Why Treasury’s unclaimed assets plan has retirement funds worried
· Citizen
Several financial industry representatives have welcomed proposals for centralised record management of South Africa’s nearly R90 billion in unclaimed financial assets, while raising concerns about the proposed transfer of unclaimed retirement benefits to the Corporation for Public Deposits (CPD).
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The CPD, a subsidiary of the South African Reserve Bank, manages deposits from public-sector entities.
Industry experts have warned that retirement assets transferred to it may no longer enjoy the protections that currently apply under retirement fund legislation.
The National Treasury discussion paper – A Framework to Centralise Unclaimed Financial Assets in South Africa – is open for comments (of no more than 10 pages) until 19 September.
It suggests a single entity capable of managing record-keeping and owner tracing across insurers, financial institutions and retirement funds.
The discussion paper proposes that financial institutions transfer unclaimed assets to a central administrator, which would place them as a bulk deposit with the CPD.
It raises two possible cut-off periods for claims: when the owner reaches, or would have reached, 110 years of age, or 45 years after the asset became payable. Treasury is seeking views on whether either option should be adopted.
An estimated R51 billion of the unclaimed benefits sits in retirement funds.
Niki Giles, head of strategy at Prescient Fund Services, said “central administration and central investment are two separate questions”.
While a central database, which could even have access to other government departments’ information to improve tracing, would be a genuine improvement, she said Prescient has “concerns about transferring investment of these assets to the CPD”.
Giles says the CPD is a monetary policy instrument designed to manage short-term public-sector liquidity, not a long-term custodian of retirement savings.
“South Africa’s default investment regulations placed a clear fiduciary obligation on trustees to ensure those defaults were appropriate and in members’ long-term interests, subject to Financial Sector Conduct Authority (FSCA) scrutiny.
“Transferring assets to a conservative cash-plus vehicle like the CPD would override those carefully constructed fiduciary decisions, and over a period of up to 45 years, the difference in real purchasing power for a member could be substantial.”
She said its conservative, cash-plus investment mandate may well be appropriate for certain categories of unclaimed assets, such as dormant bank deposits and unclaimed insurance proceeds, which are already cash or near-cash in nature.
Placing these assets with the CPD would therefore involve little or no change to their expected returns.
“Retirement savings are a different matter entirely. These are long-term, growth-oriented assets that members have accumulated over working lifetimes, often invested in balanced or growth portfolios specifically designed to build real wealth over time.”
Resistance to retirement fund transfer
Speaking at a Discovery event earlier in August, before National Treasury published the discussion paper, Nancy Andrews, head of legal at Discovery Corporate and Employee Benefits and Discovery Invest, said the industry would lobby against transferring retirement assets if existing protections could be lost, according to Moonstone.
Andrews said a central fund might not offer the same legal protections as retirement funds.
“I don’t know what protection there would be, but I know that from a retirement fund space, that if this central fund is in place, there would be lobbies against moving the retirement fund monies into this central fund, because the protection it currently has may be lost under that fund,” she said, according to Moonstone.
“I can tell you that if it does come out, we will lobby against actually moving it into the central fund that they want to establish.”
Andrews declined to comment to Moneyweb.
Giles added that retirement fund assets are currently subject to a well-established regulatory framework under the Pension Funds Act, with oversight by the FSCA and built-in member protections.
Transferring assets to a government entity removes them entirely from that framework.
“Members and trustees deserve clarity on what equivalent protections would apply. Until that is answered satisfactorily, we believe the assets should remain within the existing retirement fund regulatory universe.”
But support for a centralised database for searching for benefits is widespread.
Support for one-stop funds-tracing database
Wayne Hiller van Rensburg of the Institute of Retirement Funds Africa (Irfa) said the body supports stronger tracing, higher-quality data, common standards and a simple public search-and-claims process.
“A centralised capability could help reunite more people with their benefits, but should build on rather than disrupt the FSCA’s existing search facility,” he said.
Michelle Acton, chief customer officer at Old Mutual Corporate, said the company supports efforts to resolve the shared challenge of unclaimed benefits and to focus on digitisation to improve tracing and payment.
But she said “assets need to remain available for claims” and need to be “appropriately invested to generate sustainable long-term returns for members and create value for the wider South African economy”.
Vuyo Lee, chief marketing and corporate affairs officer at the JSE, said effective administration of unclaimed assets requires a coordinated and sustainable partnership between government, regulators and the private sector.
“Any future framework should prioritise the protection of investors, strong governance, transparency and efficient processes that maximise the return of unclaimed assets to their rightful owners.”
This article was republished from Moneyweb. Read the original here.