Fri | Jan 18, 2019

FSC floats new regime for unclaimed pensions

Published:Sunday | September 14, 2014 | 12:00 AM
The Financial Services Commission, New Kingston, regulator of the private pensions industry.-File

Avia Collinder, Business Reporter

Under current law, unclaimed pension benefits revert to the pension fund, but they have to wait 150 years to take ownership.

Under the reform proposals currently under discussion, that will change. The period could be cut to a 30-year wait, if the recommendation put forward by regulator Financial Services Commission (FSC) gets no pushback, and the funds will now flow to the high court instead.

The FSC has specifically proposed an amendment to Section 7(1) of the Pensions (Superannuation Funds and Retirement Schemes) Act 2004, which removes the words "and the monies or benefits shall not revert to such a fund or scheme, except after a period of 150 years".

Instead, the monies or benefits payable would be retained for a period of 30 years, and handed over to the Supreme Court thereafter.

"At no time shall unclaimed monies or benefits revert to the fund or the scheme," the regulator proposes.

In the case of unclaimed funds from schemes which have been wound up, those monies too will be paid to the courts.

"The trustees are required to advertise eight weeks after the monies or benefits became payable in the case of a fund or scheme being wound up. The trustees shall advertise semi-annually over a period of one year and then pay the unclaimed benefits into the Supreme Court," says the FSC proposal.

Requests for clarification on why the funds would be paid to the Supreme

Court were unanswered, and the FSC also has not explained what it proposes should happen to the funds after they are paid to the court.

The private pensions market comprises 806 pension plans, 370 of which are inactive. Many of them have been ordered wound up by the FSC.

The value of assets within the inactive sector is unknown.

Active plans were last valued by the FSC at $317 billion in March.

Actuary Constance Dalmadge-Hall, principal with Eckler consultants and actuaries, says unclaimed funds are benefits to which former members of plans or their beneficiaries are entitled but which they have not claimed - maybe because they are not aware that they are entitled to the benefit or the amount is small so they don't bother to claim.

"For example when someone terminates service during a plan year, the refund may include interest only up to the end of the prior plan year. Interest for the partial year up to the date of payment would then be owed," said Dalmadge-Hall.

"The former member may not be aware that he is owed this amount. If a participant dies without naming a beneficiary the death benefit may also be unclaimed. If someone moves or migrates and does not provide an address, the administrator would not be able to make the payment also giving rise to an unclaimed amount," she said.

The FSC said up to September 5 that the jury was still out on its proposal.

"The proposals pertaining to phase two of the pension reform - including the proposals for the handling of unclaimed monies - have been sent to the industry for consultation. The consultation process has not yet been completed," the pension unit said in writing to Sunday Business.

Decision rests with Gov't

It also noted that the ultimate policy decision rests with the Government. The FSC falls under the ambit of the minister of finance.

"the proposals in relation to the treatment of unclaimed benefits are therefore not yet concretised or finalised and the matter cannot be fleshed out with any certainty at this stage," said the regulator.

"From the FSC's standpoint, the general objective is to prevent unclaimed monies or benefits from being retained indefinitely by the fund or the scheme."

Under The Pensions (Super-annuation Funds and retirement Schemes) (Governance) Regu-lations 2006 pension funds and schemes are asked to advertise over a period of eight weeks for beneficiaries and their relatives five years after they stop collecting benefits.

Following such a period of advertisement, the funds could revert to the scheme after 150 years.

Dalmadge-Hall said that she was not aware of any estimates of unclaimed funds among pension plans. The FSC did not respond to the query related to data on unclaimed balances.