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RETIREMENT FUND CONTRIBUTIONS

Every year, numerous employees in South Africa face a significant shock when they discover that their employers have failed to pay their retirement fund contributions. To address this issue, new measures have been implemented to ensure that funds are obligated to directly inform members when contributions have not been paid. This increased transparency makes it increasingly difficult for offenders to go unnoticed by both employees and the general public.


Employers who fail to fulfill their agreed-upon retirement fund contributions will now face greater challenges in doing so without being exposed to their employees and the wider public. The implementation of new measures requires funds to inform members directly if their contributions have not been paid according to the fund's rules. Additionally, the regulatory body intends to publicly identify and shame employers who fail to pay their contributions.


Until recently, many members were unaware that their employers had neglected to transfer the deducted contributions from their paychecks into their retirement funds, effectively amounting to theft. Typically, individuals only discovered this issue when they claimed their benefits upon resignation, disability, or retirement. As a result, the Pension Funds Adjudicator received over 3,000 complaints annually.


Under the new conduct standard introduced in February of this year, employers are now required, under the Financial Sector Regulation Act, to provide funds with the contact details of all employees who become fund members. This facilitates direct communication between funds and their members. Although funds have long been mandated to notify members when employers fail to make contributions, employer-sponsored funds have often struggled to do so without direct contact with employee members.


The conduct standard also establishes stricter deadlines for administrators and principal officers to report instances of contribution non-payment to the fund.


Furthermore, the fund must promptly report such failures to members, the regulator, and the South African Police.


To deter employers from misusing member contributions, the Financial Sector Conduct Authority (FSCA), which oversees retirement funds, plans to publicly name and shame employers who fail to pay contributions or underpay them. The executive for retirement funds at the FSCA, expects this public exposure to take place within a few weeks after the regulator verifies the list of offending employers.


The Pension Funds Adjudicator highlights that many cases presented to her office involve members who have not received their benefit statements. Consequently, they remain unaware that their contributions were not paid in full or were insufficient. In these instances, the fund has forwarded members' benefit statements to the employer, but the employer has withheld the statements to prevent members from discovering the non-payment. The new conduct standard, with its contact detail and reporting obligations, aims to rectify this issue by ensuring that members are effectively informed within two months of any contribution non-payment.


Failure to pay contributions within the specified timeframe, as stipulated by the Pension Funds Act, constitutes a criminal offense. Employers who fail to meet their contribution obligations, as outlined in the fund's rules, by the designated deadline are deemed guilty of this offense. The new conduct standard requires trustees to identify the responsible person at each employer who will be held personally liable for unpaid contributions. Employers must provide this information when joining or establishing a fund and whenever they submit a contribution statement. Failure to disclose the responsible person's identity can result in the entire board of directors being held accountable.


The identified responsible person can face a fine of R10 million or a prison sentence of up to 10 years for their negligence in ensuring contribution payments. If an employer fails to designate a responsible person, the entire board of directors can be held liable.


The new standard explicitly states that if contributions remain outstanding for three months past the due date, trustees must report the matter to the South African Police.


The new conduct standard obliges trustees to report outstanding contributions and contribution statements to the FSCA within 30 days of being notified by the board. Trustees must also outline the actions taken, including filing criminal charges or attempting to recover the funds. As progress in prosecuting non-compliant employers has been limited, many funds are outsourcing the collection of arrear contributions to attorneys who can attach employers' property as a means of recovery.


To ensure fairness and prevent conflicts of interest, the new standard includes checks and balances regarding the involvement of attorneys. It requires reasonable and commensurate fees and mandates that attorneys promptly transfer the collected funds to the respective fund within seven days.


Attorneys are authorized to issue letters of demand and summonses for arrear contributions. If these measures fail to yield results, attorneys can seek a default judgment against an employer by applying to a court.


In cases where funds or individual members face issues, they can lodge complaints with the adjudicator at no cost. The adjudicator can issue determinations ordering employers to pay outstanding contributions. Such orders hold the same legal status as court orders and can be enforced accordingly.


It's important to note that if an employer has ceased paying contributions, it is likely that they have also stopped paying group life and disability premiums, as agreed upon.



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