A shocking number of employers still deduct pension fund contributions from employees, but do not pay it over to pension funds.
Employers who deduct pension fund contributions from employees but fail to pay it over to pension funds are committing a “serious crime against humanity”, according to the Standing Committee for Finance in Parliament.
The Pension Funds Adjudicator and the Financial Sector Conduct Authority (FSCA) briefed the committee on the implementation of the two-pot retirement system and the failure of employers to pay over pension fund contributions.
Dr Joe Maswanganyi, chairperson of the committee, said parliament received many complaints about pension fund contributions in arrears and called it a serious crime against humanity.
Employers’ arrear payments amount to R5.2 billion, excluding umbrella funds and late payment interest, with 7 770 employers who are in arrears with payments to 51 pension funds, affecting more than 300 000 employees.
The spotlight shifted to employers who failed to pay over contributions when employees wanted to withdraw from the savings pot under the two-pot retirement system and found that there was no money available.
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Problem with pension fund contribution arrears worse since Covid
Astid Luden, the deputy commissioner of the FSCA, told MPs that the failure to pay contributions started in the mid-2000s, but became worse during the Covid-pandemic. She said the FSCA supervises 872 active funds, which is 60% of the pension funds with assets to the value of R5.5 trillion. A total of 155 000 employers contribute to these funds supervised by the FSCA.
These funds have 15.4 million members of which 9.6 million are active, which means that they still contribute to their pension funds. Although the amount in arrears only makes up 0.2% of pension fund assets of over R3 trillion, Luden pointed out that it has a huge impact on pension fund members.
She said there were few defaulting employers who failed to contribute to umbrella funds, as they are simply excluded when they fail to pay.
However, it is a major problem in bargaining council pension funds. Luden says these funds must take reasonable steps to get employers to pay and if the employers still do not pay, institute charges with the police who must investigate and escalate the charges to the NPA for prosecution.
The FSCA published a list with the names of employers who failed to pay over contributions for the past two years and Luden says since the first publication, 1 000 employers rectified their payments.
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Most pension fund contribution arrears in security and municipalities
The main problem areas are the private security industry where 2 379 employers are in arrears and municipalities, where 149 local authorities are in arrears. Municipalities in the Free State are the main culprits, with 69% of the R1.4 billion in arrears.
“Municipalities are organisations that receive revenue and can plan how to spend it. Workers must not subsidise service delivery. If you cannot afford your workers’ pension benefit, you must stop deducting it from their salaries and tell them about it.”
Luden said the FSCA will continue to publish the names of employers who fail to pay over pension fund contributions because it works and will continue to monitor the situation. The FSCA also engaged with the police and the NPA and Luden said that Sars and the Auditor General can also play a part in getting employers to pay up.
The private security sector has arrears payments of R305 million and it mainly affects employees in Gauteng, Kwa-Zulu Natal and the Eastern Cape.
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Sufficient legislation to protect members, but must be enforced
Muvhango Lukhaimane, the pension funds adjudicator, said the legislation provides sufficient protection against employers not paying pension fund contributions to pension funds in the Pension Funds Act, but that the implementation of compliance and enforcement are lacking.
She explained that failure to pay over contributions means that pension fund members are unable to receive their funeral and disability benefits because the insurers responsible will not honour the claims if the employers do not pay the contributions.
Pension fund boards are responsible for ensuring that the contributions are paid. Lukhaimane explained that there are three different kinds of pension funds:
- Umbrella funds are owned by life insurers and administer small funds. When a fund’s contributions are not paid over, the administrator will send the fund a letter but will not file a complaint and simply exclude the fund. Employees then only find out their contributions were not paid when they want to claim, although the employer still deducted contributions.
- Bargaining council funds, such as the motor industry fund. Lukhaimane says these funds really try their best to ensure contributions are paid and it is rarely found on the list of defaulting employers. It follows specific internal processes and can take matters all the way to the Labour Court in terms of the Labour Relations Act to ensure that employers pay up.
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Complaints about two-pot retirement system
Luden says pension funds must report weekly to the FSCA and about 60% of complaints were made in September just after the two-pot retirement system was implemented. Only about 10% of these complaints were not resolved. More complaints are expected when the next round of withdrawals can be made from 1 March when the new financial year starts.
Members complained about delays in payments, the amounts available, the amount of tax and other deductions and funds’ failure to pay out.
She said 40% of eligible members withdrew from their saving pots under the two-pot retirement system, with 93% of them earning less than R550 000 per year. They have fund credits of between R100 000 and R250 000, while 76% of them are between the ages of 30 and 50. They are mainly from the retail sector.
