/ 29 June 2016

Pensioners are being denied their savings: Can the law be changed to set things right?

The Council for Medical Schemes estimates that fraud
The Council for Medical Schemes estimates that fraud, abuse or waste accounts for about 15% of the R160-billion in claims that medical aids pay out annually. (Gallo)

A pension fund with millions in unclaimed benefits has challenged the high court in Johannesburg: change the law so that the money can be distributed to those who are owed benefits.

The Picbel pension fund is in a predicament over the R41.8-million it holds in unpaid benefits. The fund is being liquidated but the pensioners who should receive that money either can’t be traced or their benefits can’t be calculated – or both.

Tony Mostert, the fund’s liquidator and a senior partner of AL Mostert & Company, is waging a battle to have regulation 35(4) of the Pension Funds Act amended so that, instead of being locked in accounts, money can be released to pensioners who have been found and who have not yet received their full benefits.

According to the regulation, unclaimed money in a contingency reserve account should be transferred either to the Guardian’s Fund – a fund under the care of the master of the high court to manage money for people who can’t legally administer their own money or cannot be traced – or be transferred to another account authorised by law. The unclaimed benefits can’t be distributed unless these beneficiaries are found, no matter how dismal the chances are.

The finance minister and the registrar of pensions were two of the respondents to Mostert’s application to have the regulation reviewed and set aside, with the minister arguing that Mostert had missed the 180-day legal period to raise a complaint against the regulation.

According to the law, Mostert had to file his application within 180 days of the regulation’s implementation at Picbel. In 2004, Picbel submitted its surplus apportionment scheme to the registrar, detailing how surplus funds were used and how they would be divided among beneficiaries. It was then that the regulation took effect.

To have challenged the regulation, Mostert would have had to apply for the court to grant an extension of the 180-day period – these were the grounds for the dismissal of his case in the court last week.

Rewind to the late 1990s, when many pension funds in South Africa were defrauded of their surplus benefits under the guise of a lawful business transaction.

Former Picbel trustee Jan Pickard Jnr and three others used this scam to defraud the fund’s beneficiaries. Pickard Jnr controlled his family-owned business, Picardi Investments, which included liquor and food subsidiary companies.

In addition to plundering the fund of R30-million in surplus pension benefits in 1997, Picbel fund managers also kept poor records of the fund’s beneficiaries. This makes finding and calculating their benefits nearly impossible.

Most of the fund’s former members would have worked on wine farms, in food manufacturing (such as canned goods), or doing administrative work about 50 years ago.

According to Mostert, the Picbel fund was inactive in the late 1990s because the fund’s member companies had shut down.

Despite depriving pensioners of more than R100-million in investment growth, Pickard Jnr never faced jail time. Instead, he entered into a plea bargain, testifying against other parties involved, and was fined R200 000.

When the Financial Services Board (FSB) realised the money had been taken, Mostert was appointed curator of the fund in 2005, and then its liquidator in 2008.

Mostert took the Picbel conspirators to court and, in 2010, they were forced to return the money.

But the damage was done: pension funds have a growth of about 6% to 10% a year. The looting of the surplus benefits prevented the fund from achieving its projected growth. As a result, former members haven’t received their full benefit.

“You take out R30-million in 1997, it’s not R30-million in 2010,” Mostert said.

The money the fund’s former members are owed involves surplus amounts in the Picbel fund, which accumulate when pensioners aren’t paid their full pension. By law, these surpluses are meant to be paid out so that former members of a fund get their full pension.

If funds end up in a predicament like Picbel’s, then the money is placed into a contingency reserve account until it’s claimed. The problem, Mostert said, is what happens to money that will never be claimed – money going to the state or to insurers is a waste. Indeed, if beneficiaries don’t claim money after 30 years, it goes to the state.

Unclaimed benefits in retirement funds are far from an anomaly. The registrar of pension funds, Dube Tshidi, in his last annual report for the FSB in 2014, reported that in 2013 there was R15.8-billion lying dormant in unclaimed benefits. In 2014, the figure rose to R28.7-billion.

Mostert claimed regulation 35(4) is irrational. It reads: “Notwithstanding anything in the rules of the fund, moneys may not be released from such contingency reserve accounts except as a result of payment to such former members or as a result of crediting the Guardian’s Fund or some other fund established by law to include such amounts.”

In a textbook authored in 2010, Rosemary Hunter, the FSB’s deputy pension funds registrar, said that the regulation was “inconsistent” with the Act because requiring funds to freeze their assets for people who are likely never to be found means that it is “highly unlikely that they [assets] will ever be used in fulfilment of the objects of the Act”.

To date, Picbel has paid R89.7-million to pension fund members who have been verified. As of November 2014, R47.2-million had been paid to the 1 449 former members of the Picbel fund the fund was able to trace. But these members have yet to receive their total benefits.

There are another 2 208 former members of the fund whose benefits have been calculated but actuaries for Picbel say it is highly unlikely they will ever be found. The search has been going on for six years. These are the members to whom the R41.8-million in unpaid benefits has been allocated.

Another 2 458 former members cannot be traced and their total earnings have not been determined.

“It got to a point where there were no more people we could trace or calculate benefits,” Mostert said.

Although Mostert is disappointed by the outcome of his case, he remains determined. “I’m disappointed, but pleased that there’s direction on how to get the outcome we’re asking for,” he said.

For now, however, billions of rands in unclaimed benefits remain inaccessible.