Companies owe pension funds more than R6bn in contributions

The Financial Sector Conduct Authority (FSCA) recently published a list of companies that apparently deducted pension fund contributions from employees but failed to pay the contributions over to the respective pension funds.

At stake is more than R6 billion, as well as the risk that employees are not covered by their pension funds for injuries or unexpected death.

In addition, pension fund members miss out on the (compounded) returns that would have been earned on this money – particularly as the list of offenders shows that some contributions are in arrears by as much as 10 and 20 years.

Read: FSCA orders ANC to catch up on R86m staff provident fund arrears

The FSCA issued a notice in June 2022 that it would ask pension funds for the names of employers who are in arrears with retirement fund contributions and said it will publish the list of offenders.

The FSCA has published the names of 3 262 employers that contravened the particular section of the Pension Funds Act (PFA) that regulates contributions to retirement funds.

In essence, the employers on the list – running to 101 pages – are accused of deducting pension fund contributions from wages and salaries but neglecting to pay them to the relevant pension funds for investment.

Far-reaching consequences

The regulator says the PFA prescribes how contributions and other benefits should be paid to a retirement fund.

“The PFA states that employers have seven days after the expiration of the period in respect of which contributions are due to pay the contributions prescribed in terms of the retirement fund rules to a retirement fund.

“Failure to pay over contributions as required is not only a contravention of the PFA but leads to prejudice and unfair outcomes for members. Whilst the retirement benefits of the members are compromised due to such a contravention by an employer, other benefits, such as risk benefits payable to the members (where applicable), are also impacted,” says the FSCA.

“If the employer does not pay over contributions for a period of three months, the insurer will repudiate the claim on the basis of outstanding premiums and the dependents, in the case of a death benefit, will not be paid the insured portion of the death benefit payable from the fund.”

The FSCA’s preliminary statistics indicated that municipalities are in arrears by R1 billion and private sector companies by R6 billion.

“Whilst financial difficulties faced by municipalities and the effects of Covid-19 on the economy are public knowledge, employers still have an obligation to their employees to pay over deducted contributions to the retirement fund as per the PFA.

“It must be noted that the boards of retirement funds have the duty to recover outstanding contributions from employers by making use of the various avenues available to them.

“Importantly, where the contravention persists for a period of 90 days, the boards are required to approach the South African Police Service to lay a charge against the employer,” the FSCA warns.

Security firms

A look at the list shows that more than 80% of the companies accused of failing to pay pension fund contributions to the respective pension funds are private security companies that allegedly failed to pay employees’ pension contributions to the Private Security Sector Pension Fund (PSSPF).

The fund’s latest annual report shows that nearly half of the more than 500 000 members were either “dormant” or “inactive”, meaning that no pension fund contributions have been received for at least three months.

Contributions were not received for more than three months for more than 243 000 security guards, while those for 261 000 members are up to date.

It is uncertain whether the data is correct. The FSCA confirmed to Moneyweb that it received the data directly from pension funds but added that it cannot guarantee that the information received from funds is 100% accurate.

“However, retirement funds are required to have proper records and to provide accurate information to the FSCA,” it said in response to questions.

Being on the list means that either the employer did not pay over contributions to the retirement fund within seven days after the expiration of the period in respect of which contributions are due, or that the employer paid the contributions but after seven days – which is still a contravention of the law.

Read: Post Office has failed to pay into employees’ retirement fund for three years

“In respect of the list published by the FSCA, it means those employers had not contributed in terms of the PFA for the period up to and including the contributions for 30 April 2023, which would have been due by 7 May 2023,” says the FSCA.

“Conduct standard 1 of 2022 states that where there is a discrepancy of less than 2.5% of the total contributions payable for the month and the contribution schedule for the month, then that is not deemed as a contravention.

“The fund and the fund’s administrator must query any discrepancies between what the employer paid and what needs to be allocated per the information in the contribution schedule, but that would not be deemed as a contravention.”

PSSPF

The PSSPF has been in the news quite a lot in recent years, specifically last year when the FSCA moved to disband the previous management team and disbarred the members of the team from similar roles in the retirement industry.

“PSSPF was placed under Statutory Management in September 2018 and taken out [of statutory management] in April 2023 by the FSCA. There is currently an enforceable undertaking between the fund and the FSCA in which we express satisfaction with the work done by the statutory manager and outline what is required from the fund post-statutory management,” says the FSCA.

“Ongoing engagements are planned with the fund to ensure fair outcomes for the members of the fund.”

Read:
Private security provident fund reprimanded for failing member
Spotlight on private security sector and its provident fund [Apr 2013]

Sandile Khumalo, chair and statutory manager of PSSPF, elected not to answer questions about the large number of security companies on the FSCA list.

He responded: “Your questions tell me that you don’t know how pension funds work. I will give you two hours to enlighten you if you have time and are willing.”

There are some big security companies on the list, and those we contacted were far from happy about being approached.

Peaceforce Security

Only Peaceforce Security was willing to comment.

CEO Geoff Capstickdale says its pension fund contributions are up to date.

“I would like to categorically state that we do pay over all deductions made, and any insinuation to the contrary is denied. Referring to the list of companies published for non-payment of provident funds, I would like to set the record straight in so far as we are currently in dispute over [the] rate payment interest the fund is alleging we owe.

“This has nothing to do with provident fund payments but rather payment dates to the fund,” says Capstickdale.

“We have engaged counsel who will be dealing with the fund administrators to have our name removed from the published list as it is bringing Peaceforce’s name into disrepute.”

Read:
FSCA search and seizure at Akani Retirement Fund Administrators
Akani Retirement Fund Administrators to take FSCA to court

Security companies are forced to deal with the PSSPF as it is a mandatory retirement fund for private security companies or employers that fall under the jurisdiction of an accepted collective bargaining agreement for the private security sector.

Other sectors and pension funds appearing on the FSCA list of offenders include mostly small companies and closed corporations in arrears.

There are quite a few clothing and furniture manufacturers, as well as restaurants.

The FSCA says it will continue to engage with the boards of the affected retirement funds and, where possible, the affected employers.

“We encourage members who have been affected to engage with their employers and retirement fund, and where solutions or actions are unsatisfactory, members may approach the Office of the Pension Fund Adjudicator or lay a criminal charge against their employer in the case where contributions have been deducted and not paid over,” it says.

Read:
More than 4.5m retirement fund members have R45bn in unclaimed benefits – FSCA [Aug 2021]
The dirty little secret behind SA’s R50bn in unclaimed pension benefits [Sept 2022]
Nearly R90bn in unclaimed assets, says FSCA [Sept 2022]