Retirement funds that do not act timeously against employers that do not pay contributions places members’ benefits at risk because claims are subject to prescription, says the Pension Funds Adjudicator, Muvhango Lukhaimane.
Addressing the Pension Lawyers Association conference in Cape Town earlier this month, Lukhaimane said about 83% of the complaints finalised by her office concern withdrawal benefits and compliance with section 13A of the Pension Funds Act (PFA) – the payment of contributions by employers.
She said delinquent employers are responsible for about R7 billion in unpaid contributions.
Members whose employers do not pay contributions have recourse to the Adjudicator, who can order employers to pay the benefits they are due, and this order can be executed by a sheriff of the court.
Lukhaimane said “a negligible” number of funds have approached her office for assistance with employers not paying contributions.
“Even in these instances, the Office of the Pension Funds Adjudicator can only assist with partial recovery of the debt, as a portion thereof is affected by prescription. Most funds choose to act late against employers, thereby rendering a portion of the outstanding amount legally unrecoverable.”
Furthermore, most funds fail to notify members that their employer failed to pay contributions, leaving members to discover such non-compliance when they claim on a funeral policy, group life, or disability policy, or when they withdraw from the fund or retire. In certain circumstances, this results in a partial recovery because of prescription, Lukhaimane said.
She said members need to know about the outstanding contributions in time so that they do not lose out because of prescription.
Claims not made within three years of an employer failing to pay contributions prescribe, and Lukhaimane said more than 50% of awards her office made in complaints about arrear contributions were compromised by the fact that part of the claim had prescribed. Prescription has affected both individual members and funds acting on behalf of members.
In March, the FSCA published its second list of delinquent employers that runs to about 4 000 employers and includes many security companies that have not paid contributions to the Private Sector Security Provident Fund.
Read: Arrear contributions: 10 employers should not have been on the list
Lukhaimane said a substantial portion of these arrears may be unrecoverable because of prescription, as most funds have only notified the FSCA of employers in arrears but have failed to institute legal proceedings to recover such arrears on behalf of members.
“This is disappointing, as it is the duty of funds to pursue these outstanding contributions.”
When contributions are outstanding for three months, the fund trustees are obliged, in terms of the PFA, to lodge a criminal case with the South African Police Service and hold the responsible person at the employer liable. The responsible person or even the full board of directors can be fined up to R10 million or imprisoned for up to 10 years.
Disputes over late payment interest
The PFA also provides for employers to be charged late payment interest (LPI) when contributions are not paid on time, but there are disagreements about how this interest should be calculated.
The FSCA believes LPI starts to run on the eighth day of the month following the month in which contributions were due, whereas the Adjudicator, along with certain stakeholders in the industry, believes LPI should be calculated from the first day of the month following the month in question.
Lukhaimane said because LPI is compound and meant to be punitive in nature, employers often delay by contesting its calculation.
“The OPFA is, therefore, considering leaving the overdue payment interest out of its orders, especially where a member lodged the complaint, and may only order the payment of fund interest. The fund will thus be at liberty to pursue the claim for overdue payment interest.”
If her rulings include an order for an employer to pay interest to the fund, this could result in the determination being challenged and delays in members receiving their benefits, which would be unfair because LPI is payable to the fund and not the member.
