Raiders of the lost pensions
An alleged NIS 15 billion of pension funds are currently unclaimed. An increasing number of companies will - for a fee - track down pensions, but the truth is that the search is surprisingly simple.
It's Israel's 64th birthday. Only three more years until retirement, and one can't help but ponder the day after, when a whole lifetime of work will end and with it the routine of getting a pay slip at the start of the month.
This day always entails a shock. Not only due to thoughts about the time that has passed and the free time lying ahead, but also because of thoughts about the future quality of life and ability to sustain a decent existence in light of the expected drop in income and the reliance on a pension.
At this stage in life, every shekel is important and must not get lost. But in the Israel of 2012, there is an enormous sum of money - said to be about NIS 15 billion - that has "got lost" from hundreds and thousands of savers. This money is still lying unclaimed in the provident funds (kupot gemel ) and the pension funds.
How does so much money get lost? There are many and varied reasons. This could happen when a person dies and his family does not have full information about his assets. It happens when people change their address or their place of work and do not pass the new information to the insurance companies or investment houses. And it also occurs thanks to the structure of the pension market in Israel, which has changed dramatically in the past decade.
In the context of these changes, the various funds that were held in the past by the banks have been transferred into the hands of insurance companies or investment houses. There have also been many mergers in the market, often accompanied by changes in fund names that have been purchased or in the computer systems. This process has also caused many problems for the data banks the companies keep on their customers.
Exactly two years ago, Oded Sarig, the commissioner of capital markets, insurance and savings in the Finance Ministry, was the guest of journalists Orly Vilnai and Guy Meroz on their television program "Orly and Guy Ltd." The show dealt with lost pension monies in Israel and exposed the dimensions of the phenomenon for the first time.
Vilnai and Meroz asked Sarig: "When will there be an Internet database in Israel that will enable everyone to locate the list of the companies that are managing his or his relatives' pension monies, as there are in countries abroad?"
Sarig refused to give a direct answer. "Deadlines," he said, "are only in productions and not in the reality."
Two years have passed since then. This week, the commissioner's office informed Haaretz that it is "acting to establish a central Internet search engine as soon as 2013, which will enable the general public to find out easily, quickly and for free where the monies are to which he is entitled."
However, it turns out that, even when Sarig does commit to a deadline, he does not always succeed in abiding by it. Indeed, the treasury only recently announced the postponement of a new smart model for managing pension monies, which was supposed to have adjusted the risks of managing savings to the age of the saver. Even before that, the ministry postponed, twice, the date for giving compensation to members of funds whose monies were not transferred to them despite their request. It also postponed a move aimed at making the industry more efficient.
During the two years that have elapsed since the program was broadcast, innumerable companies have sprung up that offer to find lost money for their clients - for 15 to 20 percent of that money, plus VAT. This is a market that has a tremendous potential for profits, totaling more than NIS 2.5 billion. Those same entrepreneurs know that as long as the commissioner of capital markets, insurance and savings tarries in the establishment of the online database, they will be able to benefit from chunks of this lost money. This is because the public, which for the most part has no financial education, would prefer to share the lost money the company will locate for them rather than undertake the task of finding it themselves. The incentive increases considerably when it becomes clear that if the money is not found, there is no fee to be paid.
Forty-year-old entrepreneur Ehud (Udi ) Oren, the owner of an insurance agency, drew his inspiration from Orly and Guy's program and set up a small company called Capital - The Israeli Company for Locating Monies. Within just 18 months, Capital - by means of prominent investors and a well-oiled marketing machine - has become the largest in its field. During this time the company has been contacted by many thousands of clients, who have agreed to pay it 17.5 percent (including VAT ) if it finds their lost money for them.
The expected establishment of the Internet database is no threat to the entrepreneurs. As evidence of this, Oren had no trouble finding prominent investors for his new company. Within a short time he brought in businessman Noam Lanir, who made his fortune from gambling businesses on the Internet and currently owns the Internet translation and content company Babylon (presently worth NIS 1 billion ).
Lanir bought 25 percent of Capital, and his business partner, Oron Zell, bought another 30 percent. Though Lanir and Zell have no experience in the financial field, they believed they could provide added value to the company with the help of their expertise in the area of marketing on the Internet. Capital has chosen to keep its famous shareholders in the shade and they, for their part, have preferred to remain under the radar. For the role of the face of the company, Oren cast two well-known figures: veteran journalist Gideon Reicher, who became known for his struggles to help consumers; and a former commissioner of capital markets, insurance and savings, Tzipi Samet, a well-known expert in the area of pension savings. Reicher is starring in the company's radio campaign; in a video on its website; and on the recorded answer message to people who phone the company.
The text is constant: "Hello. This is Gideon Reicher. A-maz-ing. Did you know that almost all of us and also our parents have a lot of money that has simply gone missing? Tens of thousands of shekels that have been forgotten in provident funds and the pension funds and are crying out, 'Save us!' There is a very good chance that tens of thousands of shekels are waiting there for you as well. Capital will find this money for you. The examination is free and without any obligation. Capital is simple and easy."
"Every time Reicher is broadcast on the radio," Oren says, "the switchboard at Capital gets overloaded. This can amount to hundreds of calls a day."
Reicher has also been appointed the company's ombudsman. However, in reality he only plays a "representative" role. One of the employees at Capital has told Haaretz that Reicher "doesn't sit here and hardly ever comes in. Nor does he speak with clients."
Oren stresses that "clients who have a problem with our service can contact Reicher," and admits that thus far only one client has applied to him. Samet, who was appointed chair of the company, does not come in to the Capital offices, either. She does appear on the company's website alongside Reicher, but she is not involved in Capital's day-to-day activity. According to Oren, "It was Samet who brought the company to meetings with organizations and created working interfaces. We meet every so often at board meetings."
People don't forget
In Israel there are no official figures on the exact extent of lost money. In 2005 the Knesset Research and Information Center published a report in which it was estimated at about NIS 15 billion. A pension adviser who was mentioned in the report estimated that in the pension funds there are a quarter of a million owners of frozen rights - that is, one out of every 27 people in Israel owns money lost in a pension fund.
A former executive at one of the large insurance companies, who is very familiar with the subject, rejects these estimates. According to him, the extent of the lost money is NIS 40 to 80 billion. At the Finance Ministry, they do not agree with his estimates. According to a senior official at the ministry, "People don't usually forget or lose a large sum of money, and the sums for which the connection with their owners has been lost are small - a few tens of thousands of shekels." At the ministry they prefer to talk about ranges of between NIS 5 billion to 15 billion.
TheMarker insurance reporter Noam Bar explained why companies are being tardy in the search for the beneficiaries: "From the perspective of the insurance companies it's a double win," he wrote recently. "They benefit from every minute the money stays with them because of the management fees, and also they do not need to fear that the money will be pulled out or transferred to a competitor. Worse than that, often they exploit the severing of the relationship with the savings owners and increase the management fees in those accounts to the maximum allowed by law. With respect to the bulk of the lost provident fund monies that are located, it turns out that the management fees charged have amounted to 1.99 percent - the maximal possible ceiling - while the average management fees in the industry stood at 0.87 percent at the end of 2010."
About a week ago, Lily Levy - whose late mother was insured at Psagot - filed a class action for NIS 3.8 billion against the investment house. Levy claimed that "instead of attempting to locate beneficiaries and trying to inform them concerning the moneys of the fund member who has died, as it is supposed to, Psagot does exactly the opposite and intentionally and actively acts to cut off contact, erects obstacles and makes it difficult for people who contact them to get basic information about the deceased fund member. Psagot has chosen to stop the sending of reports entirely, has increased management fees clandestinely and has raised them in violation of the law."
Levy says that only seven years after her mother passed away did she learn by chance that her mother had an account with the Gadish provident fund, which was sold to Psagot in 2008. In this suit she detailed her many attempts to confirm with Psagot the existence of the fund. When she finally located the account, it emerged that Psagot had for a long time been charging management fees of 1.6 percent.
A computer and a stamp
So what exactly is it that companies like Capital do? Well, they don't do anything that can't be done at home with a computer, telephone, and some envelopes and stamps. In the first stage they find out who the saver's employers were. This entails filling out an identity card number on the National Insurance Institute website, which sends a list of the employers over the years to your home address (according to the Population Registry ). In the second phase, once the list of employers has been received, the companies can check with them where they managed the money, something that can be done on the phone. And then they contact the relevant bodies by phone or in writing and check if there are monies managed there that belong to the person with the given ID number.
Sometimes, the process is even simpler. In Israel there are about 80 organizations that manage public monies in provident funds or pension funds. The locating companies send out dozens of letters, usually by e-mail, in which the content is identical and only the addressee changes, checking whether the lost money is managed at a given address. That's it. That's the whole thing. For the locating companies this is a gold mine. Usually they maintain a small staff; sometimes they don't even have offices, and operate only through a website or an external customer service center. In addition to the tremendous profit they make from finding the money, they also profit through another channel: after finding the money, they will offer the client an alternative insurance plan. If the client accepts, they will also benefit from some of the management fees in the new plan.
Oren does not think that charging 15 percent of the lost pension monies if they are found is excessive. "Usually," he says, "the lost sums are small - several thousand shekels per client - and then he pays only a few hundred shekels altogether. It's like winning the lottery. There, too, you pay income tax."
But Oren is forgetting one important thing: This is not lottery money or some other chance windfall. This is money that was obtained through hard work, and there is no reason for the public to share it with anyone apart from those charging management fees.
After being contacted for this article, Noam Lanir - one of the shareholders in Capital - has informed Haaretz: "I have looked into the field and I have decided to pull out of it. This is an area that should be taken care of by the state, which calculates everything. The solution is not one company or another."
Gideon Reicher, however, commented: "I very much believe in the company and therefore I have lended a hand to its activities. Of course I receive compensation, but not without believing in the rightness of the body I am advertising. I do not talk with clients - but when there is a complaint, it is possible to contact me."
Tzipi Samet added: "I do not sit at the company, nor am I involved in its activity, because there is no need. I was a partner to planning the company, in conversations with regulators and institutional elements. There are efficient sites today that make it possible to do a short search on the computer and get answers."
Psagot has responded: "This case [Levy's class action] is not about lost monies. Bank Hapoalim informed the deceased's family about the presence of money in the provident fund and the plaintiff was listed as a beneficiary in the fund when it was transferred to Psagot. The plaintiff has claimed that she was not informed of the increase in the management fees and therefore she has received a full reimbursement. The commissioner's examination has found there is no scope for intervention in the matter and the plaintiff has even chosen to continue to manage the fund at Psagot.
"Psagot has fulfilled all the legal requirements and we are examining the utilization of our legal rights vis-a-vis the attorneys who have filed the suit."