Unclaimed benefits balloon 12 fold, IPEC

The Insurance and Pension Commission (IPEC) says unclaimed benefits have increased 1175 percent to $2.5 billion during the third quarter ended 30 September 2021.

IPEC largely attributed the increase to revaluation gains on assets supporting such liabilities.

“Furthermore, there was also an increase in members with unclaimed benefits by 3,93 percent, to 161,019 from 154,927 reported in the same period last year,” reads part of the report.

IPEC noted that it is concerned with such a high number of members with unclaimed benefits and encourages the industry to intensify efforts to locate them.

During the quarter under review, there were 982 registered occupational pension funds compared to 961 funds reported as at 30 September 2020 with the increase on account of new fund registrations.

Total income for the industry increased to $87 billion compared to $59 billion in 2020 mainly driven by fair value gains, interest from investments and total contributions amounting to $77,48 billion.

“These three income streams constituted 50 percent, 25 percent and 13 percent, of the industry’s total income, respectively,” IPEC said in the report.

However, total expenditure increased by 317,89 percent from $2,18 billion for the period ended 30 September 2020 to $9,11 billion as at 30 September 2021.

The increase was mainly driven by total benefits paid, administrator expenses and investment management expenses, which accounted for 64,76 percent, 8,41 percent and 7,37 percent, respectively.

“Expenses to contributions ratio was 23,54 percent, whilst the expenses to total income ratio was 3,10 percent for the year ended 30 September 2021.

“Furthermore, expenses to realisable income also increased to 7,34 percent from 3,11 percent reported during the same period in the previous year.”

IPEC said it is concerned with the general increase in expense ratios as they negatively impact on the amount that is available for investment, ultimately reducing the retirement benefit for members.

“In order to curtail expenses, the Commission has issued a framework to regulate expenses, which will be effective from January 2022 for implementation within 6 months from the effective date,” the regulator said.

IPEC also noted that during the period under review, out of the registered 982 pension funds, 30 funds received contributions in US$.

It said for the period January to September 2021, contributions and other foreign currency receipts by these funds amounted to US$10,65 million whilst total expenditure for the same period amounted to US$0,43 million.

“The total assets for these funds stood at US$10,96 million as at 30 September 2021 and the asset portfolio of these funds is mainly dominated by money market instruments (57 percent), with 19 percent being held as cash at bank.”

The regulator said the huge proportion of the funds’ portfolio (19 percent) held as cash, remains a major concern to the Commission given that it is a cost to the fund members due to the forgone investment returns.

“It is also not in line with the long-term nature of the liability profile of pension funds,” read part of the report.

IPEC noted that in order to widen the investment options for the funds, the Commission is finalising Investment Guidelines which will also include offshore investments.

“Furthermore, the Commission also urges financial market players to design US$ denominated instruments which suit the investment horizon for pension funds, so that there is asset liability matching,” said IPEC.