Nicola Mawson
Imagine giving birth to a stillborn baby and then discovering that your employer didn’t pay over the retirement contributions that were being taken off your salary, so you can’t afford to bury your child.
Or having an emergency and needing to tap into your retirement savings pot. Except there’s nothing there. Getting to retirement age and finding that you either need to work until the day you die or otherwise rely on a state pension.
While these are worst-case scenarios, the issue of companies misappropriating retirement deductions hit the spotlight in a big way when the Congress of South African Trade Unions (Cosatu) recently called for the Financial Sector Conduct Authority (FSCA) to investigate allegations over pension funds that were not invested for the staff’s benefit.
Allegedly, workers’ pension fund contributions paid over to the Municipal Employees Pension Fund (MEPF) were used to buy land in 2018 through Akani Properties, which is MEPF’s retirement fund administrator. As a result, some R333 million of civil servants’ retirement funds have apparently vanished. The allegations Cosatu details in a press release included romantic liaisons, property development and shares in hotels.
“Such disturbing allegations are an abomination and a slap on the wrists of the 30 000 members of this fund,” Zanele Sabela, the federation’s national spokesperson said in the statement. Akani recently issued a statement in which it denied all the allegations, and said it was already cooperating with the FSCA.
The statement came shortly after the introduction of the two-pot system on September 1.
A bigger issue than missing investments, however, is the broader problem of pension contributions being deducted from employees’ salaries but not being paid to the relevant investment company.
About a year ago, the FSCA said it had found thousands of companies were in contravention of the section of the Pension Funds Act that requires contributions to be paid over within seven days of receipt. Of the 5 430 employers that had violated this law, 28% had contributions outstanding for a month, 24% for two to 12 months, 23% for 13 to 60 months and 25% for five or more years.
In a 101-page document, the FSCA listed those employers who were implicated in its investigation.
“The FSCA’s preliminary statistics indicated that municipalities and private sector companies have approximately R1 billion and R6bn arrear contributions, respectively.”
Its subsequent publication, released earlier this year, showed that the number of companies in arrears had dropped to around 4 000.
Sabela told Personal Finance that “the issue of companies that don’t pay over pension or provident fund contributions is worrying. In fact, it is criminal offence; employers can be prosecuted, made to pay fines of up to R10 million or jailed for up to 10 years.”
She described the situation as a crisis, and said that as a result Cosatu was calling for an urgent meeting with government, key employers, the FSCA, the Association for Savings and Investment South Africa (Asisa), and law enforcement at Nedlac, “as it must be resolved”.
“This is theft of workers’ hard-earned monies and cannot be tolerated,” Sabela said.
Pension Funds Adjudicator Muvhango Lukhaimane told Personal Finance that, over the past five years, of all the complaints it has finalised, about 80% concern arrears contributions.
Her office’s latest annual report shows it received 9 190 complaints last year and had finalised 7 809 of them. Some 82% of complaints were finalised within six months.
The PFA, she said, can only deal with the complaints it receives, grant as much relief as possible to the complainant and then refer any concerning trends to the FSCA. The PFA had handed down determinations against employers in several sectors, including retail, municipalities, private security, transport, automotive, metal and engineering, state owned enterprises and contract cleaning, among others.
She cited examples of employees noticing that they had no disability or funeral benefit, though these had been collected from them as part of their fund contributions. Some members found out at retirement, or when they were retrenched, that money was not always properly invested. Or that there was less in their savings pot than expected because employers had stopped paying contributions.
“In the end, it is the duty of the board of a fund to ensure that the employer pays contributions on time. National Treasury has over the years assisted with accountability measures, to an extent where failure to pay contributions is a crime punishable by a fine or imprisonment. However, it is the board of the fund that must take the necessary steps to hold employers accountable,” says Lukhaimane.
Elio E’Silva, head of direct corporate solutions at Alexander Forbes, told Personal Finance that employers who are 90 days behind on their payments to investment funds, as mandated by law, are reported to the FSCA and the South African Police Services once the process is established and clarified.
“The employer’s participation in the fund is also terminated in line with the provision of the fund rules. From date of termination, no further contributions are due to the fund, other than payment of arrears and late payment interest thereon. If contributions have been deducted from members’ salaries by the employer, post the termination date, this will be a labour issue, and the members will need to address this using relevant channels,” said E’Silva.
Lukhaimane said: “It is also important to scrutinise the number of fund liquidations at the FSCA because most of these stem from arrears contributions that the funds do not want to bother to recover.”
PERSONAL FINANCE