In South Africa, pension fund contributions are essential for employees’ long-term financial security and are closely regulated by the Pension funds Act. In this article we explore how pension fund contributions are calculated using the contribution wage and shed light on the role of Verso, the retirement fund administrators in the context of the Hairdressing, Cosmetology, Beauty, and Skincare Industry (HCSBC), in supporting these processes.
Calculating Pension Fund Contributions: The Contribution Wage Explained
The contribution wage is the income baseline upon which retirement fund contributions are calculated. It represents the employee's monthly or annual salary, including all fixed earnings that are subject to contributions, such as basic pay and certain allowances. However, it typically excludes discretionary elements like bonuses, overtime pay as well as commission earned.
Step-by-Step on Contribution Calculation
Contribution Percentage:
Each retirement fund scheme has a designated contribution rate, expressed as a percentage of the employee’s contribution wage. This rate is often split between employee and employer contributions. Verso's calculation rate for our industry is 6% Employee contribution and 6% Employer Contribution, except for KZN, which is on 6.5%.
Applying the Contribution Rate:
Multiply the contribution wage by the contribution percentage to calculate the total pension fund contribution. For instance, if the contribution wage is R10,000 and the contribution rate is 12% (combined contribution), the monthly pension fund contribution would be R1200, which will calculate to R600.00 employee and R600.00 employer.
This wage is specifically calculated for determining pension fund contributions and does not represent the employee's basic wage or salary. Should the employer and employee not specify a specific salary to be used to calculate the contribution, the contribution salary as per the wage schedule of the council will be used to calculate the contribution rate.
Breakdown of Contributions:
The Fund will allocate a specific percentage (the employer’s contribution) to cover the various benefit categories within the scheme. For instance, the industry fund incorporates multiple benefits in a single lump sum, including funeral, critical illness, disability cover, etc. The accumulated funds (Savings portion) will be made up of the balance of the employer’s contribution (if any left) and the entire contribution of the employee.
Factors Affecting Contribution Calculations
Different sectors may have varying standards, as do specific bargaining council agreements and employment terms that may dictate contribution percentages. The contribution wage itself is also subject to amendments according to any wage adjustments or statutory changes. The contribution percentage and contribution wage are subject to negotiations between the parties to the council (EOHCB & UASA The Union).
The Role of Verso in Administering Pension Funds
Verso, a key player in the South African retirement fund landscape, specialises in fund administration. They handle numerous administrative tasks that ensure efficient and transparent management of retirement fund assets, including:
Contribution Management: Verso assists in allocating employee and employer contributions, ensuring accuracy and compliance with regulatory requirements.
Member Records Maintenance: They maintain updated member information, essential for benefits calculation and prompt, accurate payout processing.
Regulatory Compliance and Reporting: South African law requires retirement funds to meet stringent reporting and compliance standards. Verso handles regulatory filings, ensuring that funds adhere to the Financial Sector Conduct Authority (FSCA) and Pension Funds Act guidelines.
Payouts and Withdrawals: For employees reaching retirement age or exiting the fund as well as death and disability claims, Verso ensures timely processing of payouts, which is critical for members’ financial security.
Why Accurate Contribution Calculations Matter
Correct contribution calculations are vital to ensure members receive fair and accurate retirement benefits. Errors in calculating the contribution wage or applying contribution percentages could lead to shortfalls or regulatory issues, potentially impacting members’ livelihoods in retirement.
Verso’s role is crucial in maintaining transparency, efficiency, and compliance in the administration of retirement funds. Their systems and expertise support employers and employees, ensuring that the calculated contributions match what employees are entitled to receive and align with regulatory standards.
Complying with Pension Fund Act 24 of 1956 and the National Bargaining Council's Main Collective Agreement clause 29 regulations, is a legal obligation on employers, to ensure the protection and fair treatment of employees and their entitlements. These statutes promote financial security through retirement and other workplace benefits while fostering industry stability.
Non-compliance can result in significant penalties, legal action, and reputational harm. By adhering to these regulations, employers not only fulfil their statutory duties, but also contribute to the welfare of their workforce and the broader economy.
