Unclaimed retirement benefits in the mining industry


A significant amount of unclaimed benefits sits unused in union funds, one of the two most common types of pension funds in the South African mining industry.

There are various reasons why this happens. Unclaimed benefits have long been an issue for the Financial Sector Conduct Authority (FSCA), and although a bill is currently under consideration that will result in stricter governance of pension funds, the government has yet to address this particular issue. Below, we look at the reasons for unclaimed benefits and whether the bill would help reduce those unclaimed benefits.

Nicci van Vuuren, Senior Partner at Webber Wentzel
Minenhle Shabalala, candidate lawyer at Webber Wentzel
Diyajal Ramrajh, lawyer candidate at Webber Wentzel

Various types of retirement funds are used in various industries in South Africa to help employees prepare and save for their retirement. In the mining industry, the most common are large umbrella funds and union funds.

Large umbrella funds are suitable for any employer who lacks a sufficient number of employees to maintain a self-sustaining fund or who is looking for economies of scale to generate better returns on investment for members. Union funds have become popular in the various sectors in which they operate, particularly the mining sector, especially among low-income earners, such as miners.

Normally, when employees begin work, they have the option of choosing which fund they wish to join, either the fund designated by the employer (i.e. an umbrella fund) or a union fund. While employed in this business, employees cannot later change their minds and opt for the other fund.

What is the benefit of joining a union fund? The answer to this question is likely the same as why employees choose to join a union. They believe that a union represents their best interests in the employment relationship and may also represent their best interests in retirement. Many employees find it more logical to join the pension fund of their union, which union already represents them. They may also think it makes more sense to join a union-affiliated fund because they already pay dues to that union.

Union funds fall under the same laws and regulations as other pension funds and are therefore regulated by the FSCA. Most union funds are either self-administered (meaning they have been licensed by the FSCA to administer the fund themselves) or are administered by large licensed administration companies. This should suggest that, aside from a few minor issues, these funds should be free of major issues. Unfortunately, it is not the case.

A huge problem that the FSCA has been dealing with for some time is that of unclaimed pension benefits. Unclaimed benefits include withdrawal benefits (usually following termination of employment), death benefits (when a member has died and the beneficiary has not claimed the benefit), excess benefits (when the fund has distributed a surplus to members) and finally retirement benefits (due to members retiring and not claiming their benefits).

According to the FSCA Annual Report 2020/21, South Africa currently has unclaimed pension benefits amounting to approximately ZAR 47 billion. According to the FSCA, although many funds have unclaimed benefits, more than 80% of this R47 billion resides in union funds, the majority in just two funds, one of which is a mining industry fund. . Most people who own these unclaimed benefits are low-income miners.

The FSCA, along with most major funds and trustees, have established procedures for claiming unclaimed benefits and tracking down members, but the number of unclaimed benefits continues to rise.

There may be several explanations why this may be a particular problem within the mining industry and why this industry accounts for the majority of unclaimed benefits.

First, there appears to be poor record keeping by many funds as well as employers. Often, the fund and the employer do not regularly update the personal information of the employee/participant, which has the effect of making it out of date.

Second, the lack of knowledge and literacy about retirement funds among low-income people contributes significantly to this problem. Many of these workers may not be literate enough to understand the consequences of not regularly updating their information with their employer or union fund, and they may not receive or understand communications regarding the fund. Consequently, they are often unaware that they are entitled to benefits.

Finally, although this problem is not unique to union funds, member search seems to be a slow and drawn-out process, rarely yielding good results. The majority of funds attempt to track members every six months, using the same outdated information they have always had. Naturally, this results in unsuccessful traces.

The result of the above is that members and beneficiaries go untraceable, benefits go unclaimed, and the pot of unclaimed benefits continues to grow. This is not, however, to the detriment of the funds themselves. The FSCA said that “Asset managers and fund administrators continue to collect fees on these unclaimed assets.”

The regulator has long held that employers should be active participants in pension funds of any type, including a union fund. The active involvement of the employer would ensure (among other things) that:

  • employee information is regularly updated;
  • unclaimed benefits are regularly monitored, as well as fees charged by service providers for the administration or management of unclaimed benefits; and
  • employees receive communications about their funds and benefits in a way and in a language they can understand.

As mentioned above, the government has proposed a bill that will require an employer to take a more active role in the management of the funds in which it participates. We hope this will help reduce the amount of unclaimed benefits.

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