What does the law require?

Under the Pension Funds Act 24 of 1956 (“the PFA”), employers must ensure that pension contributions are deducted and paid in full within seven days after the end of the relevant month. Failure to do so can lead to personal liability for those in control of a company’s financial affairs.

Case law

Whilst the law has long been clear in this regard, it is only recently that the courts have stepped in to protect member interests.

In the case of Engineering Industries Pension Fund & Metal Industries Provident Fund v Installair (Pty) Ltd & Others, the company had deducted retirement fund contributions from employees’ salaries but had not paid these amounts over to the relevant funds. The court emphasised that:

  • Employers cannot unilaterally decide not to submit contribution schedules or withhold pension contributions to retirement funds.
  • Directors who are involved in a company’s financial affairs can be held personally liable for the payment of outstanding contributions.
  • The purpose of the PFA is to protect employees’ retirement security, and any conduct undermining this statutory framework cannot be tolerated.

Despite a number of arguments by the employer and its directors based on financial difficulties experienced, the court ordered the directors to provide the outstanding contribution schedules within 30 days, and to pay the outstanding contributions and all additional contributions (with interest), once the full amounts were determined. It also ordered the directors to pay the applicants’ legal costs on an attorney and own client scale, thereby reinforcing the seriousness of their non-compliance.


In another landmark decision, the Free State High Court in Bloemfontein held four officials from the Mafube Local Municipality personally liable for failing to remit employees’ pension fund contributions to their pension fund.


The officials, including the mayor and municipal manager, were ordered to pay the Municipal Workers’ Retirement Fund (MWRF) over R14m, along with interest accrued from 1 February 2024, until the date of payment, as stipulated under Section 13A(7) of the PFA. They were also held responsible for covering the legal costs associated with the application on an attorney-client scale.

Avenues to enforce compliance

  • Employees must take care that their pension contributions are being paid to the relevant retirement fund and that the money is invested according to the fund’s rules. In the event that an employee becomes aware of the non-payment of his/her contributions, they should contact their employer and the retirement fund immediately to investigate the matter.
  • Conduct Standard 1 of 2022 issued under the PFA sets out a number of reporting obligations to regulate the payment of contributions. The monitoring person or principal officer (PO) of the relevant retirement fund must be informed by the administrator of any non-payment within 15 days of the end of the expiry of the payment period. The monitoring person or PO must then inform the board of trustees (BOT) of the fund of any non-compliance.

The BOT in turn must inform each affected member, or all members as well as the Regulatory Authority, of the non-compliance. Material non-compliance or failure to pay must also be reported to the South African Police Service for further action.
 
Conclusion

The above-mentioned judgements and the Conduct Standard underscore the fact that the payment of pension contributions is a statutory obligation – one which cannot be avoided or ignored at the discretion of an employer, whether due to financial hardship or otherwise. Employers who withhold contributions expose themselves and their directors (in case of companies) or officials to significant legal risk. Failure to pay can even lead to criminal liability and imprisonment.

 

Disclaimer: 

The Prescient Retirement Funds (“the Funds”) are registered with the Financial Sector Conduct Authority and approved by the South African Revenue Services for tax purposes. The Funds are administered by Prescient Fund Administration (Pty) Ltd (Reg. No: 2023/697717/07, “Prescient Fund Administration”). Prescient Fund Administration is an approved retirement benefits administrator (Licence No: 24/810) under section 13B of Pension Funds Act, 24 of 1956 and a Juristic Representative of Prescient Fund Services (Pty) Ltd, an authorised Financial Services Provider (Licence No: 43191) under the Financial Advisory and Intermediary Services Act, 37 of 2002. This document was written by the Prescient Retirement Funds for information purposes only and does not constitute advice or a solicitation for investments. It is subject to copyright and may not be altered, copied or reproduced in whole or in part without the written permission of Prescient Retirement Funds. The Funds and their trustees, and / or Prescient Fund Administration cannot be held liable for damages or loss suffered as a result of any action taken based on the information in this document.