The Financial Sector Conduct Authority (FSCA) is exploring ways to ensure defaulting employers pay outstanding contributions to pension funds amounting to more than R5bn.
Thousands of employers have failed to make their obligatory contributions, a practice particularly prevalent among municipalities and in the private security industry.
FSCA head of fund governance and trustee conduct in the retirement fund division Zareena Camroodian said the authority met the National Economic Development and Labour Council (Nedlac) and planned to meet the National Prosecuting Authority (NPA) this week.
The FSCA was also working with the department of employment and labour about possible amendments to the Basic Conditions of Employment Act (BCEA) to deal with the payment of arrear pension fund contributions by employers.
“At Nedlac, we are trying to get all the social partners and relevant parties in the room to collectively try to resolve the issue of arrear contributions. A dashboard will be developed with various metrics to track the progress made during these sessions,” Camroodian said.
The Pension Funds Act makes it a criminal offence not to pay pension fund contributions, liable on conviction to a R10m fine or 10 years imprisonment. Camroodian said the challenge was a number of police stations did not understand that nonpayment of contributions constituted a criminal offence.
“We are engaging the NPA so that they may take on a number of cases so that a loud and clear message is sent out that delinquent employers will not be tolerated,” Camroodian said.
It is incumbent on retirement fund boards to institute legal action to recover outstanding contributions and to report contraventions to the SAPS, but they have largely failed to do so.
Cosatu parliamentary co-ordinator Matthew Parks said Nedlac met last week to discuss arrear pension fund contributions and the government, business and labour decided to set up a task team to determine how much was owed and by whom and to begin engagements with the defaulting employers, who Parks said were mainly in three sectors — private security, cleaning and municipalities.
The department of employment and labour had not responded to questions about the proposed amendments to the BCEA by the time of publication but finance minister Enoch Godongwana provided an indication of one of the matters being considered in a written reply to a question in parliament about the nonpayment of pension fund contributions in the private security industry.
“National Treasury is engaging with the department of employment and labour on the noncompliance with the Pension Funds Act provisions by the private sector security companies to remit retirement fund contributions to the Private Security Sector Provident Fund,” the minister said.
“The department is working on enhancing the enforcement of claims related to benefits provided by retirement funds under section 34A of the Basic Conditions of Employment Act, by giving powers to the labour court, Commission for Conciliation, Mediation and Arbitration (CCMA) or bargaining council to make an order or award towards the payment of outstanding amounts to the fund on behalf of the employees.”
Parks said Cosatu had proposed that the act be tightened to make it binding on employers to pay the pension fund deductions, including interest. He added that legal confirmation was needed to do this.
Cosatu had warned government and business that if the pension problem was not resolved soon it would erupt in violence and was frustrated by the lack of action, Parks said.
But he pointed out that legislative amendments would take time to get into the statute books considering the need for public consultation and parliamentary processes and stressed this would not deal with the present crisis of nonpayment.
The issue became pressing after the implementation of the two-pot system of retirement, which allows employees to withdraw a portion from their retirement funds. Many workers wishing to withdraw money found that there was nothing or little in their fund.
According to Parks, who participates in Nedlac meetings on behalf of Cosatu, the department also wanted to issue a directive empowering labour inspectors to check on compliance with the payment of pension fund contributions but needed to get legal advice on whether this was possible.
“Apparently there was a ministerial directive which does not allow labour inspectors to inspect pension fund contribution compliance for the reason that compliance does not fall under the department of employment and labour. The department is considering repealing that directive,” Parks said.
Approval was also awaited, he said, for the department to employ 20,000 labour inspectors over the medium-term expenditure framework funded by the Unemployment Insurance Fund.
The National Treasury said in reply to a question by Business Day that Godongwana had written to the top 20 municipalities in arrears on their pension fund obligations urging them “to take appropriate measures against those delegated with the responsibility of ensuring the timely payment of statutory contributions”.
“The correspondence to municipal managers was to remind them of their fiduciary responsibilities under the Municipal Finance Management Act and to request them to put measures in place, including the development and approval of a payment plan in order to address the outstanding amounts.”
Last year the FSCA published the names of 2,330 employers that contravened the Pension Funds Act, which prescribes the manner in which the payment of contributions and other benefits should be made to a retirement fund.
The FSCA received a total of 7,770 employers affecting about 310,000 employees that had contravened Section 13a of the act by end-December 2023 and decided to publish 2,330 that fell within the threshold.
FSCA deputy commissioner Astrid Ludin told members of parliament’s finance committee last year that 149 (58%) of the 257 municipalities in the country were in arrears of R1.4bn (69% in Free State) with their pension fund contributions.
She said 2,379 employers in the private security industry were in arrears of about R305m to this fund, which has an asset value of R12.7bn and about 266,000 active members.
National Treasury chief director of financial sector development Alvinah Thela told MPs that the Treasury would look at giving the FSCA the powers to directly enforce the act on employers as well as the mandate of the Pension Funds Adjudicator.
Would you like to comment on this article?
Sign up (it's quick and free) or sign in now.
Please read our Comment Policy before commenting.