Unclaimed pension benefits surge to $33bn

Unclaimed pension benefits continue to rise after jumping 371 percent to $33 billion as of September 30, 2023, compared to $7 billion recorded during the same period in the prior year, largely driven by upward reviews of pensions and bonuses.

However, in US dollar terms, unclaimed benefits dropped by 45 percent to US$6 million from US$11 million in the third quarter last year.

Unclaimed benefits are benefits where the reason for the member’s leaving the fund and his or her last day of service are both known, but the benefit is not paid to the member or beneficiary within 24 months of the last day of service in line with the rules of the pension fund.

In a recent working paper titled “Supervision of Lost Accounts and Unclaimed Pension Benefits” (IOPS Paper), the International Organisation of Pension Supervisors (IOPS) looked at all types of private pension schemes in IOPS jurisdictions.

The paper investigated how “lost accounts” and “unclaimed pension benefits” are monitored and supervised by the regulatory authorities responsible for regulating retirement funds.

The study showed that the problem in connecting retirement funds and members, or beneficiaries of members, is largely due to inadequate record keeping and maintenance of records by retirement funds to facilitate tracing and paying members and/or poor record keeping by administrators.

Employers and members also play a role. So does the fact that members do not maintain contact with their former retirement funds or employers.

“The nominal growth in unclaimed benefits amount was due to pension increases and bonuses, which rose due to revaluation gains during the period under review,” said regulator Insurance and Pension Commission (IPEC) in a sector report for the quarter under review.

The pension report also shows that total membership with unclaimed benefits went down by 13 percent to 97 804 compared to about 113 043 as of September 30, 2022.

Insured funds had the highest value of unclaimed benefits, accounting for 46 percent of total industry unclaimed benefits.

In terms of membership, stand-alone funds had the highest number of unclaimed benefits members, accounting for 86 percent of the total number of members with unclaimed benefits, translating to about 83 707 members. On the other hand, insured funds and self-administered funds accounted for 11 percent and 3 percent, respectively, of the total number of unclaimed benefits.

Figures from the regulator also show that unclaimed benefits aged over six years accounted for 62 percent of the total liability for unclaimed benefits. However, in terms of membership, members with more than 10 years of membership constituted 85 percent of the total unclaimed benefits membership.

In terms of age analysis, unclaimed benefits less than two years old account for 22 percent, while those between two and five years old account for 16 percent. Those in the category of six to 10 years accounted for 40 percent, with those over 10 years at 22 percent.

IPEC has also indicated that all unclaimed benefits aged five years and above should have been remitted to the Guardian Fund under the Master of the High Court as per the requirement of the Administration of Estates Act Chapter 6:01.

The pensions sector has also suffered confidence issues that have affected its growth. While IPEC opines that the growth in unclaimed benefits is due to inflationary pressures, some market watchers think otherwise.

“One of the other challenges the sector is facing is that of unclaimed benefits… That figure is naturally expected to shoot considering the upcoming compensation of over a decade,” said research firm Equity Axis. Some of the intended beneficiaries can by now either be incapacitated, deceased or have lost track of or given up on all such hyperinflation drama.

“So painful was that period that most have chosen to give up on anything that brings those memories back again today,” added the firm, drawing examples from global giant China, which has the largest security system in the world, with about 1,05 billion people paying into or receiving payment from its national basic pension at the end of 2022.

The challenge of unclaimed benefits in Zimbabwe is not unique to the pension industry but is also prevalent in the stock markets under share certificate administration.

“At least that has been countered by dematerialisation going forward. Facing a graying population like China is a good problem to deal with, for it is a sign that an economy has taken good care of its citizens.

“This is different from getting compensated over 14 years later; it will be interesting to find out if the level of compensation will be worth calling one as figures start reflecting in pensioners’ bank accounts,” said the research firm.herald