SECTION 13A OF THE PFA: EMPLOYER S FAILURE TO PAY EMPLOYEE S CONTRIBUTION TO THE EMPLOYEE S PENSION FUND

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1 SECTION 13A OF THE PFA: EMPLOYER S FAILURE TO PAY EMPLOYEE S CONTRIBUTION TO THE EMPLOYEE S PENSION FUND Motseotsile Clement Marumoagae Senior Lecturer & Supervisor in the Community Law Center, North West University (Mafikeng Campus) 1 INTRODUCTION Contributions to retirement funds are typically divided into two categories, being the members or employees contributions which are deducted from members salary and employers contributions which are usually contributed by the employer as a fringe benefit. The rules of the fund most often make provision for the employer to pay current contributions for each of the employees employed by that employer to the pension fund to which the employer is participating until the retirement date of such employees. 1 The employment contract would also determine whether the employer can deduct amounts from the employee s salary to pay over to the pension fund in addition to the benefits granted by the employer to the employees which are paid over to the pension fund. For some employers, contributions to pension funds are benefits that employee-members are contractually entitled to as part of their salary package and/or employment contract. In terms of section 13A of the Pension Funds Act 24 of 1956 (the PFA) employers must pay contributions to the pension funds to which they are participating as provided for in the rules of those funds. These contributions are amounts which the rules of pension funds empower employers to deduct from their employees salaries. In order to ensure monitoring and compliance with section 13A of the PFA, the principal officer of the pension fund or any authorised person thereto by the board of trustees has a duty to report to the board of that fund on the non-payment of contributions by any employer. In South Africa, some employers have been found to have deducted amounts from their employees salaries but failed to contribute such amounts to the relevant pension funds, more * LLB LLM (Wits) LLM (NWU) Diploma in Insolvency Law and Practice (UP). 1 See generally Part four of the Revised Rules of the Central Provident Fund available at: (accessed 05 July 2014). 68

2 SPECULUM JURIS VOLUME 29 PART particularly in the private security sector. 2 The issue of non-payment of pension funds contributions to pension funds has not yet received academic attention in South Africa. As such, in this paper in addition to the determinations of the Pension Funds Adjudicator and court decisions, will also draw on some of the newspaper reports which have highlighted this problem. 3 The aim of this paper is to highlight the problem of employer s non-payment of employees contributions to pension funds and discuss how the law seeks to address this issue. This will be done by evaluating the role of section 13A of the PFA as well as Regulation 33 of the PFA in protecting employees who might be affected by their employers failure to pay their contributions to their retirement funds. I will reflect on the role of the office of the Pension Funds Adjudicator as well as the Financial Services Board (FSB) when faced with complaints of non-payment of retirement fund contributions. I will also discuss the impact of the amendments to the PFA by the Financial Services Laws General Amendment Act 45 of 2013 (the FSLGAA) which has reintroduced criminal sanction against employers who fail to make employees contributions to retirement funds. 2 EMPLOYERS NON-PAYMENT OF PENSION FUND CONTRIBUTIONS AND THE NEED TO INFORM MEMBERS Employees who are members of pension funds which employers are entitled to deduct contributions directly from their salaries have a right to have such amounts paid over to such funds timeously in order not to negatively affect their retirement benefits. Employees should be protected from the conduct of scrupulous employers who fail to pay contributions which they should pay to their employees pension funds. Pension fund schemes are amongst the most important social security initiatives in the South African social structure because they determine the living standard of millions of South Africans and play a decisive role in the economy. Pension money forms the cornerstone of most people s retirement security. When a person retires from active employment, he or she still wants to maintain more or less the 2 See Gafane v The Orion Money Purchase Pension Fund (SA) PFA/GA/761/99/NJ, Sekele v Orion Money Purchase Pension Fund PFA/NP/69/99/NJ, Motlhamme v The Private Security Sector Provident Fund PFA/GP/ /2013/TKM, and IBM South Africa Pension Fund v IBM South Africa (Pty) Ltd PFA/GA/357/01/LS. 3 Zungu Security guards robbed of millions in pensions (15 April 2013) Sowetan available at: (accessed 10 October 2013). See also Du Preez Employers reneging on pension payments (17 March 2013) IOL available at #.Uxx4Z_mSyz (accessed 10 October 2013). 69

3 SECTION 13A OF THE PFA: EMPLOYER S FAILURE TO PAY EMPLOYEES CONTRIBUTION TO THE EMPLOYEE S PENSION FUND same standard of living that existed during his or her working life. 4 Pension fund money can also be crucial for the survival of the member when he or she has been retrenched. South Africa currently has a sophisticated, tax-incentivised private pension and provident sector, which also provides a package of group risk benefits to its members, primarily including salary-related life and disability cover. 5 Pension fund schemes create an environment where individuals accumulate savings over their working life so as to be able to finance their subsistence needs on retirement, for them to retire comfortably and thus not be dependent on the state. It is concerning that there have been reports in the media that some cash-strapped employers are keeping their employees retirement deductions for themselves and not paying over the money deducted to relevant pension funds. 6 Employers who participate in pension funds have found themselves in trouble for failing to pay the necessary contributions to such funds on behalf of their employees. 7 The Adjudicator also regularly receives complaints regarding the employers periodic failure to make contributions to retirement funds. 8 The non-payment of retirement fund contributions is an ongoing problem faced by thousands of retirement fund members. 9 It has been reported that in 2013, of all the complaints received by the Adjudicator 3800 of such complaints related to members of pension funds or their dependants either being paid lower benefits or not being paid their withdrawal benefits or death benefits due to non-payment of contributions to the retirement funds. 10 Some employees receive their salary slips on a monthly basis and in most instances those slips reflect entries of pension fund deductions which are made by employers, thus employees have no reason to suspect that their employer might not be paying their contributions to their pension funds. This leads to 4 Manamela Deductions from Pension Benefits for Purposes of Section 37D of the Pension Funds Act 24 of 1956: Employers Forced to Tow the Line 2007 (19) SA Merc LJ Hendrie et al Risk benefit provision through provident and pension funds (2007) available at 20Pension%20Funds.pdf (accessed 15 October 2013). 6 Fisher-French When employers don't pay retirement funds (31 July 2009) Mail and Guardian available at (accessed 15 October 2013). 7 See generally Orion Money Purchase Pension Fund (SA) v Pension Funds Adjudicator and Others[2002] 9 BPLR 3830 (C)/ [2002] ZAWCHC See among others Gafane v The Orion Money Purchase Pension Fund (SA) PFA/GA/761/99/NJ, Sekele v Orion Money Purchase Pension Fund & Another PFA/NP/69/99/NJ, Motlhamme v The Private Security Sector Provident Fund PFA/GP/ /2013/TKM, and IBM South Africa Pension Fund v IBM South Africa (Pty) Ltd PFA/GA/357/01/LS. 9 Cameron Troubled Firms must still Contribute to Pension Funds (14 April 2013) Personal Finance available at (accessed 15 October 2013) 10 Camroodien & Maharaj Section 13A: Creative Solutions to Alleviating the difficulties suffered by employees when employers default on Contributions Pension Lawyers Association Annual National Conference 3 5 March 2013, held at Mist Hills Country Hotel, Muldersdrift, Gauteng.

4 SPECULUM JURIS VOLUME 29 PART employees not being able to tell early on whether their employer is actually paying over their contributions because their salary slip would not show this, and they thus only realise much later of the employers non-payment, more particularly when they resign or get retrenched. This lack of suspicion has been noted by the Adjudicator when he held that: It is clear that the complainant was under the impression that his contributions were paid over to the fund and that he was a member of the fund. Thus, he was under the impression that he would receive a withdrawal benefit after his withdrawal from the fund. However, as a result of the second respondent s conduct, the first respondent could not pay the complainant a withdrawal benefit as he was not a member of the fund and contributions were not paid on his behalf. 11 For those employees who are fortunate, it might come to light that the employer has not been paying contributions to their pension fund when the administrator of their fund sends them their annual benefit statement, which might happen while they are still in employment. Pension fund schemes are mandated by the PFA to alert their members of employers nonpayment of contributions. Section 7D (c) of the PFA requires the board of trustees to ensure that adequate and appropriate information is communicated to members of the pension fund informing them of their rights, benefits and duties. 12 Over and above this the rules of the fund has been argued that one of the types of information contemplated in section 7D (c) is a benefit statement, which must be provided to pension members. However, section 7D (c) is silent on the period in which benefits statements must be provided and what information must contain in each benefit statement. 13 In order for pension funds to be able to effectively report and account to their members, it is important that employers also furnish the funds to which they are participating with the relevant and necessary information which will enable such funds to inform their members about matters pertaining to their portfolios. Section 13A places a duty on employers whose employees are members of pension funds to provide such funds with minimum information regarding payments of contributions. This information can accompany payment of 11 Mthimkhulu v NCB Holdings PFA/GA/8180/2006/SM para Marumoagae Do Boards of Trustees of South African Retirement Funds Owe Fiduciary Duties to Both the Funds and Fund Members? - The Debate Continue 2012 (2) PER where it is argued that [t]he PFA requires the board in pursuing its objects to take all reasonable steps to ensure that the interests of members in terms of the rules of the fund and the provisions of this Act are protected at all times. In order to protect the interests of its members, the fund through its board must ensure that it provides members with relevant information relating to the fund and more particularly their portfolios on the fund. 13 Mhango Can Inaccurate Benefit Statements Lead to Fund Liability under the South African Pension Funds Act 2011 (23) SA Merc LJ See also Wentworth v GG Umbrella Provident Fund [2009] 1 BPLR 87 (PFA) para

5 SECTION 13A OF THE PFA: EMPLOYER S FAILURE TO PAY EMPLOYEES CONTRIBUTION TO THE EMPLOYEE S PENSION FUND contributions to the fund or can be made on or before the fifteenth day of each month in respect of deductions made for the previous month. 14 Regulation 33 to the PFA provides employers with guidance with regard to the information which such employers need to furnish the fund with. In terms of Regulation 33, employers are obliged to provide pension funds with minimum information in a form of an initial contribution statement which will reflect among others: the name of the retirement fund; identification of the fund; the period in respect of which the contribution is payable; name and address of the employer or pay-point which made the deduction; responsible person to contact at the employer or pay-point; full name, date of birth, Identity Document number or Employer pay number or other means of employer identification; date of membership to the fund; pensionable emoluments of member and percentage or amount of contributions; split between member and employer contribution as well as an indication of any additional voluntary contributions paid. 15 Should there be any changes in the employer s workforce, such employers must furnish the retirement fund concerned with a subsequent contribution statement which may reflect any such changes including: employment of new employees; changes in pensionable emoluments; reduction of contributions due to termination of employment or other information or corrections due to errors made SECTION 13A OF THE PFA AND 2013 AMENDMENTS Employers are obliged by section 13A of the PFA to pay contributions over to the pension funds in which they are participating, when the rules of such funds make provision for such payment. In terms of sections 13A (1) (a) and (b) of the PFA, employers of members of pension funds are required by law to pay contributions to relevant funds, which in terms of the rules of those funds should be deducted from the members remuneration. This section provides direction on how such contributions should be made as well as the dates by which payment must be made. There are prescribed time limits within which employers should make contributions. Thus, should 90 consecutive days pass without contributions being made by the employer to the fund, Regulation 33(5) to the PFA authorises the Principal Officer or any authorised person thereto to report the matter to the National Prosecuting Authority within a further 14 days after the end of the 90 day period and also to advise the FSB of such non-payment. Section 13A (3) (a) of the PFA provides that: 14 Section 13A (2)(b) of the PFA. 15 Regulation 33 (1) (a) to the PFA. 16 Regulation 33 (2) (b) to the PFA.

6 SPECULUM JURIS VOLUME 29 PART Any contribution to a fund in terms of its rules, whether it be a contribution contemplated in subsection (1), a contribution for the payment of which a member of the fund is responsible personally, or a contribution to be paid on a member's behalf- i) shall be transmitted directly into the fund's account with a bank finally registered as such under the Banks Act, 1990 (Act No. 94 of 1990), not later than seven days after the end of the month for which such a contribution is payable; or ii) shall be forwarded directly to the fund in such a manner as to have the fund receive the contribution not later than seven days after the end of that month;. 17 Section 13A (3) mandates an employer of any member of a fund to make monthly payments of amounts deducted directly from the employee s salary to the fund which his or her employee belongs within seven days of each month for which such contribution is payable. In order to induce employers to pay over the contributions to the fund, section 13A (7) provides for an interest to be payable on the amount of any contribution not transmitted or received by the fund or its insurer as prescribed in section 13A(3) of the PFA. Interest in terms of section 13A (7) must be calculated from the first day of the month following the expiration of the period in respect of which such contribution or transfer value is payable or transferable, until the date of receipt by the relevant fund. On 08 January 2004, the FSB issued a circular which sought to deal with the practical application of section 13A of the PFA and Regulation 33 to the PFA. It must be noted that circulars are not law and they are non-binding, but mere useful guidelines which are meant to assist in the management of pension schemes. In terms of Circular PF NO. 110: The amount of late payment and unpaid amount is determined per employer. Each participating employer, including subsidiary companies participating in the fund would be regarded as a separate employer. Interest thereon is calculated separately per period. All references to days will be to calendar days, which include weekends. Should any of the due days fall on a weekend or a public holiday, the following working day will be regarded as the day specified in the Act and Regulations. 18 Regulation 33 (7) to the PFA further provides that compound interest on late payments or unpaid amounts and values shall be calculated for the period from the first day of the month following the expiration of the period in respect of which the relevant amounts or values are 17 GG of 2 April Circular PF NO. 110 para 1. 73

7 SECTION 13A OF THE PFA: EMPLOYER S FAILURE TO PAY EMPLOYEES CONTRIBUTION TO THE EMPLOYEE S PENSION FUND payable or transferable until the date of receipt by the fund. 19 However, notwithstanding the threat of interest being payable, there are employers who are not paying their employees contributions to their respective retirement funds. Other than the payment of interest by defaulting employers, there was initially no other sanction against such employers in section 13A of the PFA. Nonetheless, s 13A (6) of the PFA provides that the principal officer of the retirement fund or any other authorised person may monitor compliance of section 13A by employers and compile a report to the board of trustees on his or her findings. 20 This simply entails that the principal officer or such authorised person should report non-payment of contributions to the board of trustees. The board of trustees must then instruct the principal officer to inform those members of the fund in respect of whom the contributions are outstanding. 21 Regulation 33 (5) to the PFA further provides that; If any failure to transmit contributions referred to in section 13A (1) of the Act in the manner prescribed in section 13A (3), continues for 90 days the monitoring person indicated in section 13A (6), shall report the matter in detail within 14 days of the expiration of such 90 days period to the Attorney General and inform the registrar accordingly. 22 Regulation 33 therefore empowers the principal officer to approach the prosecuting authority to open a case against defaulting employers. It has been held that it is also a criminal offence not to deduct and pay contributions to the fund within seven days of the end of the month to which they relate. 23 Further that the conduct of employers that are not paying over contributions to the retirement funds despite having made deductions from their employees salaries is a punishable offence in terms of section 37 (1) of the PFA. 24 In terms of Circular PF NO. 110, the principal officer or the authorised person should also report non-payment of contributions to the South African Police Service at the commercial branch nearest to the fund s registered address so that a docket can be opened and a case number issued. 25 Such docket will be allocated an investigating officer who will also report the matter to the director 19 GG of 06 April Regulation 33 (7) further stipulates that such interest shall constitute investment income for the fund and shall be payable to the fund by no later than the end of the second month following the month in respect of which the amount is received or the value transferred, as the case may be. 20 See Regulation 33 (3) wherein it is stated that the monitoring person indicated in section 13A (6) of The PFA shall then in writing report the said failure to comply with the provisions of subsections (2)(b) and 3(a) of section 13A to the board within 7 days. 21 GG of 06 April 2001 para See also Regulation 33 (6) which provides that the registrar may, at his discretion inform the Commissioner for the South African Revenue Services of any failure to comply with section 13A of the PFA for whatever action the Commissioner for the South African Revenue Services deems necessary to take against the participating employers and/or the board of the fund. 23 Bohm v National Productivity Institute PFA/GA/3865/2001/MR para Mbundu v Security Employees National Provident Fund PFA/WE/2314/05/KM para Circular PF NO. 110 para 8.1.

8 SPECULUM JURIS VOLUME 29 PART of Public Prosecutions in the specific area for the investigations and commence with investigations under the watch of the office of the director of Public Prosecutions. 26 The investigating officer must be furnished with the affidavit of the principal officer or the authorised person who reported the case and a certificate from the registrar of companies providing details of directors of companies in default. 27 When investigations are complete, anyone found guilty of contravening or failing to comply with section 13A, will be liable upon conviction to a fine. 28 It is worth noting that both Bohm and Mbundu determinations were delivered in 2001 and 2005 respectively, thus handed down before the 2008 amendments to the PFA which at the time still contained criminalisation provisions. In 2008, section 14 of the Financial Services General Laws Amendment Act 22 of 2008 amended the PFA by deleting subsection (1) from section 37 of the PFA which imposed criminal sanctions on those who failed to comply with certain provisions on the PFA, including section 13A. This effectively decriminalised the employer s non-payment of employees contributions to the pension fund as required by section 13A of the PFA. It was not entirely clear what motivated the removal of criminalisation provisions from the PFA. It might perhaps be that the threat of criminal sanctions did not prove to be particularly effective to induce employers to comply with section 13A. This indeed was reflected by the fact that even before 2008 amendments the office of the Adjudicator continued to receive complaints of non-compliance and thus issued determinations on this point despite the threat of criminal sanctions. 29 The private security sector dominated the complaints received by the office of the Adjudicator. This led to the Adjudicator in 2005 to state that many cases received by this office which reflect the worrying and endemic habit of certain participating employers in the private security sector of not paying over contributions to the pension/provident funds in which they are participating, despite having made deductions from their employees wages for that purpose. 30 Such conduct has also been referred to as deplorable and unfair to the members as it deprives them of their hard earned retirement savings. 31 It is evident from the cases which the office of the adjudicator received that the imposition of criminal sanctions did not prevent some employers from not making payment of contributions to the funds to which 26 Circular PF NO. 110 para Circular PF NO. 110 para Circular PF NO. 110 para Mbundu v Security Employees National Provident Fund para Mbundu para Mbundu para 2. 75

9 SECTION 13A OF THE PFA: EMPLOYER S FAILURE TO PAY EMPLOYEES CONTRIBUTION TO THE EMPLOYEE S PENSION FUND they are participating. This can only be because there were no clear and direct enforcement mechanisms which could induce employers to make payments of contributions as required by section 13A of the PFA. There is evidence in terms of the number of cases which the Adjudicator continued to deal with post 2008 regarding the employers non-payment of contributions to pension funds that the decriminalisation of non-compliance with section 13A of the PFA by 2008 amendments to the PFA did not improve the conduct of unscrupulous employers in this regard. 32 In actual fact this created a fertile environment, more particularly in the private security sector for employers to rob their employees of their retirement funds by not making contributions to pension funds which their employees are members. If pension funds do not receive contributions from employers as required by the rules of the funds and section 13A of the PFA, employees would not be able to receive their benefits when they either retire or get retrenched. As such, there was a need for the legislature to remedy the situation in order to afford some form of protection to members of pension funds. The FSLGAA was signed into law on 16 January This Act, amongst others, amends section 37 of the PFA. It reintroduces criminal sanctions which will be imposed on all those who will fail to comply with certain provisions of the PFA including section 13A of the PFA. According to the National Treasury this Act aims to ensure that South Africa has a sounder and better regulated financial services industry which promotes financial stability by strengthening the financial sector regulatory framework and enhancing the supervisory powers of the regulators. 33 In the context of the pension fund industry, this means that boards of trustees, the Registrar of Pension Funds and the Adjudicator would be empowered to deal effectively with employers and funds which fail to adhere to the requirements of the PFA, more particularly section 13A of the PFA. The FSLGAA is a far reaching legislation which makes non-payment of retirement funds contributions by employers to relevant funds a criminal offence, punishable by a fine of up to R10 million and/or imprisonment of up to 10 years. 34 The amended section 37 (1) (a) and (c) 32 See among others Motlhamme v The Private Security Sector Provident Fund PFA/GP/ /2013/TKM para Media Statement (2013) available at: < %20Commencement%20dates%20for%20FSLGA%20.pdf (accessed 06 July 2014). 34 Section 49 of FSLGAA, which amended section 37 of the PFA.

10 SPECULUM JURIS VOLUME 29 PART of the PFA provides that any person who contravenes or fails to comply with sections 4, 10, 13A, 13B or 31 is guilty of an offence and liable on conviction to a fine not exceeding R10 million or to imprisonment for a period not exceeding 10 years, or to. It is unfortunate that these amendments do not provide clear guidance or rather procedure which can be used by boards of trustees in particular to enforce these provisions when employers fail to pay contributions as required by law. Circular PF NO. 110 as discussed above, makes provision for the principal officer to approach the National Prosecuting Authority in order to lay a charge against the defaulting employer. However, these recent amendments do not make provision for this. Does this mean that an aggrieved member of the fund whose employer failed to make payment of contributions to his or her pension fund can go directly to the nearest police station and lay a charge against his or her employer or does he or she first have to liaise with the principal officer of the fund in order for such principal officer to act in accordance with Circular PF NO. 110? Nonetheless, I submit that over and above criminal sanctions, there must be a provision which allows the fund to sue the employer civilly for its failure to pay the contributions on time. I am of the view that the threat relating to criminal sanctions as well as possible civil suit might encourage employers to start complying and forwarding the members contributions to the respective funds. However, due to the fact that generally criminal sanctions are meant to punish the perpetrator and not necessarily to compensate the victim for the loss suffered, I am of the view that criminal sanctions generally are not going to assist employees whose employers failed to pay contributions to their pension funds. The only thing that such employees need and want is to be accorded their rightful benefits, as such they are not particularly interested in whether their employers are going to be jailed or fined. Perhaps if these criminal sanctions are adequately enforced, this can induce employers to comply with section 13A of the PFA. As illustrated above, employers have circumvented the criminal justice system when non-payment of contributions was criminalised before; hence there is no reason to believe that employers this time around would not circumvent the system. As such, I submit that the board of trustees should be empowered to sue employers who fail to forward members contribution to them, in order to ensure that such contributions are received so that members should not suffer as a result of the conduct of unscrupulous employers. However, amendments to section 13A of the PFA seem to be the step in the right direction because they mandate employers to appoint a specialised individual who should see to it that 77

11 SECTION 13A OF THE PFA: EMPLOYER S FAILURE TO PAY EMPLOYEES CONTRIBUTION TO THE EMPLOYEE S PENSION FUND contributions are made to the respective funds. These amendments introduced three more subsections to that section, subsection (8), (9) and (10). These amendments aim to pierce the corporate veil and mandates employers to identify a person who can be held personally liable for non-payment of contributions to the fund to which his or her corporation is participating. In terms of section 13A (8) of the PFA, the people who shall be personally liable for compliance for the payment of any contributions to the fund are: (a) If an employer is a company, every director who is regularly involved in the management of the company s overall financial affairs; (b) if the employer is a close corporation registered under the Close Corporations Act, 1984 (Act No.69 of 1984), every member who controls or is regularly involved in the management of the close corporations overall financial affairs; and (c) in respect of any other employer of any legal status or description that has not already been referred to in paragraphs (a) and (b), every person in accordance with whose directions or instructions the governing body or structure of the employer acts or who controls or who is regularly involved in the management of the employer s overall financial affairs. If the corporation did not inform the fund of any person who will be making payments to the fund, and thus fail to pay contributions to the fund as required by section 13A of the PFA, subsection 13A (8) will be used to determine the person who will be held personally liable for the corporation s failure to make contributions. This will generally be a person who is manages the finances of the corporation. However, these amendments encourage employers to inform pension funds upon written request of the person who will be responsible for making payment, who will thus be held personally responsible should the corporation fail to pay contributions. In terms of section 13A (9) of the PFA, the pension fund to which the employer is participating must request the employer in writing to: (a) notify it of the identity of any such person so personally liable in terms of subsection (8). In the event that an employer fails to comply with the requirements of this provision, all the directors (in respect of a company), all the members regularly involved in the management of the close corporation (in respect of a closed corporation), or all the persons comprising the governing body of the employer, as the case maybe, shall be personally liable in terms of subsection (8). Section 13A (9) of the PFA aims to ensure that there is no confusion as to who should be held liable for the corporation s failure to pay contributions to the fund. This subsection is particularly important as far as big corporations are concerned which have various department as well as a dedicated department dealing with finances which might be staffed by various individuals with more or less the same responsibilities regarding the finances of

12 SPECULUM JURIS VOLUME 29 PART the corporation. It is not clear from these amendments, if after such a person has been identified and the company experiences financial difficulties which lead to the identified person to fail to make contributions to the fund, whether such identified person would still be held liable for the non-payment. This subsection appears to be placing a heavy burden on the identified person more particularly if the non-payment is due to circumstances beyond his or her control, for instance, financial difficulties experienced by the corporation. However, as far as employers who continue to deduct contributions from their employees salaries and fail to pay them over to the intended pension funds, this subsection appears to be what is needed to address this issue. Section 9 (10) of the PFA mandates board of trustees to report any noncompliance with section 13A in accordance with such conditions as may be prescribed. This entails that there is a duty on the board of trustees to ensure that employers who fail to comply with the requirements of section 13A of the PFA are adequately dealt with by among others reporting them to the National Prosecuting Authority to face heavy criminal sanctions imposed by the recent amendments to the PFA. These amendments are welcomed and are a step in the right direction and would go a long way in ensuring that contributions made by members of pension funds reach the funds to which they are contributing. 4 THE FSB AND PENSION FUNDS ADJUDICATOR 4.1 The FSB The FSB is a unique independent institution established by the Financial Services Board Act 97 of 1990 (the FSBA) to oversee the South African non-banking financial services industry in the public interest. 35 The FSB administers various statutes within the financial sector, including the PFA which it administers through the office of the Registrar of Pension Funds. 36 Thus, the Registrar of Pension Funds is a supervisor of the retirement fund industry. 37 Therefore, the FSB has a role to play when section 13A of the PFA has been infringed. 35 Available at < (accessed 20 February 2014).The FSB is responsible for ensuring that entities which it regulates comply with relevant legislation as well as capital adequacy requirements to promote financial soundness of these entities. It also seeks to protect the investing community and its vision is to promote and maintain a sound financial investment environment in South Africa. The mission of the FSB is to promote a safe and stable environment for members of retirement funds and friendly societies so that obligations of all stakeholders are met when due. 36 Available at 20 February 2014). 37 Available at (accessed 20 February 2014). 79

13 SECTION 13A OF THE PFA: EMPLOYER S FAILURE TO PAY EMPLOYEES CONTRIBUTION TO THE EMPLOYEE S PENSION FUND Section 10 (3) of the FSBA empowers the FSA to establish an enforcement committee which will be responsible for enforcing compliance with the laws regulating financial institutions and the provision of financial services. The Enforcement Committee is an administrative body established to adjudicate all alleged contraventions of legislation, regulations and codes of conduct administered by the FSB. 38 The Committee may impose unlimited penalties, compensation orders and cost orders which are enforceable as if they were judgments of the High Court of South Africa. 39 Section 6 of the Financial Institutions (Protection of Funds Act) 28 of 2001 empowers the Registrar of Pension Funds to institute proceedings in the High Court to: compel any institution to comply with any law or to cease contravening a law 40 ; compel any institution to comply with a lawful request, directive or instruction made, issued or given by the registrar under a law 41 ; or obtain a declaratory order on any point of law relating to any law or to the business of an institution. 42 The Registrar of Pension Funds is duly empowered to refer cases of non-payment of pension fund contributions by the employer to the Enforcement Committee. However, it is disappointing that the Registrar has not been keen in referring these violations of section 13A of the PFA to the Enforcement Committee. 43 There has not been a single case involving the non-payment of retirement fund contributions brought before the FSB s Enforcement Committee. 44 The Registrar is not statutorily compelled to act or even to refer cases to court and he or she seems to be exercising his or her discretion in his regard. It has been argued that the FSB does not want to use the Enforcement Committee as a collecting agent when retirement funds should be using other ways to collect the contributions due to them. 45 I submit that the FSB's attitude in this regard is not sound, in that it needs to be more proactive through the Enforcement Committee and use resources at its disposal to assist members of pension funds as and when they are called to do so. I am of the view that the Enforcement 38 Available at (last accessed 20 February 2014). 39 Available at (accessed 20 February 2014). 40 Section 6 (1)(b) of the Institutions (Protection of Funds Act). 41 Section 6 (1)(c) of the Institutions (Protection of Funds Act). 42 section 6 (1)(d) of the Institutions (Protection of Funds Act). 43 See Employers: not paying pension contributions could be criminal Moneyweb (15 January 2013).where it is stated that although that committee was empowered to impose civil penalties on those who violated provisions of various financial services laws, for unknown reasons the registrar has not referred non-payment cases to the enforcement committee. 44 Available at ( accessed 20 February 2014). 45 Du Preez Employers reneging on pension payments (17 March 2013) IOL.

14 SPECULUM JURIS VOLUME 29 PART Committee, with its capacity to impose penalties with the weight of High Court orders, can play a critical role in ensuring a safe and stable environment for retirement fund members when they seek to save for their retirement but are unable to do so because of unscrupulous employers who do not pass over their contributions to relevant funds. In addition to the section 13A (10) reporting which imposes criminal sanctions, it is important that boards of trustees through principal officers are encouraged to report employers who are not paying over contributions they deduct from their employees salaries to the funds to the Registrar of Pension Funds, who should forward such complaints to the Enforcement Committee to be dealt with accordingly. 4.2 The Adjudicator The office of the Adjudicator is established in terms of section 30B of the PFA to dispose of complaints lodged with that office in terms of section 30A (3) of PFA in a procedurally fair, economical and expeditious manner. 46 In terms of section 30O of the PFA any determination of the Adjudicator shall be deemed to be a civil judgment of any court of law had the matter in question been heard by such court, and shall be so noted by the clerk or registrar of the court, as the case may be. Such a determination can only be set aside by the High Court in terms of section 30P of the PFA. 47 It is common cause that the office of the Adjudicator is merely an administrative tribunal performing a judicial function and its determinations do not constitute stare decisis. Employees whose employers deducted amounts from their salaries but failed to pay contributions over to the fund, may first lodge a written complaint with a fund (or the fund administrator) to which they belong or an employer who participates in a fund. 48 The fund concerned or the employer if the complaint was directed to the employer should properly consider and reply to such a complaint in writing within 30 days of receipt of such complaint. 49 If the fund or the employer fails to reply to such complaint, or there is a reply but the complainant is not satisfied with such a reply, it is then that such complainant can lodge a complaint with the office of the Pension Funds Adjudicator. However, the adjudicator 46 Section 30D of the PFA. 47 While this is beyond the scope of this paper, it is noting that issues relating to administrative action as far as setting aside Adjudicators determinations is concerned have also been raised. See Altron Group Pension Fund v Thomson CSF South African Pension Fund, Case no 08/25327, (21 September 2009) unreported. 48 Section 30A (1) of the PFA. 49 Section 30A (2) of the PFA. 81

15 SECTION 13A OF THE PFA: EMPLOYER S FAILURE TO PAY EMPLOYEES CONTRIBUTION TO THE EMPLOYEE S PENSION FUND will only have jurisdiction over pension funds which are regulated by the PFA and not those which are regulated by their owns law, like the Government Employees Pension Fund. 50 Over the years the office of the Pension Funds Adjudicator has received many complaints dealing with the employers failure to pay contributions to the retirement funds. 51 In the matter of Sakwe v Security Employees National Provident Fund 52 the adjudicator held that: These two complaints... are just a sample of the many complaints received by this Tribunal reflecting the worrying and seemingly endemic habit of some participating employers in the private sector of not paying over contributions to the pension and provident funds in which they are participating after making deductions from their employees salaries for that purpose. A related malaise is that of employers generally failing to pay contributions to the fund within the time period stipulated in section 13A of the Act (24 of 1956). This result[s] in the funds being unable to pay out benefits to the members and/or their dependants when they fall due. 53 In Gafane v The Orion Money Purchase Pension Fund (SA), 54 the employee sought an order directing the employer to pay contributions to the fund which ought to have been paid during his period of membership as well as an order directing the fund to pay him his retirement benefit. 55 The Adjudicator found that upon the employee s re-employment in terms of the rules of the fund, it was compulsory for him to be a member of the fund. 56 The Adjudicator was convinced that the employer s failure to make contributions on behalf of the employee 50 See generally Marumoagae Divorce and the Clean Break Principle 2013 (10) De Rebus Mgaju v Private Security Sector Provident Fund [2009] 3 BPLR 289 (PFA), Mthimkhulu v NCB Holdings (Pty) Ltd PFA/GA/8180/2006/SM, Mbundu v Security Employees National Provident Fund PFA/WE/2314/05/KM, Sakwe v Security Employees National Provident Fund; Security Employees National Provident Fund [2005] 6 BPLR 527 (PFA), Mes v Liquidator of Art Medical Equipment Pension Fund (1) [2005] 4 BPLR 326 (PFA), Martin v The Printing Industry Pension Fund for SATU Members [2003] 4 BPLR 4562 (PFA), Beck NO v This Day (Pty) Ltd [2005] 6 BPLR 471 (PFA), Neville BoHM v National Productivity Institute and Another PFA/GA/3865/2001/MR, Mali v Nabielah Trading CC t/a Security Wise [2007] JOL (PFA), Tembe v The Private Security Sector Provident Fund [2011] 2 BPLR 280 (PFA). 52 [2005] 6 BPLR 527 (PFA). 53 Sakwe v Security Employees National Provident Fund para CASE NO: PFA/GA/761/99/NJ. 55 See Gafane v The Orion Money Purchase Pension Fund (SA) PFA/GA/761/99/NJ wherein the employee lodged a complaint with Adjudicator because the fund refused to pay his withdrawal benefits after being retrenched by his employer. The employee was initially dismissed for allegedly being absent without leave. No benefit was paid by the fund because the rules of the fund did not make provision for a benefit upon termination of service for any reason other than retrenchment. The employee took the employer to the CCMA, wherein it was awarded that the employee should be re-employed on the same terms and conditions as he enjoyed before. The employee commenced duty, but the employer decided not to place him on the pension fund and refused to make any contributions on behalf of the employee towards the fund. After a restructuring of a company by the employer, the employee was ultimately retrenched. The employee became prima facie entitled to receive withdrawal benefits from the fund because he was an eligible employee in terms of the rules of the fund. 56 Gafane v The Orion Money Purchase Pension Fund (SA) PFA/GA/761/99/NJ para 19.

16 SPECULUM JURIS VOLUME 29 PART has caused the fund to suffer loss. 57 The Adjudicator determined that the fund should compute the employee s benefit by deeming the employee to have been a member of the fund for a specified period and ordered the fund to pay such calculated amount by the employee together with interest. 58 The adjudicator then ordered the employer to pay the amount which the fund paid to the employee. 59 The fund then launched an application to the High Court to set aside the order of the Adjudicator. 60 At the High Court, it was argued that the rules do not permit the fund to deem contributions to have been paid and then pay out withdrawal benefits on the basis of such notional contributions as the withdrawal benefits are confined to the amounts that have accrued in respect of contributions which had actually been paid. 61 The High Court was convinced that the fund may only act within the powers conferred upon it by its rules, and its rules do not provide for the payment of non-existent benefits. 62 The High Court set aside the order of the Adjudicator and ordered the employer to pay the employee the amount he would have received from the fund had his contributions being made to the fund plus interest. 63 The essence of this decision was that when employers choose not to pay over their employees contributions to the relevant pension funds which by virtue of the rules of those funds they should, such employers would be held liable to pay their employees amounts which such employees would have received from such funds had the contributions been duly paid to such funds when such employees leave their service. The significance of the Adjudicator s determinations is that unlike criminal sanctions imposed by the 2013 amendments to the PFA, these determinations are aimed at compensating employee members for the loss they suffered as a result of their employer s conduct. In Martin v The Printing Industry Pension Fund for SATU Members 64 the complaint lodged with the Adjudicator related to the failure by the participating employer to pay contributions to the retirement fund. 65 The employee sought an order compelling the employer to make payments of his contributions to the fund. The Adjudicator then ordered the employer to pay all the employee contributions which were outstanding to the fund Gafane v The Orion Money Purchase Pension Fund (SA) PFA/GA/761/99/NJ para Gafane para Gafane para Orion Money Purchase Fund (SA) v Pension Funds Adjudicator [2002] JOL (C). 61 Orion Money Purchase Fund (SA) Orion Money Purchase Fund (SA) Orion Money Purchase Fund (SA) [2003] 4 BPLR 4562 (PFA). 65 Martin v The Printing Industry Pension Fund for SATU Members at Martin

17 SECTION 13A OF THE PFA: EMPLOYER S FAILURE TO PAY EMPLOYEES CONTRIBUTION TO THE EMPLOYEE S PENSION FUND In recent determinations, the adjudicator has been willing to order employers whose employees have laid a complaint against them to first register such employees with the relevant funds and submit all the schedules for the period of employment of employees to such funds in order for such funds to facilitate the computation of such employees withdrawal benefits. 67 She has further ordered the fund to submit its computation to the employer for the employer to pay directly to the fund the employees withdrawal benefits together with late payment interest. 68 She has further ordered the fund that upon receiving payment from the employer to pay the employee member his withdrawal benefits. 69 Where it is compulsory within a certain industry for an employer to register with a particular retirement fund, the adjudicator has duly ordered the fund to register with such fund as that fund s participating employer CONCLUSION This paper discussed the challenge faced by some employees who, when leaving their employment, cannot receive their withdrawal benefits because their employers had failed to pay their contributions to the relevant retirement funds. Most of these employees have approached the office of the Pension Funds Adjudicator for relief. It appears from the determinations of the Adjudicator discussed that the only appropriate relief for such employees is to place them in the position they would have been had their employers regularly paid all the contributions to their respective funds. 71 This the Adjudicator has achieved by among others ordering the employer to pay the employee what the fund was most likely to pay to the employee had the contributions being made. It was shown in this paper that the legislature has sought to address non-payment of retirement fund benefits by employers to retirement funds to which they are obliged to make contributions to after deducting amounts from their employees through threat of criminal sanctions and personal liability. Other than legislative interventions referred to above 72 the FSB s Enforcement Committee should start being active with regard to the violations of 67 See Moloantoa v The Prvate Security Sector Provident Fund and Others PFA/ /2013/TKM paras and Selebogo v The Private Security Sector Provident Fund and Another PFA/NW/ /2013/PGM para Moloantoa para and Selebogo para Moloantoa para Selebogo para Moloantoa para The promulgation of FSLGAA.