How unclaimed monies can contribute to economic and social development objectives

By: Elio E’Silva, Head of Direct Corporate Solutions, Alexander Forbes

Prescribed assets for retirement funds have been discussed extensively as a potential source of funding for state-owned entity (SOE) debt as well as the country’s developmental imperatives. This raises concerns about the possible implications for investment outcomes of more than 16 million members of South African retirement funds.

But there are alternative models of investment which can go at least some way in addressing the funding needs of our country while providing a new and differentiated investment proposition for investors.

Our experience shows that unclaimed monies in retirement funds belonging to members not traced within 24 months sit in the funds for longer periods. With that in mind, we explore whether the investment strategies of such monies could promote decent outcomes for investors and greater benefits for society.

Almost half of unclaimed monies are older than 8 years

An unclaimed benefit is a sum of money that is due to a retirement fund member (or beneficiaries) that has remained unclaimed, perhaps because the former fund was unable to contact them. Our experience indicates that if benefits transferred into an unclaimed benefit fund are not traced within the next 24 months, then the likelihood of finding these members is very low. The tracing success rate of finding these claims once moved into an unclaimed benefit fund, where tracing has already been done in the occupational fund, is 10%. According to our data from the Alexander Forbes Unclaimed Benefit Fund, 49.8% of unclaimed monies are older than 8 years and tracing has been attempted more than once.

Innovative investment strategy promotes decent outcomes for investors and greater benefits for society

It is for this reason that Alexander Forbes has resolved to look at how we can structure an investment strategy that will:

• grow the unclaimed benefit should the member or beneficiaries be found
• support the transformation of the investment industry
• contribute to economic and social development

We are calling this investment strategy a “reverse lifestage” strategy. Unlike a common lifestage strategy that moves members from a growth portfolio to a more conservative portfolio to reduce investment risk as they get closer to retirement, this strategy will do the opposite.

As we have seen, the first 24 months of a benefit becoming unclaimed are crucial. Therefore the strategy has been designed to invest in a conservative portfolio to ensure liquidity and growth for the first 24 months. Thereafter the benefit is invested in a growth portfolio that has a mix of private market investments and B-BBEE domestic multi-asset classed managers. This strategy allows a member’s unclaimed benefit to grow whilst we are attempting to trace the member or beneficiaries.

This strategy helps support the transformation of asset managers and forges new relationships within the industry. Then by adding the private markets, we see an opportunity to invest in projects that contribute to economic and social development objectives and the transition towards a greener economy. We can invest in renewable energy projects or by funding for example:

• the completion of a retirement village and frail-care facility in urban and peri-urban communities across KwaZulu-Natal, Gauteng and the Western Cape
• rural retail infrastructure to allow consumers access to basic goods and services
• taxi owners and small business operators to expand their taxi operations to get South Africans safely to their place of work
• mobile Covid-19 testing

In conclusion, the reverse lifestage solution can help develop the South African economy and transform our broader society, while delivering strong investment performance. By using this approach, we can both assist communities and ensure investment growth for members with unclaimed benefits.