Section 13A of the Pension Funds Act (PFA), read with regulation 33 of the Act and Conduct Standard 1 of 2022, contains the statutory requirements relating to the payment of contributions to retirement funds. Adél Gräbe, legal and technical specialist at Simeka Consultants and Actuaries, has compiled the following guide to the process that should be followed if section 13A is contravened.
Report to the South African Revenue Service
The FSCA has the authority, on receipt of the monitoring person’s report, to report the matter to the South African Revenue Service for whatever action it may deem necessary against the employer and/or the fund’s board of management – for example, withdrawal of the fund’s income tax approval, or disallowing the deduction of unpaid employer contributions from the employer’s taxable income.
Penalty interest
Compound interest is payable by the employer to the fund in respect of any contribution or part thereof not paid in full into the bank account of the fund by the seventh day of the month following the end of the month in respect of which such contribution was payable. This provision applies equally to unpaid contributions, late contributions, and underpaid contributions.
The FSCA has confirmed in Communication 15 of 2023 that interest must be calculated from the day after the seventh day referred to in section 13A(3)(a)(i) of the PFA. Section 13A(3)(a)(i) refers to “not later than seven days”, which implies that efforts should be made to make payment earlier where possible, and the transfer of contributions to the fund should not be unreasonably delayed, thus prejudicing members.
Interest is prescribed to be the prime rate plus 2%. Interest shall constitute investment income for the fund and must be payable to the fund by no later than the end of the second month following the month in respect of which the amount is payable.
The following example illustrates the calculation and payment of penalty interest:
- The employer pays the contribution of R200 000 for October 2022 into the fund’s account on 12 November 2022. The payment was late.
- Reconciliation of the contribution reveals that the correct contribution should have been R220 000. This constitutes an underpayment of R20 000 for the contribution.
- The employer corrects the underpayment of R20 000 on 3 December 2022 when paying the November 2022 contribution.
Interest at the prescribed rate is therefore payable to the fund by the employer in respect of:
- R200 000 (paid late) for the period 1 November 2022 to 11 November 2022 (11 days), plus
- R20 000 (underpaid) for the period 1 November 2022 to 2 December 2022 (32 days).
The employer must pay the interest to the fund by no later than 31 December 2022.
In duplum rule
The FSCA has confirmed that the in duplum rule applies to the arrear interest an employer must pay on the late payment of contributions.
In terms of the in duplum rule, interest cannot in aggregate exceed the unpaid balance of the principal debt at the time that the default occurs. If, for example, the unpaid contributions amount to R10 000 and arrear interest continues to add up while the contributions remain unpaid, the interest will be limited to the R10 000.
Personal liability and fines
The non-payment or late payment of contributions by an employer could result in personal liability for certain individuals within the employer and constitute a criminal offence. If the employer fails to notify the fund of the identities of the applicable individuals, all the directors, all the closed corporation members regularly involved in the management of the closed corporation, or all the persons comprising the governing body of the employer will be personally liable for the non-payment or late payment of contributions.
The fund must request the identities of the persons who could be liable from the employer. The format of the request is prescribed in the Conduct Standard.
The board of management must retain proof of sending and delivery of the letter to the participating employer(s), because the FSCA may call upon it to furnish such proof. The employer must provide the board of management annually with confirmation of the identities of the applicable individuals.
In terms of section 37(1) of the PFA, any person who contravenes or fails to comply with section 13A is guilty of an offence and liable on conviction to a fine not exceeding R10 million or to imprisonment for a period not exceeding 10 years, or to both.
Consequences of non-/under-payment of contributions for members
The affected members:
- May lose part of their retirement savings;
- Will not receive any investment growth on the required contribution; and
- Risk benefits (death or disability) may be jeopardised because of the non-payment of premiums to the insurer. If claims are rejected by the insurer because premiums were not paid, the fund will be liable for payment of such benefit.
Pension Funds Adjudicator
The office of the Pension Funds Adjudicator has confirmed that members may lodge complaints relating to the non-payment of contributions with the office.
The Pension Funds Adjudicator’s determinations have the same force and effect as court orders. Therefore, if the employer does not comply with the order, the fund may obtain a warrant of execution against the property of the defaulting employer, and the sheriff can attach and dispose of the employer’s property.
