The pension funds adjudicator, advocate Muvhango Lukhaimane, said about 80% of the complaints that come to it relate to some employers not paying retirement fund contributions from employees to fund management firms.
As applications to withdraw from retirement savings via the two-pot system keep streaming in, regulators are keeping an eye out for truant employers.
The pension funds adjudicator’s office fielded 9,719 complaints in 2023/24, with 6,890 of those concerning nonpayment of retirement fund contributions by employers. Lukhaimane said the majority of the complaints , an average of 84%, related to withdrawal of benefits and noncompliance with section 13A of the Pension Funds Act, which pertains to nonpayment of contributions by employers.
“This is concerning, as it not only affects the member’s retirement savings, but [also] other risk benefits that are dependent on [the] settlement of premiums by funds to third parties, such as death benefits, disability benefits and funeral benefits, leaving members [even more] vulnerable at times of great need.”
The annual report said there was regular noncompliance in specific sectors. In particular, the Private Security Sector Provident Fund (PSSPF), a compulsory fund in the private security sector, often failed to pay employee contributions. It said this constituted fraud that could lead to criminal prosecution under the Pension Funds Act.
This, in effect, undermines the government’s efforts to improve trust, coverage, and adequacy through [the] preservation and sustainability of the retirement funds system.
— Finance minister Enoch Godongwana
“The requirement for compulsory membership in the PSSPF by security guards remains questionable, as employers continue to evade the requirement to pay contributions, and this problem has evolved into an ‘acceptable business practice’ for the private security industry.”
Finance minister Enoch Godongwana said a primary concern was that some employers failed to pay pension contributions to funds. “The recurrence of these issues and the high number of complaints remain of great concern, and stakeholders are urged to remediate this undesirable result of poor fund governance, management and administration. This, in effect, undermines the government’s efforts to improve trust, coverage and adequacy through [the] preservation and sustainability of the retirement funds system.”
Funds have observed that the occupational funds they manage have seen higher volumes of withdrawal applications under the two-pot system than retail ones. Occupational funds are defined funds for employees, while retail ones often cater to the self-employed and those looking to top up existing savings.
At the same time, the Financial Sector Conduct Authority and the pension funds adjudicator say they are aware of instances where employers deduct their employees’ contributions and do not pay them into their funds.
The South African Revenue Service announced on Friday that it has received 1,213,646 applications for tax directives for withdrawals from the two-pot system with a total gross lumpsum of R21.4bn paid out to date.
At the Institute of Retirement Funds Africa conference in Cape Town this week, Old Mutual chief customer officer Michelle Acton said funds linked to employers had seen almost 30% of eligible members claiming two-pot benefits in the first two to three weeks of the system going online at the beginning of September. This was in comparison with retail funds, where withdrawals are 25% of the rate of occupational funds.
“So we’ve seen huge volumes come through in terms of occupational funds. Not all of them are retirement funds. All of their members can access savings pots, but in terms of the savings pot access with our retail funds, we are seeing much lower volumes. Probably about 25% of what we’re seeing in the occupational space [is] in the retail space.”
The Financial Sector Conduct Authority (FSCA) said it received reports from retirement funds that as at 31 July 2023, 7133 employers were non-compliant with section 13A of the Pension Funds Act.
"This practice is prevalent amongst occupational retirement funds as that is where there is a relationship between an employer and employee; and a retirement fund. The employer not only pays the employer contributions to the retirement fund but also pays the member portion on behalf of the member to the fund."
The FSCA said The act of deducting contributions from employees and not paying over those monies to the relevant fund was a criminal offence, punishable by a conviction not exceeding 10 years or a fine not exceeding R10m.
"We believe that an improvement in communication is required from all stakeholders, and effective enforcement mechanisms for those delinquent employers. Arrear contributions are currently estimated to be R7bn which amounts 0.2% of R3.15 trillion which is the total assets in the retirement fund industry regulated by the Authority."
Senior legal adviser at Nedgroup Investments Denver Keswell said the two-pot system had so far had a bigger impact on employment retirement funds, such as stand-alone and umbrella funds, than on retail ones.
“Employment funds such as pension and provident funds have received a large number of requests for withdrawals. We expected that retail funds such as retirement annuities and preservation funds would receive a lot fewer requests for withdrawals from the savings pot.”
He said Nedgroup Investments’ three retail retirement funds received only 12 requests for withdrawals in the first week.
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