On the face of it, sorting out your pension when leaving the employ of a company appears straightforward. You fill in the requisite forms, submit them timeously, and expect your money will be paid out within a reasonable period.
But if the number of complaints received by the office of the Pension Funds Adjudicator (PFA) is any indicator, this apparently simple process is in reality often far from easy.
About three-quarters of the complaints received by the PFA last year had to do with unpaid withdrawal benefits, and the number is growing, says Pension Funds adjudicator Muvhango Lukhaimane.
Speaking on the sidelines of the Institute of Retirement Funds Africa (IRFA) conference in Cape Town on Tuesday, she said about 5 100 of the 7 400 complaints she received in 2014 had to do with unpaid benefits.
Lukhaimane drew a clear distinction between unpaid withdrawal benefits and unclaimed pension benefits, which are not the same thing. An unpaid withdrawal benefit is one that has been claimed, but not paid as opposed to one that is waiting to be paid but remains unclaimed.
“In South Africa, a lot of people when they leave their jobs, they don’t preserve their [pension] benefits.
“A person leaves employment, they submit their [pension withdrawal] form, and they want their benefit paid. But the benefit doesn’t get paid. Then they complain.”
Lukhaimane said people sometimes waited up to two years for payment.
“Part of the problem is the [pension] fund is just lax in processing the claim, but the biggest problem is employers being behind in their payment of contributions into the fund.”
In terms of legislation, employers are required to pay contributions within seven days of them becoming due, and the fund is meant to immediately allocate them to the individual members.
“But with the bulk of the complaints that we receive, we find that either the employer has not paid for six months, seven months, even a year, or the [pension] fund has received the contributions, but just neglected to allocate them.
“There are a lot of funds, especially the big funds, where the data is just a mess. Some employers will have paid, but the contributions won’t be allocated for months.”
Lukhaimane said complaints about unpaid withdrawal benefits were by far the most common received by her office.
“And the problem is growing. In the first quarter of this year (April-June), these complaints were up by 15% on the same period the previous year (2014),” she said.
About 10% of the complaints her office received had to do with the payment of benefits to the beneficiaries of pension fund members who had died.
“In terms of Section 37C of the Pension Funds Act, when you die the death benefit doesn’t form part of your estate. So the [pension fund] trustees must allocate this benefit.”
This task was complicated by the fact that many in South Africa had children born outside of marriage.
“Some people are unhappy with the allocation the trustees have made, especially in cases where people were married in a civil union, and the husband had a child somewhere else.
“Most wives don’t understand the law, which says that child is also entitled to benefits because they, too, were dependent on the pension fund member.”
Lukhaimane said she encouraged trustees to always investigate the circumstances before deciding on allocating death benefits, and not necessarily follow the wishes of the deceased member as expressed in their beneficiary nomination form.
“That form is not binding on the fund. They can just use it for reference purposes, or as a start to where they should begin looking for information. But they can, if necessary, completely […] ignore it, and that would be lawful.
“Section 37C works as a security net. [It is meant to prevent] people who were dependent on you becoming destitute in the event of your death.”
The third-largest source of complaints, about 4 to 5% of the total, had to do with penalty charges levied by pension funds.
“If you have a retirement annuity (RA), and you stop making contributions, or you want to transfer your RA from one fund to another, [the pension institutions] charge you a penalty.”
A clearly annoyed Lukhaimane said these penalties could, in terms of an agreement reached with the pension industry about nine years ago, be as high as 30% of the fund value.
“The problem is, these charges are meant to be charges to cover commission paid to the consultant that sold you the policy, as well as marketing fees, and set-up fees.
“But if you look at the cost, then you’ve got to ask yourself whether these fees should be related to the value of the policy, or should they be a fixed fee.”
Responding to a question on unclaimed pension benefits, she confirmed these now totalled R20-billion.
Lukhaimane said many of the unclaimed pensions belonged to migrant labourers, who had long ago returned to their home countries.
She also suggested not enough was being done by pension funds to trace missing members or their beneficiaries.
“Some members can join a fund, be there for years, and not even receive a benefit statement. So funds are failing to communicate even basic things.
“Some people didn’t even understand that when they left employment they had pension benefits. Some were told they had to wait until they were 65.”
Asked what should be done to trace those who had a rightful claim, she said each fund should be asked to explain how it came to be sitting with unclaimed pension benefits.
“That would then indicate the different interventions that must take place. Maybe there is no close contact with the employee; maybe it’s an historical thing, where you have to go and advertise in the newspapers.
“But if they can’t even categorise or quantify how they got into this situation, then it’s going to be very difficult, because there is no one-fit solution.”
Lukhaimane said among the steps an employer could take to trace lost pension fund members was seeking help from current and former employees.
“One of the easiest things to do […] is to enlist the assistance of other employees; you circulate the list of names. Another solution would be to take the names and ID numbers to the department of home affairs, and have officials check them against their database.”
Asked what her advice would be to former members of pension funds who believed they had unclaimed benefits, she said they should contact either her office or that of the Registrar of Pension Funds.
They should also provide the name of their employer, the period they were employed and, where possible, the name of the pension fund.