Dimensions of Global Unclaimed Funds

Jonathan Eborah

In every geographical and political jurisdiction and in all financial markets, the issue of unclaimed financial benefits is increasingly becoming a matter of serious concern to governments, financial markets and the general public. Across board and in every nation, unclaimed financial benefits continue to grow year-on-year. The acceleration in growth and the divergent views of the public on the reasons for the growth gave rise to this article which is an attempt to properly examine the nature and types of unclaimed benefits, particularly where we are in Nigeria, and what could be done (in addition to what has been done already) to reduce their growth to minimum acceptable levels and develop the right attitude towards it.

Types of Unclaimed Fund/Benefits
Unclaimed Funds or financial benefits are money and other assets whose rightful owner(s) cannot be located by the paying agency or institutions and where the owners or their proxy cannot locate the paying agency or institutions. Sometimes, it occurs where the beneficiary is located and aware but reluctant to activate collection. In strict sense, the first situation is called lost funds while the second situation is called unclaimed funds but for purpose of this discourse, all are grouped as unclaimed fund/benefits.

There are many types and reasons for unclaimed fund/benefits, but we shall categorize them into six broad headings – Unclaimed Dividends, Unclaimed Account Balances/Cheques and Redundant Bank Accounts, Unclaimed Insurance Benefits, Unclaimed Tax/Social Security Benefits, Unclaimed Pensions, and Unclaimed/Lost Asset and Properties.

Unclaimed Dividends & Shares
This is the most popular form of unclaimed fund/benefits, especially in Nigeria. But it is a worldwide problem, occurring in varying degrees across nations. It typically refers to that portion of total declared dividends (amount of monies paid out of the distributable profit of a company) payable to equity shareholders after deduction of government withholding tax but remains unclaimed for a given period of time after the payable date. In Nigeria, it becomes unclaimed when the equity investors fail to claim such benefits within 6 months.

Unclaimed Dividend and Shares could be in form of declared dividend, liquidation dividend, take-over benefits (and sometimes bond coupon), etc. Take-over benefits are made up of unclaimed shares and shares in dissenters’ register. As at year end 2019, the total value of unclaimed dividends in the Nigerian capital market was N158.44 billion; in the United Kingdom, it is estimated that over £3 to £4 billion of unclaimed dividends is available across the FTSE 100; in Australia, it is AS$1.1 billion (Australian dollars).

Over the years, in many nations including Nigeria, several steps have been taken to curb the unclaimed dividends problem, yet, it kept rising. In Nigeria, the capital market community led by the Securities & Exchange Commission have introduced the following policies – separation of the custodian of unclaimed dividend funds into two after 15 months. Fifteen months from the payable date of a declared dividend, 90 per cent of the unclaimed portion will be returned to the company that declared the dividend while 10 per cent will remain in the custody of the Registrars who are the paying agents.

The second major step is the establishment of “Electronic Dividend Payment System” called e-DMMS where shareholders/investors’ dividends are paid direct to the respective accounts of the investors on the payable date. To achieve this, SEC working with the Central Bank of Nigeria (CBN) agreed to allow savings account holders to receive Unclaimed Dividends through Savings Accounts.
It is noteworthy that many countries operate the electronic payment system, yet, unclaimed dividends keep rising. The third major step is that they authorized investors who bought shares with multiple names to regularize their position through their Stockbrokers and Registrars with valid evidence of purchase.

Unclaimed Bank Balances, Cheques and Dormant Accounts
Another is unclaimed benefits from bank deposits, dormant bank accounts, owner untraceable deposits/cheques, etc., for various reasons. For context, the UK has an estimated £15 billion pounds held in dormant bank and building society accounts. In Nigeria, about 47 million bank accounts with estimated deposit volume in excess of N1 trillion are dormant or redundant with effective unclaimed benefits.

Dormancy occurs when there is loss of contact between a bank and its customers over a period. Generally, accounts are classified as dormant after a specific period of the absence of a customer-initiated transaction. This period of inactivity is usually referred to as the dormancy period. Dormancy period varies from nation to nation (where there are laws). In context, Dormant Period is 15 years in Ireland and Portugal, 7 years in Australia, 10 years in Canada and Switzerland, 3-5 years in USA (depending on State Laws), 26 years in Spain and Greece, 30 years in France and 25 years in New Zealand. However, in Nigeria, on October 7, 2015, CBN issued “Guidelines on the Management of Dormant Accounts and Other Unclaimed Funds by Banks and Other Financial Institutions in Nigeria.” The CBN Guidelines defined dormant accounts in Nigeria as accounts where there is no customer or depositor-initiated transaction for a period of One (1) year after the last customer or depositor-initiated transaction. The Guidelines also defined Unclaimed Funds (Bank) as proceeds of stale local and/or foreign currency drafts not yet presented for payment by beneficiaries, funds received from a correspondent bank without sufficient details as to the rightful beneficiary and/or a recall of funds made to the remitting bank to which the Nigerian bank’s account had not been debited, and judgment debt for which the judgment creditor has not claimed the amount of judgment award. In addition, it defined customer or depositor-initiated transactions to include cash deposits, withdrawals and transfers to or from the account.

One major provision in the Guidelines is that dormant account balances shall continue to be reflected in the books of banks as deposit liabilities until they are eventually withdrawn by the account holders or disposed of on their instructions.
Unclaimed Insurance/Benefits
A lot of insurance policy details and fine lines are often misunderstood or completely ignored by insurance policy holders. Often times the primary function of the policy is reckoned with, while all the other add-ons in the policy are completely ignored. This has led to mounting but unclaimed insurance benefits, accruing to policy holders lying idle across countries.

Unclaimed Tax/Social Security Benefits
In many countries, millions of families and individuals fail to claim their tax benefits for various reasons, which leads to annual figures of unclaimed tax benefits in billions of dollars. These include child tax credit, working tax credit and tax refunds, Job seekers’ allowance, income support, child benefit, council tax support, housing benefits, etc. In the UK, the figure for annual unclaimed tax benefits is about £15.9 billion. In the United States of America, it is currently about $58 billion. Incidentally, in Nigeria, there is no data.

Unclaimed Pensions
Unclaimed pensions represent another sore but common source of unclaimed benefits worldwide. Unfortunately, a lot of retirees and families are living in poverty because of this. A myriad of factors is responsible for this. In the UK for example, there is an estimated £19.4 billion of lost or forgotten pensions. In the USA it is estimated at US$300 million unclaimed by over 38,000 individuals. Namibia has unclaimed benefits of about N$150 million (US$9.5 million) comprised of roughly 130,000 members/beneficiaries.

In Austria, the total lost accounts and unclaimed benefits was AS$16.2 billion (US$12.2 billion) comprised of Lost Accounts AS$13.5 billion (US$10.1 billion) and Unclaimed Benefits AS$2.7 billion (US$2.0 billion) for 5 million member beneficiaries/ accounts.
According to the International Organisation of Pension Supervisors (IOPS), there are two classes of Unclaimed Pensions, namely: Lost Accounts and Unclaimed Benefits.
Lost Accounts are adopted for situations, either during the accumulation or pay-out phase, where the administrator of the pension fund did not have contact details for the holder of an account. Unclaimed Benefits are used to describe the more specific case where a member who has a right to claim benefits does not make an application or take other procedural steps to claim it.
In context, different jurisdictions adopt different names for different purposes. In Nigeria, there is no known record for unclaimed Pensions.

Unclaimed/Lost Asset and Properties
Assets and properties are considered dormant, unclaimed or lost, when contact with the owner is lost usually due to name change, unreported change of address or death of the owner.
In the UK as at the end of 2019, over £200 billion worth of assets were reported unclaimed or lost. In the USA the figure is $49.5 billion.

Comparative Analysis

To enable us make valuable comparison with the figures we have, we consider it necessary to convert the figures to a common currency (Naira). Therefore, using a Naira baseline (of N500 to £1, N380 to US$1, N66 to GH₵1 and N260 to AS$1) to make comparative analysis, we discovered that:

Comparative Unclaimed Dividend
For unclaimed dividends, Nigeria has a total outstanding figure of N158.44 Billion compared to the UK’s outstanding figure of N1.5 trillion.

This can also be compared to Australia’s N286 Billion. This is shown in a table below:
S/N Country Unclaimed Rate Naira Value (N)
1. Nigeria N158,440,000,000 N1 158,440,000,000
2. UK £3,000,000,000 N500/£1 1,500,000,000,000
3. Australia AS$1,100,000,000 N260/AS$1 286,000,000,000
4. USA US$ (No records yet) N380/US$1
Thus, in terms of unclaimed dividends, comparatively among the three nations stated above with values, the UK has the highest quantum in Naira at N1.5 trillion followed by Australia at N286 Billion. Nigeria has the lowest at N158.44 Billion.

Furthermore, in Nigeria, the following are the total declared dividends from January 2009 to October 2019 together with the unclaimed portion.

Comparative Unclaimed Bank Deposits
Looking at unclaimed bank deposits, Nigeria has an outstanding figure of N1 trillion naira, compared to the UK’s N7.5 trillion as seen in the table below:
S/N Country Unclaimed Rate Naira Value (N)
1. Nigeria N1,000,000,000,000 N1 1,000,000,000,000
2. UK £15,000,000,000 N500/£1 7,500,000,000,000

From the above table, unclaimed bank deposits in the UK is higher than that in Nigeria 6.5 times.
Comparative Unclaimed Tax Benefits
When we consider unclaimed tax benefits in the United Kingdom in Naira terms, we have an annual unclaimed benefits figure of 7.95 Trillion Naira while the USA has 22.04 Trillion Naira. This is shown in a table below:
S/N Country Unclaimed Rate Naira Value (N)
1. Nigeria Not Available N1 Not Available
2. UK £15,900,000,000 N500/£1 17,950,000,000,000
3. USA US$58,000,000,000 N380/US$1 22,040,000,000,000

From the above analysis, unclaimed Tax Benefits in USA is higher than that in the UK with N14.09 Billion. There is no record for Nigeria.

Comparative Unclaimed Pension Benefits
Considering unclaimed pension benefits in naira terms, the UK presents a figure of N9.7 Trillion while the USA has a figure of N114 Billion.
S/N Country Unclaimed Rate Naira Value (N)
1. Nigeria Not Available N1 Not Available
2. UK £19,400,000,000 N500/£1 9,700,000,000,000
3. USA US$300,000,000 N380/US$1 114,000,000,000
4. Australia AS$16,200,000,000 N260/$1 4,212,000,000,000
From the above analysis, unclaimed Pension Benefits in the UK is the highest at N9.7 Trillion followed by Australia with N4.212 Trillion. The US has the lowest with N114 Billion. From the above, the Unclaimed Pension in the UK is higher than that in the US with N9.586 Trillion. There is no record for Nigeria.

Comparative Unclaimed Properties
For unclaimed properties, in naira terms, the UK presents N100 Trillion while the figure for USA is N18.81 Trillion.
S/N Country Unclaimed Rate Naira Value (N)
1. Nigeria Not Available N1 Not Available
2. UK £200,000,000,000 N500/£1 100,000,000,000,000
3. USA US$49,000,000,000 N380/US$1 18,810,000,000,000
From the above analysis, unclaimed Properties in the UK is higher than that in the USA with N81.19 Trillion. There is no record for Nigeria.

Contributory Factors
There are myriad of factors that contributed to these unclaimed funds across the globe some of which are highlighted hereunder:
UNREPORTED CHANGE OF ADDRESS
The main factor that contributes to the issue of unclaimed benefits of any kind is unreported change of address. Whether by omission or commission, when beneficiaries, heirs, assigns or next of kin to any kind of benefits relocate or move to a new address without reporting such changes to the governmental authority or financial institution responsible for providing such accrued benefit. Benefits remain unclaimed at the time of dispensing since there is no way to trace the beneficiary until proper and present address information is supplied to the concerned agency or institution.

UNREPORTED CHANGE OF NAMES
Some persons change their names due to marriage, while others for religious or family reasons do so, but fail to effect the statutory publishing of such name change in the proper publication as stipulated by law, or forward same to the concerned agency or institution from which the benefit accrued. Thus, cheques are written, dividends paid, transfers made, etc. but cannot be completed because of the unreported and un-updated name changes.

UNREPORTED BANK ACCOUNT CLOSURE
Whether the account was closed by the beneficiary or the bank; or the bank/financial institution went under while the beneficiary failed to provide another bank account details to the institution or agency responsible for their benefits, such benefits remain unclaimed until a new account is provided. This is one of the reasons why the electronic payments campaign may not lead to zero unclaimed dividends. What is important is that continuous effort is made to reduce the quantum in terms of size and, possibly, volume.

INCOMPLETE AND ILLEGIBLE RECORDS
Most beneficiaries do not take the time to legibly fill in their details in the forms, sometimes they fill in incomplete records and information. These do not however come to matter until it is time to process their benefits, when such incomplete or illegible records make it impossible. Some even fill in wrong phone numbers or may have changed their phone number without updating such with the institution or agency responsible for the benefit.

UNADDRESSED BENEFICIARY’S DEATH
Some beneficiaries do not update their records for next of Kin before they die. In some cases, the next of Kin in their record has long died but they failed to change to a living person by omission or carelessness. Oftentimes, beneficiaries do not bother to update their families, next of kin, heirs, etc. with details of their shares, estates, accounts, etc. Thus, upon their death, their benefactors who should claim such benefits are completely in the dark.

STRATEGIC NEGLIGENCE
There are investors who may have been located by the paying agents like Registrars but strategically refuse to activate their claims. Sometimes, they deliberately leave their benefits or accounts as a means of accumulating funds for a particular project. This is particularly true of unclaimed dividends where investors may not be interested in collecting the little dividends paid to them until they consider it accumulated enough for claim. This is prevalent where the benefit does not constitute a major income to the recipient.

WITHDRAWAL OF DIVIDEND WARRANTS AS A MEANS OF PAYMENT
The withdrawal of dividend warrants from paying shareholders who have not mandated or signed-on to electronic payment system in some climes implodes the unclaimed funds. There are people who want to receive their warrants and decide the bank where they want it deposited – it must not be one bank. The choice of bank to deposit their warrants is determined by where their greatest need lies at that point in time. Dividend warrants are still being used in some developed world for those who want to be paid by that instrument.

INCREASED LEVEL OF RETRENCHMENT AND CHANGE OF JOBS
Loss of jobs and change of jobs often make some people abandon salary accounts, particularly where they were opened on the instance of their employer. This leads to loss of bank accounts and change of addresses which may not be notified to paying agents.

DISCUSSION
Based on the forgoing, the following statements could be made about unclaimed funds and benefits in governmental and financial institutions:
a) Globally and among the jurisdictions chosen for this study, the highest unclaimed dividend is posted by the UK at 1.5 Trillion Naira followed by Australia at 286 Billion Naira. Nigeria stood at the lowest position with N158.44 Billion Naira.

Furthermore, in Nigeria, the analysis shows that percentage of total dividends paid out from the dividends declared between January 2009 and October 2019 was 94.84% which is significantly encouraging. And the volume and percentage of unclaimed dividends in the custody of Registrars for same period stood at N13.14 billion and 0.52% respectively. The percentage of unclaimed dividends to dividends declared for the period was 5.16%.
b) On unclaimed bank balances/accounts, the UK has the highest unclaimed funds at 7.5 Trillion Naira while Nigeria has 1 Trillion Naira.

c) Relative to Unclaimed Tax Benefits, the analysis shows that the US has the highest unclaimed tax benefits at 22.04 Trillion Naira and the UK has 17.95 Trillion Naira. There is no data for Nigeria to compare.

d) On unclaimed pension benefits, the UK has the highest at 9.7 Trillion Naira, followed by Australia at N4.212 Trillion. No record for Nigeria to compare.
e) Regarding unclaimed properties, analysis indicate that the UK has the highest figure at 100 Trillion Naira compared with the US at 18.81 Trillion Naira only. There is no record for Nigeria to compare.

f) From the analysis of all the groups, the highest single unclaimed benefit is posted by the unclaimed properties at N100 Trillion in the UK. The second is posted by Unclaimed Tax Benefits at N22.04 Trillion in the US. The third is posted by Unclaimed Pension Benefits at N9.7 Trillion Naira in the UK. The fourth is posted by Unclaimed bank balances at N7.5 Trillion in the UK. The fifth highest which is also the least figure in all the types of unclaimed funds is posted by unclaimed dividends at N1.5 Trillion in the UK. This indicates that in all countries considered where data is available including Nigeria, Unclaimed Dividends represent the lowest of unclaimed benefits.

CONCLUSION
• While effort should be directed at reducing unclaimed benefits globally, Unclaimed Dividends represent the least unclaimed funds across all jurisdictions.

• From the entire analysis, there are only two countries whose unclaimed benefits fall below the Trillion Naira threshold and they are Nigeria’s unclaimed dividends at N158.44 Billion and the US’ unclaimed pension benefits of N114 Billion. This indicates that there are unclaimed dividends in Nigeria and unclaimed pension benefits in the US, but they are comparatively insignificant to what obtains in their respective classes in other nations and in other classes.

• For Nigeria, with total dividend payout of 94.84% between 2009 and October 2019, it appears that the effort by the stakeholders to reduce Unclaimed Dividends is yielding results.

RECOMMENDATIONS FOR UNCLAIMED DIVIDEND FUNDS IN NIGERIA
Based on the forgoing, it is imperative that there is an understanding of the myriad of benefits across board that remain unclaimed by individuals and families owing to the factors stated above. In Nigeria, there are two classes where we have data and the CBN have taken care of the unclaimed bank deposits class. Thus, our recommendation will focus on the outstanding class which is the Unclaimed Dividend Funds and we suggest as follows:
i. There must be an understanding that unclaimed dividends (like other unclaimed funds) is a global phenomenon.

ii. The Multiple Subscription Initiative by the capital market community should be sustained to reduce unclaimed shares which will ultimately further reduce unclaimed dividends.
iii. The SEC should insist that every new entrant to the capital market must be fully known and provide all that is required for electronic payment.

iv. ICMR should establish a Special Depository licensed by the SEC with the responsibility to locate owners of unclaimed accounts or their next of Kin and encourage them to activate their claim, take up insurance cover over the funds, and manage the funds which shall remain with the Registrars.

This will become a Nigerian model which may be adopted by other countries. ICMR (The special Depository), will have a role in addressing the issue of Unclaimed Dividend Funds by collecting data from Registrars, building and maintaining infrastructure frameworks that will help reconnect members with their unclaimed funds so as to solve, or lessen the issue of unclaimed dividend/funds on a continuous basis.

v. Continuation of public enlightenment by the SEC, the special Depository and other stakeholders.
vi. Finally, banks should encourage and assist their customers to embrace the eDMMS.

Eborah is the Registrar/CEO, Institute of Capital Market Registrars