Employers pay arrear retirement contributions after shaming

Laura du Preez | 15 April 2024

Laura du Preez has been writing about personal finance topics for more than 20 years, including eight years as personal finance editor for two leading media houses.

Naming and shaming employers who have not paid retirement fund contributions over into the retirement fund set up for their employees has been a “good move” that made several employers pay attention to their debt, the Financial Sector Conduct Authority (FSCA) says.

Astrid Ludin, the deputy commissioner at the FSCA told last week’s Pension Lawyers Association conference in Cape Town that more funds are reporting unpaid contributions and more employers are responding when contacted about what amounts to some R7 billion in unpaid contributions.

In late March the FSCA published its latest list of employers with outstanding contributions up to July last year. In documents with its circular on arrear contributions, it noted that since the first list was published in August last year, close to 90 employers had responded by entering into arrangements to settle what they owed.

Around nine have paid their outstanding contributions, the FSCA’s list records.

If your employer fails to pay its contributions or contributions deducted from your salary or wages over to your fund, your retirement savings will be reduced by the outstanding amounts and group life cover may lapse if premiums cannot be paid.

The list of errant employers still runs to around 4000 employers and includes many security companies that have not paid contributions to the Private Sector Security Provident Fund for their employees as agreed. 

Other employers on the list include municipalities and furniture companies.

In some cases employers have failed to pay their portion of the contributions. In other cases, they have also deducted retirement fund contributions from employees’ salaries and unlawfully used this money for their own purposes.


Be responsible

Ludin said the FSCA had done some analysis of the billions owed to retirement funds as this is a very significant amount for members.

“We think employers need to be responsible - if they can’t pay contributions they should not offer the benefit,” she said.

Ludin said the regulator had therefore appointed a team that will contact employers with contribution debt and help them understand the options. If they cannot pay, they need to be transparent with employees so employees can make plans, she said.


Criminal matters

The FSCA’s list of employers with arrear contributions shows contributions outstanding for anything between five months and 21 years as at the end of July last year.

When contributions are outstanding for three months, the fund trustees are obliged, in terms of the Pension Funds Act, to lodge a criminal case with the South African Police Service and hold the responsible person at the employer liable. The responsible person or even the full board of directors can be fined up to R10 million or imprisoned for up to 10 years.  Read more: What happens if an employer fails to pay my retirement fund contributions to my fund?

No directors have been fined or imprisoned yet, but some municipalities’ property has been attached by retirement funds to repay the outstanding contributions.


Claim in time

Members whose employers do not pay have recourse to the Pension Funds Adjudicator who can order employers to pay a member the benefits they are due and this order can be executed by a sheriff of the court.

However, Muvhango Lukhaimane, the adjudicator, told the conference that funds are failing to let members know timeously when employers do not pay. Members often only find out when they claim on a funeral policy, group life or disability policy, or when they withdraw from the fund or retire.

Lukhaimane said members need to know about the outstanding contributions in time so that they do not lose out because of prescription.

Claims not made within three years of an employer failing to pay contributions prescribe, and Lukhaimane said more than 50 percent of awards her office made for the complaints about arrear contributions were compromised by the fact that part of the claim had prescribed. Prescription has affected both individual members and funds acting on behalf of members.

The FSCA has published a conduct standard that obliges trustees of a fund to report the failure to pay contributions within certain timelines. In cases where the failure to pay is considered material, trustees are obliged to notify members.  


Interest charges a problem

The Pension Funds Act also provides for employers to be charged late payment interest when contributions are not paid on time, but there are disagreements about how this interest should be calculated.

Ludin said the FSCA had issued a conduct standard suggesting that the interest is applicable from the eighth day after the end of the month in which the contributions are due. This interpretation of the law was based on previous regulation and industry practice that evolved from that, she said.

Many people, including the Pension Funds Adjudicator, believe it should be levied from the first day of the month after that for which it was due.

Ludin said the FSCA was therefore obtaining legal advice on the best interpretation.

Lukhaimane said in the meantime the adjudicator would leave the interest calculation out of any rulings where the member is the complainant so as not to compromise any members getting the benefits they were due.

If her rulings include an order to an employer to pay interest to the fund, this could result in the determination being challenged and delays in members getting their benefits, which would be unfair as the late payment interest is payable to the fund and not the member.


Contributions not allocated

Ludin told the PLA conference that some contributions have been paid to the relevant retirement funds but have not been allocated to members’ benefits. This may occur when an employer’s contribution schedules are outstanding or an administrator fails to do the reconciliation.

The Private Sector Security Provident Fund was owed R207 million in contributions by different employers that participate in this umbrella fund and R208 million of unallocated contributions.

The adjudicator told the PLA conference that the failure to allocate contributions timeously results in members losing out on funeral and disability benefits as the premiums would not be up to date with the insurer.