inference, Hunter’s whistle-blowing) the assets “might not have been unearthed” at all.
To be clear, when a pension fund is deregistered, it still exists in law, but cannot carry out any of its activities or fulfill its objectives, such as paying beneficiaries. Consequently, the incorrect and unlawful cancellation of a fund has a potentially significant human cost, as it may delay payment to vulnerable beneficiaries such as the elderly and orphans, or even make payment impossible.
This human element is what is missing from much of the analysis of the story of the Cancellations Project. Pensions form a vital part of South Africa’s social security system, and the ability to access income in retirement is an essential part of ensuring that the elderly can live with dignity. Both access to social security and living with dignity are rights enshrined in South Africa’s Constitution.
As a result, private companies that administer these funds should be held to a high standard of transparency and accountability in their conduct in relation to pension funds. This is also so because, as was argued by Rosemary Hunter at a recent Pension Lawyer’s Association meeting, pension fund administrators are in many ways fulfilling a crucial public function of the state when they administer pension funds (which are state-subsidised through tax breaks for contributions).
This is even more urgent when we consider that administrators profit handsomely from fees which are often linked to the assets they have under their control. It remains a crucial question as to how fund administrators may have profited from assets linked to cancelled funds over the many years in which the funds have been cancelled in error.
With this in mind, our letters to the fund administrators demand that they urgently establish measures to identify which of their funds were cancelled in error, and to indicate publicly how soon they will approach the courts to have the funds reinstated so that they can be properly wound up, and pensioners paid.
As we’ve already said, while we welcome the step taken by the FSCA in its circular, more needs to be done. It is clear that this is an issue of public importance and as it stands, the FSCA cannot confidently say how many funds have been identified as being incorrectly deregistered, nor the magnitude of the assets involved or the human cost.
It should also be demanding a full investigation and accounting by fund administrators of how assets of incorrectly cancelled funds were treated in the interim and the extent to which they profited from this process. All of these profits should be repaid and directed where possible to beneficiaries, failing which they can be used to strengthen new systems of regulation of the financial sector. The fund administrators should not and cannot profit from their wrongful actions.
The FSCA has promised to clamp down on abusive practices in the pensions industry and broader financial sector, particularly given the impact on the dignity of ordinary South Africans. Taking strong action on wrongful fund cancellations will be an essential test of their commitment in this regard. Open Secrets will continue to apply pressure to ensure that there is accountability for these corporations and justice for pensioners. DM