Minister of Finance Enoch Godongwana has published a notice in the Government Gazette announcing his intention to repeal regulation 33 of the Pension Funds Act (PFA) and replace it with Conduct Standard 1 of 2022.
In terms of the notice, published on 22 November, Conduct Standard 1 will take effect on 20 February 2023.
The FSCA published “Conduct Standard 1 of 2022: Requirements related to the payment of pension fund contributions” on 19 August. It said the conduct standard would come into effect six months after publication.
Some stakeholders asked the FSCA for 24-month transition period, but the Authority rejected this, saying it was too long and could not be justified, because most of the requirements in Conduct Standard 1 were based on the existing requirements contained in regulation 33. The FSCA did not believe the new requirements would require major system changes.
The Conduct Standard provides for the following matters that are currently provided for in regulation 33:
- The minimum information to be furnished to a fund by an employer, with regards to payments of contributions made by an employer in terms of section 13A of the PFA;
- Notification and reporting obligations on the board of a fund, principal officer or other authorised person where there is a contravention of or non-compliance with sections 13A(2)(b) or 13A(3)(a) of the Act by an employer; and
- The rate of interest payable on arrear contributions.
In addition, it:
- Sets a standard format in which a fund must inform a participating employer of its duties and obligations under section 13A of the Act;
- Sets out the format in which a request by a fund to an employer, as referred to in section 13A(9) of the Act, must be made;
- Prescribes the manner and format of reporting by principal officers of pension funds or any other authorised persons as referred to in section 13A(6) of the Act to the board of a fund regarding compliance with, or non-compliance with, the provisions of sections 13A(2)(b) and 13A(3)(a) of the Act by an employer;
- Imposes standard notification and reporting obligations on the board of a fund where there is a contravention of or non-compliance with sections 13A(2)(b) or 13A(3)(a) of the Act by an employer; and
- Sets requirements for the board of a fund, and participating employers, when the board outsources the collection of outstanding contributions to attorneys.
Explicit onus on funds to alert employers
I asked Sabir Bacus, of the employee benefits unit of GTC, for his perspective on the important aspects of the conduct standard.
He said that replacing the regulation with a conduct standard is in line with the FSCA’s intention of transitioning existing sectoral laws into a framework that conforms to the Conduct of Financial Institutions Bill.
The conduct standard requires a retirement fund to notify every employer before the employer participates in the fund, and every year thereafter, of the employer’s duties, obligations and liability under section 13A of the PFA and the conduct standard.
Bacus believes this requirement introduces a level of compliance that could come into play if disputes between funds and employers related to non-compliance with the Conduct Standard 1 and section 13A of the PFA end up before the Pension Funds Adjudicator or in court. An employer could raise the defence that the fund failed to advise it of its obligations; on the other hand, a fund could argue that it did advise the employer of its obligations.
What’s important to note, Bacus said, is that the conduct standard explicitly places an onus on funds to alert employers of their obligations.
Employer’s obligation relating to data
Another new provision that serves to highlight an employer’s obligation to provide a fund with a minimum level of contribution data is the requirement that contribution data must be accompanied by a declaration by the employer that “all employees eligible to be members of the fund are accurately reflected in the minimum information”.
Here again, the conduct standard aims to ensure that employers take note of their obligations to retirement funds and, in fact, providing accurate data, Bacus said.
The two-pot retirement system will result in each fund member either contributing to or having vested savings in multiple pots. It is going to be essential that funds have accurate, up-to-date information about contributions in order to facilitate transfers from the “savings” to the “retirement” pots within a fund and the transfer of pots from one fund to another when a member changes employer.
Recovery of arrear contributions
The conduct standard sets out broad requirements for retirement funds that outsource the recovery of arrear employer contributions to an attorney or third party. These are designed to combat what the FSCA called “undesirable practices and/or outcomes”.
The importance of this section is that it highlights the need for trustees to formulate such policies. The section is not prescriptive but sets out the broad principles that it needs to keep in mind when mitigating conflicts of interest.
Turning to section 4(3) of the conduct standard, as could be expected, stakeholders who commented on the proposed standard commented on the difficulties trustees have experienced when trying to open cases with the SA Police Service against employers that don’t pay contributions to funds and/or don’t provide contribution schedules.
Although the FSCA acknowledged there have been “practical and capacity challenges”, it remained adamant that his requirement must remain. In its view, the provision will deter undesirable behaviour, while “the practicalities are being addressed”.
I’m in agreement with Bacus that employer non-compliance needs to be addressed by National Treasury. This is not something individual funds or even the retirement industry can resolve, although trustees should adhere to the requirements of the conduct standard, the challenges notwithstanding.
Perhaps what is necessary is for the regulator to make an example of one employer by imposing a hefty sanction.
