By Rob Rose
The buck stops with pension fund trustees when pension contributions vanish.
That was the stern warning from Pension Fund Adjudicator Muvhango Lukhaimane at the Institute of Retirement Funds Africa conference in Cape Town earlier this month, in which she addressed the scourge of employers deducting money from their staff’s salaries for pension fund contributions, but then failing to pay it over to the fund.
It’s a topic which has dominated the headlines, as the courts have ordered a number of municipalities to pay millions in unpaid pension contributions. Among them are the Mafube municipality, which covers Frankfort, and the Msunduzi Municipality, which covers Pietermaritzburg, where 100 pensioners were shafted.
In September, Bloemfontein High Court Judge Thiloshni Ramdeyal slammed the Mafube municipality’s “frivolous defences”, pointing out this is a “serious breach of the law”.
Yet it seems many employers who do this — like those municipalities — routinely flout court orders and are seemingly impervious to being shamed into doing the right thing.
Now, Lukhaimane said, it is time to look at broadening the responsibility for this to the trustees of the pension funds themselves — a proposal she will present to Parliament.
“Instead of saying penalties must only be levied against the employers and the persons responsible, maybe some level of responsibility should be located with the trustees and the boards because they are failing to even do one little step of what they are supposed to,” she said.
Ultimately, she said, the responsibility to ensure contributions are collected and allocated correctly lies with the trustees and the pension fund’s board — “and it remains like that.”
This proposal to extent liability illustrates the degree of frustration among the regulatory bodies as this trend continues to worsen.
The Adjudicator’s new annual report revealed that 84% of the complaints to her office involve withdrawal benefits and employers failing to pay over contributions. In whole numbers, that’s 7,700 instances of pension fund members not getting what they are owed.
Even the politicians are alarmed. Finance minister Enoch Godongwana, writing in the Adjudicator’s report, called the scourge of unpaid contributions a “great concern” — a trend which he attributed to “poor fund governance”, as well as shoddy management and administration”.
“This, in effect, undermines government’s efforts to improve trust, coverage and adequacy through preservation and sustainability of the retirement funds system,” he said.
Lukhaimane, in that same report, said that not only do people’s retirement savings suffer, but so too do other risk benefits which are meant to be settled from the premium deducted — including death benefits, disability benefits and funeral benefits.
Security industry the worst offender
This acceleration is all the more worrying because it comes after the regulator, the Financial Sector Conduct Authority (FSCA), began publishing an annual list naming those employers which have deducted money from salaries, but failed to pay it over to the fund.
In March, Astrid Ludin, the FSCA’s deputy commissioner, reminded those companies that this is a criminal offence, “liable on conviction to a fine not exceeding R10m or to imprisonment for a period not exceeding 10-years”
The most recent list runs to 183-pages, naming thousands of companies.
The vast majority of the offenders were small security companies — spanning the large firms like Chubb Guarding and Eagle Eye Security, to small operators like Axe Security — which failed to pay the contributions to the Private Security Sector Provident Fund (PSSPF).
In the adjudicator’s annual report, Lukhaimane slammed the security industry, saying that non-payment of pension contributions has “evolved into an acceptable business practice” for these companies, despite the fact that this is illegal.
The PSSPF board of management appears to be unwilling to hold defaulting employers liable with the majority of complaints arising from individual members “as and when they become entitled to benefits,” she said.
The implementation of the two-pot system in September, which allows workers to access a third of their accumulated retirement savings, is only likely to compound the problem for the PSSPF “as members will become aware, when attempting to claim, that their employer is non-compliant”. This is likely to lead to a surge of new complaints with the Adjudicator.
The PSSPF’s board of trustees is chaired by Paul Nephawe and his deputy, Itumeleng Serithi, who is also a chartered accountant.
Other notable offenders on the FSCA’s list include the Transport Sector Retirement Fund, as well as dozens of municipalities, in addition to Mafube. Other state entities include the eMalahleni local municipality, the Umgeni municipality and the Magalies Water Board.
If Lukhaimane gets her way, the trustees of the PSSPF, as well as those municipal funds, would be the ones copping the flak for failing to ensure contributions are paid. To bolster accountability, the next step would for criminal convictions to be handed to the offenders.
