SECTION 13A OF THE PFA: EMPLOYER’S FAILURE TO PAY ...

1 68 SECTION 13A OF THE PFA: EMPLOYER S FAILURE TO PAY EMPLOYEE S CONTRIBUTION TO THE EMPLOYEE S pension fund Motseotsile Clement Marumoagae Senior Lecturer & Supervisor in the Community Law Center, North West University (Mafikeng Campus) 1 INTRODUCTION Contributions to retirement funds are typically divided into two categories, being the members or employees contributions which are deducted from members salary and employers contributions which are usually contributed by the employer as a fringe benefit. The rules of the fund most often make provision for the employer to pay current contributions for each of the employees employed by that employer to the pension fund to which the employer is participating until the retirement date of such The employment contract would also determine whether the employer can deduct amounts from the employee s salary to pay over to the pension fund in addition to the benefits granted by the employer to the employees which are paid over to the pension fund .

2 For some employers, contributions to pension funds are benefits that employee-members are contractually entitled to as part of their salary package and/or employment contract. In terms of SECTION 13A of the pension Funds Act 24 of 1956 (the PFA) employers must pay contributions to the pension funds to which they are participating as provided for in the rules of those funds. These contributions are amounts which the rules of pension funds empower employers to deduct from their employees salaries. In order to ensure monitoring and compliance with SECTION 13A of the PFA, the principal officer of the pension fund or any authorised person thereto by the board of trustees has a duty to report to the board of that fund on the non-payment of contributions by any employer.

3 In South Africa, some employers have been found to have deducted amounts from their employees salaries but failed to contribute such amounts to the relevant pension funds, more * LLB LLM (Wits ) LLM (NWU) Diploma in Insolvency Law and Practice (UP). 1 See generally Part four of the Revised Rules of the Central Provident fund available at: +products/retirement+funds/ fund +rules (accessed 05 July 2014). SPECULUM JURIS VOLUME 29 PART 1 2015 69 particularly in the private security The issue of non-payment of pension funds contributions to pension funds has not yet received academic attention in South Africa.

4 As such, in this paper in addition to the determinations of the pension Funds Adjudicator and court decisions, will also draw on some of the newspaper reports which have highlighted this problem. 3 The aim of this paper is to highlight the problem of employer s non-payment of employees contributions to pension funds and discuss how the law seeks to address this issue. This will be done by evaluating the role of SECTION 13A of the PFA as well as Regulation 33 of the PFA in protecting employees who might be affected by their employers FAILURE to pay their contributions to their retirement funds. I will reflect on the role of the office of the pension Funds Adjudicator as well as the Financial Services Board (FSB) when faced with complaints of non-payment of retirement fund contributions.

5 I will also discuss the impact of the amendments to the PFA by the Financial Services Laws General Amendment Act 45 of 2013 (the FSLGAA) which has reintroduced criminal sanction against employers who fail to make employees contributions to retirement funds. 2 EMPLOYERS NON-PAYMENT OF pension fund CONTRIBUTIONS AND THE NEED TO INFORM MEMBERS Employees who are members of pension funds which employers are entitled to deduct contributions directly from their salaries have a right to have such amounts paid over to such funds timeously in order not to negatively affect their retirement benefits. Employees should be protected from the conduct of scrupulous employers who fail to pay contributions which they should pay to their employees pension funds.

6 pension fund schemes are amongst the most important social security initiatives in the South African social structure because they determine the living standard of millions of South Africans and play a decisive role in the economy. pension money forms the cornerstone of most people s retirement security. When a person retires from active employment, he or she still wants to maintain more or less the 2 See Gafane v The Orion Money Purchase pension fund (SA) PFA/GA/761/99/NJ, Sekele v Orion Money Purchase pension fund PFA/NP/69/99/NJ, Motlhamme v The Private Security Sector Provident fund PFA/GP/0004927/2013/TKM, and IBM South Africa pension fund v IBM South Africa (Pty) Ltd PFA/GA/357/01/LS.

7 3 Zungu Security guards robbed of millions in pensions (15 April 2013) Sowetan available at: -pensions (accessed 10 October 2013). See also Du Preez Employers reneging on pension payments (17 March 2013) IOL available at #.Uxx4Z_mSyz (accessed 10 October 2013). SECTION 13A OF THE PFA: EMPLOYER S FAILURE TO PAY EMPLOYEES CONTRIBUTION TO THE EMPLOYEE S pension fund same standard of living that existed during his or her working life .4 pension fund money can also be crucial for the survival of the member when he or she has been retrenched. South Africa currently has a sophisticated, tax-incentivised private pension and provident sector, which also provides a package of group risk benefits to its members, primarily including salary-related life and disability cover.

8 5 pension fund schemes create an environment where individuals accumulate savings over their working life so as to be able to finance their subsistence needs on retirement, for them to retire comfortably and thus not be dependent on the state. It is concerning that there have been reports in the media that some cash-strapped employers are keeping their employees retirement deductions for themselves and not paying over the money deducted to relevant pension Employers who participate in pension funds have found themselves in trouble for failing to pay the necessary contributions to such funds on behalf of their The Adjudicator also regularly receives complaints regarding the employers periodic FAILURE to make contributions to retirement The non-payment of retirement fund contributions is an ongoing problem faced by thousands of retirement fund members.

9 9 It has been reported that in 2013, of all the complaints received by the Adjudicator 3800 of such complaints related to members of pension funds or their dependants either being paid lower benefits or not being paid their withdrawal benefits or death benefits due to non-payment of contributions to the retirement Some employees receive their salary slips on a monthly basis and in most instances those slips reflect entries of pension fund deductions which are made by employers, thus employees have no reason to suspect that their employer might not be paying their contributions to their pension funds. This leads to 4 Manamela Deductions from pension Benefits for Purposes of SECTION 37D of the pension Funds Act 24 of 1956: Employers Forced to Tow the Line 2007 (19) SA Merc LJ 189 - 204 198.

10 5 Hendrie et al Risk benefit provision through provident and pension funds ( 2007 ) available at (accessed 15 October 2013). 6 Fisher-French When employers don't pay retirement funds (31 July 2009) Mail and Guardian available at > (accessed 15 October 2013). 7 See generally Orion Money Purchase pension fund (SA) v pension Funds Adjudicator and Others[2002] 9 BPLR 3830 (C)/ [2002] ZAWCHC 38. 8 See among others Gafane v The Orion Money Purchase pension fund (SA) PFA/GA/761/99/NJ, Sekele v Orion Money Purchase pension fund & Another PFA/NP/69/99/NJ, Motlhamme v The Private Security Sector Provident fund PFA/GP/0004927/2013/TKM, and IBM South Africa pension fund v IBM South Africa (Pty) Ltd PFA/GA/357/01/LS.