New measures to stop employers from failing to pay retirement fund contributions

Laura du Preez | 11 May 2023

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. 

Employers who fail to pay retirement fund contributions as agreed will find it increasingly difficult to do so without employees and the public at large knowing about it.

New measures have been put in place to oblige funds to inform members directly when contributions have not been paid as required by the fund rules. In addition, the regulator plans to name and shame offending employers.

Members have until recently often been oblivious to the fact that employers have failed to pay contributions deducted from their pay into their fund, or that this amounts to theft.

Typically members have only found out that their own or their employer’s contributions have not been paid when they claimed their benefits on resignation, disability or retirement. This has resulted in more than 3000 complaints to the Pension Funds Adjudicator annually. Read about the latest case: Employer short-paying retirement fund ordered to make good

New standard

A new conduct standard under the Financial Sector Regulation Act that became effective in February this year, obliges employers to provide funds with the contact details of all employees who become members of a fund.

This will enable funds to contact members directly. Funds have long been required to notify members when employers failed to pay contributions, but employer-sponsored funds often struggled to do so without direct contact with employee members.    

The conduct standard also introduces stricter deadlines for:

  • Administrators and principal officers to report the failure to pay contributions to the fund;
  • The fund to report the failure to pay contributions to members, the regulator and the South African Police.

Naming and shaming

In an attempt to prevent employers from using members’ contributions for their own ends, the Financial Sector Conduct Authority (FSCA), which regulates retirement funds, also plans to name and shame employers who do not pay, or who short-pay, contributions.

Olano Makhubela, executive for retirement funds at the FSCA, says he expects this will happen within weeks as soon as the regulator has verified the list of offenders.

Need to inform members directly

Muvhango Lukhaimane, the Pension Funds Adjudicator, says in many cases that come before her office, members have not been receiving their benefit statements and have therefore not been able to see that contributions were not paid or were short-paid.

In these cases, the fund has forwarded members’ benefit statements to the employer, but the employer has not given members their statements as this will make them aware that contributions are not being paid, Lukhaimane told the recent Pension Lawyers Association conference.

The contact detail and reporting obligations in the new conduct standard should address this and ensure that members are effectively informed within two months of any failure to pay contributions.

Criminal offence

The Pension Funds Act obliges employers to pay contributions to the fund by the 7th of the month following the month for which they are due. The Act also makes employers who fail to pay contributions as set out in the rules of the fund by this date, guilty of a criminal offence.

The new conduct standard obliges trustees to determine the name of the person at any employer who is to be held personally liable for the unpaid contributions. Employers will be required to provide this information when setting up or joining a fund and each time they submit a contribution statement.

This person can be fined R10 million or sent to prison for 10 years for not ensuring contributions are paid. If an employer fails to say who the responsible person is, the entire board of directors can be held liable, Leanne van Wyk, a director at ICTS Legal Services, told a recent Pension Lawyers Association webinar.

The new standard makes it clear that if contributions remain outstanding for three months after the due date, the trustees must report the matter to the South African Police.  Read more: What happens if an employer fails to pay my retirement fund contributions to my fund?

Attaching property

The new standard obliges trustees to report outstanding contributions and contribution statements to the FSCA within 30 days of the board being notified.

The trustees are also obliged in that report to outline what action they have taken - this includes laying criminal charges or attempting to recover the money.

As there has been little progress on prosecuting employers, many funds are outsourcing the collection of arrear contributions to attorneys so that employers’ property can be attached.

The standard introduces some checks and balances on these arrangements to ensure there are no conflicts of interest, that attorneys’ fees are reasonable and commensurate with the service, and the attorneys hand over the money they collect to the fund within seven days, Nondumiso Ntshangase, senior legal adviser at Liberty Group, told the Pension Lawyers Association webinar.

Attorneys can issue letters of demand and summonses for arrear contributions. If this does not bring results, they can apply to a court for a default judgment against an employer, Carley Sauls, associate at Harold Gie Attorneys in Cape Town, told the same webinar.

Adjudicator orders enforceable

Funds and individual members can also complain to the adjudicator at no cost and the adjudicator can issue a determination ordering an employer to pay the outstanding contributions. If the adjudicator makes an order, it has the same status as a court order and can be enforced in the same manner as a court order. See: Where to complain

If your employer has stopped paying contributions, it is likely it has also stopped paying any group life and disability premiums that it has agreed to pay.