Pension fund contributions and regulations

Employers typically deduct monthly pension contributions from their employees’ salaries, as this requirement is often specified in employment contracts.

The Financial Sector Conduct Authority (FSCA) has recently released a list of employers who have failed to transfer the deducted pension contributions to the respective pension funds. This list is available on the FSCA’s website at: www.fsca.co.za.

According to s 13A(3)(a)(i) – (ii) of the Pension Funds Act 24 of 1956 (PFA), employers must ensure that employees’ pension contributions are paid to the respective pension fund within seven days after the end of the relevant month, or the employer must ensure that employees’ contributions are forwarded to the pension fund in such a manner as to have the fund receive the contribution not later than seven days after the end of that month. Pension funds are entitled to interest in respect of contributions that were not received within the prescribed time as outlined in s 13A(7) of the PFA.

If an employer fails to pay the contributions, the fund’s board members are required under s 13A(10) of the PFA to report this non-compliance in the prescribed manner. Reporting such failures is crucial as it directly impacts employees’ pension benefits. Board members who neglect to report non-compliance can face fines of up to R 10 million or imprisonment not exceeding ten years. This highlights the importance of their responsibilities.

Pension fund contributions are also governed by the Prescription Act 68 of 1969. This was held in the case of Private Security Sector Provident Fund v Isidingo Security Services (t/a Unitrade (Pty) Ltd) (KZP) (unreported case no 3048/2021P, 14-6-2022) (Bezuidenhout J). Here, an employer acknowledged debt for overdue contributions but did not pay the interest for late payments as required by s 13A(7) of the PFA. When the pension fund brought legal action for the interest after three years, the court ruled the debt had prescribed, thus barring the pension fund from enforcing the claim for interest owed.

This case underscores the importance of timely legal action against employers who default on pension fund contributions. Pension fund contributions are considered debts that prescribe after three years.

The PFA offers a remedy for employees facing issues with non-payment of contributions. Employees can report delinquent employers to the Pension Funds Adjudicator. It is advisable for employees to regularly verify with their pension funds that their contributions are being paid by their employers, which allows them to address any issues promptly.

Nkhensani Dhumazi LLB (UL) LLM (SU) is a Regulatory Compliance Specialist in KwaZulu-Natal.

This article was first published in De Rebus in 2024 (October) DR 4.