UNCLAIMED FINANCIAL ASSETS AND RETIREMENT BENEFITS


UNCLAIMED FINANCIAL ASSETS AND RETIREMENT BENEFITS

Assets ordinarily end up unclaimed due to passage of time, death of owners, loss of contact, migration, mergers and acquisitions, name changes and incomplete records. Previously, unclaimed financial assets were left under the control of the various holders or such entities where such assets were held. As per the Unclaimed Financial Assets Act No. 40 of 2011, all entities are required to report and deposit unclaimed assets with the Unclaimed Financial Assets Authority (“the Authority”). The Authority is tasked with enforcing and regulating the unclaimed financial assets regime in Kenya, holding and investing unclaimed financial assets as a trustee and paying these out to rightful owners and/or beneficiaries.

Under the Act, for an asset to qualify as unclaimed, it has to be presumed abandoned as provided for  under sections 4 to 18 (which sections set out different abandonment periods for different assets) of the Act and one or more of the following requirements are met:

  • the records of the holder should be insufficient to identify or trace the owner of the asset;
  • the holder of the asset must not have previously paid or delivered the assets to the owner or any other person that is entitled to the asset; and /or
  • the last known address of the owner must be in a country that does not provide by law for reversion of property to the state on the death of an owner of an asset (the law of escheat), or the law applying to unclaimed assets is not applicable to the assets and the holder is domiciled in Kenya.

It therefore becomes the responsibility of the holding entity to report the unclaimed assets as prescribed under the Act to the Authority. Under the Act, all entities who hold assets to which it applies are required to make reasonable efforts to trace the owner and notify them about the assets, report and deposit any unclaimed financial assets with the Authority (which is tasked with administering the unclaimed financial assets). There is an indefinite right of re-unification of assets with their rightful owners as the aim is to return unclaimed financial assets to rightful owners.

The modern rationale for such an arrangement is that the state can best preserve and protect the interest of the rightful owner and possibly reunite the owner with his/her property.

Unclaimed Financial Assets Authority And The Retirement Benefits Authority

All relevant regulatory authorities more specifically those responsible for the supervision of a holder are to assist the Authority in the enforcement of the provisions of the law and generally ensure that the objectives of the unclaimed financial assets regime are achieved.

With regard to retirement benefits specifically, pension scheme trustees, who are regarded as the holders, are expected to surrender all the unclaimed assets within the timeframe specified under the section 13 of the Act.

Section 13 of the Act provides that assets held in fiduciary capacity for the benefit of another person are presumed abandoned unless the owner within two years after they have become payable and distributable has:

  • increased or decreased of the principal amount by the owner;
  • accepted any payment in respect of the benefits;
  • communicated concerning the assets; or
  • otherwise indicated any other interest as evidenced by a record prepared by the fiduciary.

As required under Section 19 of the Act, holders of unclaimed financial assets have to make all reasonable efforts to locate and notify the owners about the assets. On the lapsing of the abandonment period, they are required to vest and deliver these unclaimed assets to the Authority who will then assume custody and responsibility for the safekeeping of the assets.

Regarding the payment of claims by the Authority, please note that the Act provides that no interest or other earning accrues or is payable to an owner in respect of the period after assets becomes unclaimed assets and delivered to the Authority under this Act.

Previously, the Retirement Benefits Act provided for the establishment of a Trust Fund into which would be paid the benefits and other accrued income of members of retirement benefits schemes who cannot be traced within a period of two years from the commencement of winding up of the respective schemes under the Act. There was no requirement for remittance of the same to the Authority and the payment of the benefits was left to be determined by the rules of the scheme.

With the recent amendments to section 45 (A) of the Retirement Benefits Act by the Finance Bill 2019, if within a period of two years from the completion of winding up proceedings in respect of a scheme under the Act, the liquidator is unable to trace any member of the scheme, the accrued benefits due to such member shall become unclaimed assets within the meaning of section 13(1) of the Unclaimed Financial Assets Act.

However (although the following provision may not be entirely practical especially after a liquidator has been appointed) after the end of the aforesaid 2-year period, the scheme trustee may treat the benefits as unclaimed if:

  • a scheme member entitled to such accrued benefits has not lodged any claim and the trustee is unable to locate the member after taking the specified steps;
  • a scheme member has lodged a claim with the trustee, but the trustee is subsequently unable to locate that member after taking the specified steps; and
  • the member or beneficiary has not:
  • increased or decreased the principal;
  • accepted any payment in respect of the accrued benefits;
  • communicated with the scheme concerning the accrued benefits; or
  • indicated any other interest in the accrued benefits as evidenced by a record prepared by the Trustees.

How to ensure benefits do not become unclaimed?

The first step would be ensuring active member participation in the scheme. This can be by regularly receiving a summary of the scheme’s audited accounts and their member benefits statements. This will ensure that they are aware of all the developments in the scheme including the treatment of their benefits. This would go hand in hand with the scheme enhancing “Know Your Customer” requirements on which would be critical to preventing assets from being separated from their owners in the first place.

Secondly, both the scheme trustees and the members should be aware of the treatment of benefits in the event of death. Scheme Members should fill out and update nomination of beneficiary forms that ensure lump sum benefits payable under the Rules of Scheme are paid to the nominated beneficiaries in the event of death of the member.  Additionally, it is critical for beneficiaries to be aware that accrued benefits do not form part of assets of estate of a deceased member and therefore extra effort must be made to get in touch with the scheme trustees.

Pension benefits are also frequently forgotten and become unclaimed where a Member on leaving service earlier than retirement age elects to retain their benefit in a scheme until they reach retirement age. These are also known as deferred benefits. Scheme Trustees should ensure that deferred benefits and unclaimed assets are detailed in the summary of audited accounts and member’s benefits statements which are availed to the members. Scheme Trustees should also encourage the transfer of deferred benefits to a new employer in the case of resignation from the service of the Sponsor. There are also suggestions that an individual pension scheme should be established for the purpose of only consolidating deferred benefits. Additionally, the awareness of deferred pensions should also be made known to one’s beneficiaries so that the same is not forgotten. 

Finally, trustees and members should ensure that information regarding a member is kept up to date and accurate. This is critical especial regarding residential and financial information.

Obstacles to compliance

  1. The interest and penalties charged by the Authority on delayed remittances or disbursements of unclaimed assets are viewed as too high by Scheme Trustees. This in turn is discouraging for schemes to comply with the requirement to submit unclaimed assets. The Act sets the penalty at an interest of one percent above the Central Bank of Kenya average rate from the date the assets should have been paid. The Authority should therefore consider a waiver or the reduction of the interest and penalties which will hopefully have the resulting effect of increasing the compliance rate of pension schemes. Currently only 136 schemes out of 1,280 schemes have complied.
  2. Pension schemes are also lamenting on the lack funds to trace and notify claimants whose monies are held in abeyance by the Scheme Trustees as this responsibility lies with the holder. To prevent the assets from being separated from their owners in the first place, pension schemes should ensure that their members are well informed on the treatment of benefits on the occurrence of, but not limited to, the following circumstances:
    • Death of a Member;
    • Deferred benefits; and
    • Transfer from employer and retaining of benefits in the scheme.
  3. As per the Unclaimed Financial Assets Act, a pension benefit is regarded as unclaimed two years from when the benefit becomes payable or distributable. However, under the Retirement Benefits Act, accrued benefits become unclaimed only upon a winding up of a Scheme.The Retirement Benefits Act does not address instances such as when benefits that ought to have been paid within 30 days have not been paid.Do those become unclaimed financial assets to be remitted to the Authority in accordance with the other sections 4 – 18 of the Unclaimed Financial Assets Act?It may be worth studying how other jurisdiction deal with this.

     In South African and Canada, the Retirement Benefits Statutes have been expounded to include the following definitions as amounting to unclaimed assets:

  • any benefit payable or to be paid under the Rules but has not been paid to a member, former member or beneficiary within 30 days of the date of retirement or of withdrawal of benefits from the scheme Provided That the member is not intent on leaving accrued benefits in the Scheme;
  • any death in service benefit payable to a beneficiary not paid within 12 months from the date on which the fund became aware of the death of the member.
  • any benefit that remained unclaimed or unpaid to a member, former member or beneficiary on winding up of a Scheme within 2 years from the completion of the winding up proceedings in respect of a scheme.
  • in relation to a benefit payable as a pension or annuity, any benefit which has not been paid by a fund to a member, former member or beneficiary within 12 months of the date on which any pension payment or annuity legally due and payable in terms of the Rules.
  • In relation to a benefit payable from a Member’s post retirement medical fund, any benefit which has not been paid to a Member within 12 months from his date of retirement.
  • In relation to surplus payments due to a former employer by a scheme which scheme cannot now trace the employee or member.

Both the Retirement Benefits Act and the Unclaimed Financial Assets Act should be reviewed from time to time.

Procedure of claiming assets under the Unclaimed Financial Assets Act.

  • Where the original owner is claiming

Where the original owner is claiming the assets, they shall submit to the Authority the following documents:

  1. Duly completed and commissioned Original Owner Claim form (Form 4A) duly commissioned.
  2. Duly completed and commissioned Indemnity Agreement (Form 5).
  3. An official letter received from the holder confirming remittance of unclaimed financial assets to the Authority.
  4. Certified copy of the claimant’s national identity card or passport.
  5. Copy of claimant’s KRA PIN certificate.
  6. Claimant's bank details indicated on claimant bank details form.
  7. Provide Bank Statement of an active account, current deposit slip, or withdrawal slip - clearly showing account name and number to confirm bank account details provided in item 6 above. (if more than one claimant, provide a statement of a joint bank account).
  • Where one is claiming on behalf of the owner

Under the Act, where the claimant is not the owner but has or asserts a legal right to an unclaimed asset, the claimant shall submit to the Authority the following documents to facilitate the return of the unclaimed financial asset:

  1. Duly completed and commissioned Beneficiary Claim Form (Form 4B).
  2. Duly completed and commissioned Indemnity agreement (Form 5).
  3. An official letter received from the holder confirming remittance of unclaimed financial assets to the Authority.
  4. Certified copy of the claimant’s national identity card or passport.
  5. Copy of claimant’s KRA PIN certificate.
  6. Copy of certificate of death.
  7. Certificate of Confirmation of Grant/ Certificate of Summary Administration.
  8. Claimant's bank details indicated on claimant bank details form.
  9. Provide Bank Statement of an active account, current deposit slip or withdrawal slip - clearly showing account name and number to confirm bank account details provided in item 8 above. (if more than one claimant, provide a statement of a joint bank account).




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