Tag: pensions

R42bn owed to SA citizens in unclaimed pensions

By Garth Theunissen for Business Insider SA

Almost R43-billion in unclaimed pension benefits are held in the name of 4.77-million untraced beneficiaries in South Africa, according to the latest available data from the Financial Sector Conduct Authority (FSCA).

This is causing major headaches for the authority – not in the least because unscrupulous so-called independent tracing agents are costing South Africans thousands. They advertise their services to assist South Africans in in accessing these unclaimed pension benefits in exchange for a fee.

The FSCA strongly advises against using these services.

“South Africans shouldn’t use tracing agents that are not affiliated to a specific fund, particularly if they don’t have any knowledge of ever having saved with the particular fund the agent claims to represent,” says Olano Makhubela, divisional executive of retirement funds at the FSCA. “Rather use the FSCA database, which you can search for free by simply visiting our website. Alternatively, you can contact our call centre telephonically, by SMS, or even physically for assistance.”

“There are scams going on where people get approached by someone claiming to be an agent who can help them access money allegedly owed to them in the form of an unpaid benefit,” says Makhubela. “However, upon investigation we often find that they never belonged to the fund in the first place yet ended up paying the agent R1,000 to help them access unclaimed funds. People shouldn’t be gullible and must make sure that they belonged to the fund in the first place or use the free FSCA database to see if there is money owed to them.”

The Pension Funds Act defines an unclaimed benefit is any benefit not paid by a fund to a beneficiary within 24 months of the date it becomes legally payable, typically defined as when the member left the employment. The FSCA, which monitors funds regulated and supervised under the Pension Funds Act, says more than R22.93bn in previously unclaimed benefits was paid out to 647,528 beneficiaries between 2014 and 2018.

But by 2018, there was still more than R42.83bn in unclaimed pension benefits – and that number will probably increase once 2019 data is added by pension funds, a process that has been delayed due to the impact of Covid-19. The Government Employee Pension Fund (GEPF), which is not overseen by the FSCA, also has an additional R1.73bn in unclaimed pension benefits, according to its 2019 annual report.

Makhubela says that anyone who believes they have an unclaimed benefit owing to them should first ascertain whether or not they were indeed a member of a fund. This can be determined by checking to see if any salary deductions were made for fund contributions as well as any records of possible employer contributions.

At present all private retirement funds in South Africa are required to disclose the amounts they hold in unclaimed benefits to the FSCA as well as the details of the beneficiaries. These details are then captured in the FSCA’s unclaimed benefits database which can be accessed here.

“The biggest problem is the lack of accurate historical or personal information,” says Makhubela. “We also have a lot of situations where the current administrators took over from previous funds that no longer exist and are sitting with incomplete information.”

Makhubela says the problem is exacerbated by the fact that prior to 1994 many South Africans simply did not have identity numbers or fixed places of abode with traceable addresses.

Source: Engineering News

Finance Minister Tito Mboweni said last week that a Congress of South African Trade Unions (Cosatu) proposal to transfer some of Eskom’s debt to state-asset manager, Public Investment Corporation (PIC), which manages civil servant pensions, is a “good idea”, adding that all pensions – not just public sector pensions – should be considered.

While the proposal originally put forward by the labour union federation to more than halve the struggling power utility’s R450-billion debt-burden did not feature in the Budget, the minister was asked about it at a pre-Budget briefing with journalists.

While Mboweni said he did not want to talk much about Eskom – the key takeaway from his Budget was a proposed three-year R160-billion cut in public-sector wage bill – Mboweni said Cosatu’s proposal seemed like a good idea which called for more debate.

“If we go the pension route – it must be all of us. It can’t (only be) public servant pensions, it must be all pensions,” Mboweni said. “I think it is a good idea – must be encouraged. Other institutions can look at the option,” he added.

The minister said the extent to which the PIC’s existing exposure to Eskom debt would be converted to equity would move the debate further.

The PIC, which manages over R2-trillion in assets, invests on behalf of government employee pension funds.

The original proposal by Cosatu, distributed to media on February 3, proposed a debt package to reduce Eskom’s debt from R450-billion to R200-billion through the creation of a special purpose finance vehicle, involving a social compact between government, the PIC, the Development Bank of Southern Africa and Industrial Development Corporation.

While the union at one stage expected that President Cyril Ramaphosa would make an announcement about the plan in his State of the Nation Address earlier in the month, it later said that negotiations would continue for a few more weeks.

Nazmeera Moola, head of SA investments at Investec Asset Management, said on Thursday that while she did not think the Cosatu proposal was a bad plan, any debt restructuring plan devised for Eskom would only be a temporary solution for the power utility’s many problems. She believes Eskom needs an operational plan if public and private asset managers are going to back it.

Moola was speaking at News24 Frontline’s panel discussion on the Budget on Thursday. Public Enterprises Minister Pravin Gordhan and Cosatu’s Parliamentary Coordinator Matthew Parks also took part in the discussion, led by News24’s editor-in-chief Adriaan Basson.

“I strongly believe that Eskom’s issues are not just financial. Financial issues are not the biggest problem – there are operational issues, there are corruption issues,” Moola said.

“Without an operational plan for Eskom, a financial plan is a temporary band-aid. If we just lift the debt of Eskom and leave it operating as it is, we will be in exactly the same position in five years’ time,” Moola said.

Impact investing

She said converting PIC debt to equity, “with a sound operational plan”, may make sense.

Things get tricky when it comes to private funds, which are defined contribution funds – meaning members are entitled to what they contributed, Moola said.

Support from the private sector in the form of impact investing could be an option, Moola explained.

“This [impact investing] is something all asset managers, including ourselves, are on board with. This idea that you can use long-term contractual savings to make investments in the economy, that raises potential growth and gives members adequate returns,” she said. But for this the private sector must be convinced that there is governance, profitability and that entities are run in a manner that makes sense. Examples of impact investing are funds that are invested in infrastructure projects across Africa, she explained.

Moola said this is a better option than the prescription of assets – which dictates to pension funds what to be invested in, even if the financial return is not viable.

Similarly, Gordhan stressed the importance of repairing operations at state entities. “Whether it is Transnet, Eskom or SAA, all of them have damaged operations because the focus was on stealing and not on making entities as efficient as they could be,” he said. Once entities operate efficiently, they can make money and be less dependent on the fiscus, he added.

Commenting on the proposal of using pension funds to deal with Eskom’s debt, Gordhan said that using pension money is just one dimension of the “ultimate solution” being sought. “These things [State-owned enterprises] need to start operating,” he said.

Gordhan also called for stakeholders to engage in meaningful debate to find creative solutions, and not to be distracted by the “bogey woman” or prescribed assets, being touted as an option. “We can find answers. It is not about prescribed assets versus something else,” he said.

No blank cheques

Parks shed more light on the Cosatu proposal, saying that it should be a combination of bonds and equity investments in Eskom. He said it was not a bailout or a “blank cheque” for Eskom. It instead should be considered as “conditional” investment, which all players – government and the private sector – can contribute to.

“We want the PIC to have a stake in Eskom, with a seat on the board, to force Eskom to restructure, clean up, deal with corruption and wasteful expenditure,” said Parks. Currently there are 30 conditions to this proposal, he added.

How Steinhoff affected us normal folk

Most South Africans who invested are poorer today due to Steinhoff’s business collapse and are asking for answers from fund managers.

But‚ many say‚ the business was so complicated‚ with its audited financial statements appearing so reasonable‚ that it was easy for investors to miss red flags pointing to the alleged multi-billion dollar fraud.

Steinhoff’s share price dropped from R46.60 at close of trading on Tuesday to R12.74 a week later. The company has reported a missing R100-billion in the company’s European operations.

Fund Manager Simon Brown said the easiest explanation is to say South African pension holders and investors are R160-billion poorer since the crash. As hundreds of funds would have lost money it is difficult to put an exact figure on the losses.

Many furious South Africans are demanding answers from investors. But multiple fund managers explained that until Tuesday the numbers looked reasonable and “fraud by its nature is subtle”.

The search for answers follows Parliament’s Standing Committee on Public Accounts on Monday calling for the Hawks‚ SARS‚ Reserve Bank and Independent Regulatory Board of Auditors to investigate Steinhoff’s implosion and financial losses.

Not everyone however‚ is buying the investors’ explanations‚ with some Steinhoff critics questioning the company’s executives “loose accounting practices”.

Futuregrowth chief investment officer Andrew Canter said they stopped lending money to Steinhoff roughly eight years ago.

He said they avoided Steinhoff for multiple reasons‚ which included their business’ horrendous complexity‚ involving different brands and companies across different jurisdictions in multiple currencies‚ along with their never-ending acquisitions which rendered year-on-year analysis difficult and credit ratios unreliable.

“If we can’t understand the business‚ why would we lend to it?”

Canter said key to Futuregrowth was being wary of the way Steinhoff’s management conducted business.

He said there were enough signs “which evidently some chose to ignore”.

“From what we know today‚ Steinhoff’s management appears to have been playing fast and loose with the tax laws and accounting practices.”

Investor Karin Richards who has looked back at the Steinhoff cash flow‚ and ratios investors use when scrutinising businesses since the implosion‚ however said: “There is nothing here for me that says ‘oh my … here is a big problem’.”

She said as a former auditor she had a better idea than the average person on how to “window dress accounts”. “But the numbers look reasonable.” She said many funds would have lost their first inflation bases gains in three years. Fund manager Keith McLachlan commented on how people started claiming investors should have spotted the fraud: “Everyone knew it was fraud‚ after the fact.

“Intuitively‚ if one ignores the complexity of the Steinhoff business‚ if it was obviously fraud‚ not only would the stock market have seen it‚ but the auditors would have picked up on it long before it even saw the light of day.

“Nothing in the Steinhoff financial statements really screamed fraud or deep obfuscation of the numbers.

“At best‚ it perhaps looked like a business that was growing a bit too fast. At worst‚ it showed a business whose fundamentals weren’t particularly great. Fraud by its very nature is subtle.”

Wits governance expert Alex van den Heever‚ however‚ said that one needed to question why some investment and equity loan companies saw the red flags‚ but others didn’t.

“That some firms didn’t pull their funds despite other companies’ concerns points to a bit of an ‘old boys club’ operation with people just accepting the word of others in the industry.”

Brown said the financial industry needed introspection.

“Should we not at least as an industry that after looks after people’s pension have some introspection how we got this wrong?

“There are a lot of people saying I can’t see fraud‚ but I can’t see a quality business. Yet‚ we put R400-billion in pension money into this business.”

The R400-billion is when business was R95 a share some time last year.

Financial analyst Stuart Theobald agreed that numbers appeared reasonable but said people trusted Steinhoff main shareholder Cobus Wiese. “Wiese had a certain halo effect. People had committed faith in his abilities to manage complexity and stay on the right side of the law‚ while sometimes going close to the line.”

By Graeme Hosken and Katharine Child for The Sunday Times
Image – The Sunday Times

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