SECTION 13A of the Pension Funds Act obliges an employer to pay any contributions that in terms of the rules of the fund must be deducted from the employee’s remuneration, and any contribution for which the employer is liable in terms of the fund’s rules.     Freepik
SECTION 13A of the Pension Funds Act obliges an employer to pay any contributions that in terms of the rules of the fund must be deducted from the employee’s remuneration, and any contribution for which the employer is liable in terms of the fund’s rules. Freepik

Temporary reprieve for pension contributions

By Deirdre Phillips Time of article published Mar 30, 2020

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Employers in financial distress as a result of the Covid-19 pandemic and unable to pay their full contributions to employee retirement funds have been given a temporary reprieve.

Provided these employers urgently reach agreement with the retirement funds concerned on rules to deal with the temporary suspension or postponement of payments, and submit these without delay to the Financial Sector Conduct Authority (FSCA), they will not face prosecution for non-compliance with the Pension Funds Act (PFA).

However, it is crucial to note that funds must attempt to ensure that participating employees continue to pay their full risk-benefit premiums where applicable to ensure that risk benefits such as death and ill-health benefits will be provided.

Provision for the suspension of fund contributions for financially distressed employers who meet the conditions is outlined in a communication published by the FSCA, hours before the national Covid-19 lockdown came into effect at midnight on Thursday.

The notice is titled “FSCA communication 11 of 2020 (RF) - Covid-19: section 13A of the PFA, 1956, and financially distressed employers and employees - submission of urgent rule amendments”.

The communication acknowledges the financial impact of the Covid-19 global pandemic on employers and employees, and that certain employers might not be in a financial position to pay their full contributions to the retirement fund they participate in terms of section 13A of the PFA. It serves as a guidance to funds to assist employers who are financially distressed and unable to pay contributions to their respective funds.

Section 13A of the PFA places an obligation on an employer to pay any contributions that, in terms of the rules of the fund, must be deducted from the employee’s remuneration, and any contribution for which the employer is liable in terms of the fund’s rules.

Fund contributions must be paid by no later than seven days after the end of the month for which such contributions are due.

Non-compliance with section 13A is a criminal offence, and every director of a company who is regularly involved in the management of the company’s overall financial affairs will be personally liable for the company’s payment of contributions and related compliance with section 13A.

Section 37(1) of the PFA provides that “any person” (thereby including the employer company and individual directors) who fails to comply with or contravenes section 13A is guilty of an offence. On conviction, such a person is liable to a fine of up to R10million or imprisonment for a period not exceeding 10 years or both.

Employers and retirement funds should respond immediately to the FSCA’s guidance notice.

The FSCA has urged funds that do not have rules in place to make provision for temporary absence from work (with or without full pay), or a break in services and/or postponement of contributions payments and/or reduction of pensionable service, urgently to submit relevant rule amendments to the FSCA after engagements with the employer.

The FSCA has also advised that funds must attempt to ensure that full risk benefit premiums (to the extent applicable) continue to be paid in full by participating employers to ensure that risk benefits will be provided.

It is important to note that funds will be required to inform affected members of their employer’s request to reduce or suspend fund contributions, as well as the proposed rule amendment to that effect (if necessary), within 30 days of receipt of the employer’s request.

Given the severe consequences in the event of non-compliance with section 13A, the communication will no doubt be welcomed by financially distressed employers and employees, especially in circumstances where employers are considering whether to reduce salaries and/or cut jobs during these unprecedented times.

In addition to retirement fund benefits, employers should consider whether any other employee benefits might be impacted in the event of a reduction of salaries or temporary suspension of salaries during the Covid-19 pandemic.

Deirdre Phillips is a partner in the banking and financial services regulatory practice at Bowmans.

PERSONAL FINANCE 

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