Two-pot, what pot? What to do if your employer never paid over your pension contributions to your pension fund

Introduction 

On the 1st of September 2024 the highly anticipated two - pot system was launched to give many South Africans the option of accessing their retirement funds earlier than retirement. This came at a much-needed time as many South Africans are struggling financially and need a financial boost to cover expenses which cannot ordinarily be covered by one's salary. The rising cost of living also worsens the situation. 

However, what happens when one attempts to withdraw from their savings pot in the two-pot system and is informed that they have no retirement savings as their employer never paid over the pension contributions? That is the question this article seeks to answer.

The issue 

In South Africa it is a common and unfortunate theme that employers deduct pension contribution amounts from their employees' salaries and neglect to pay over those amounts to the pension fund. The Financial Sector Conduct Authority (FSCA) has updated its list of companies and entities who have not paid the required pension fund contributions in South Africa and this list reveals that about 4000 (four thousand) companies are in the red.  On the other hand, the SABC estimates that some companies have not been paying over contributions for as long as 20 years. See link to SABC article - Pension Fund Adjudicator flags employers defaulting on payments - SABC News - Breaking news, special reports, world, business, sport coverage of all South African current events. Africa's news leader.

Therefore, whilst many South Africans are overjoyed at being able to access much needed financial relief, there are some who have found themselves in the unexpected situation of having no retirement funds to access even though their payslips indicate they had been making contributions for years.  

The legal framework  

In terms of section 13A of the Pension Funds Act 24 of 1956 ("the Act") read together with the Financial Sector Conduct Authority, Conduct Standard 1 of 2022 ("the Conduct Standard") employers are required to pay pension contributions directly to the fund by the 7th day of each month following the month for which the contributions were made.  

If an employer is not paying over the amounts deducted from their employees' salaries, section 37(7) says that such an employer "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 both such fine and such imprisonment."

Employees therefore have the requisite legislative muscle behind them to force their employers to comply with the Act should they find that no contributions have been made on their behalf. 

The next question is, how can one go about enforcing their rights once they have become aware of the mischief? 

The office of the Pension Funds Adjudicator 

The Adjudicator was established in terms of section 30B of the Act and its mission is to resolve complaints pertaining to pensions and to protect pension fund members. Its services are free. 

If an employer has not paid over amounts as required in terms of section 13A of the Act, an employee can approach the Adjudicator with a complaint, and it is likely that the Adjudicator will make a determination in terms of section 30M of the Act that says the employer should pay the pension fund contributions plus interest at the prescribed rate. The section 30M determination by the Adjudicator is a binding decision the Adjudicator makes after conducting an investigation of the complaint. This decision by the Adjudicator has the status of a court order. 

Prescription 

Section 30I(1) of the Act limits complaints to 3 years in the sense that what is being complained of cannot arise from something that took place more than 3 years ago from the date of the complaint.

In the normal course most employees do not realise that their employers have been in contravention of section 13A for years and only realise this when trying to access their pension benefits. 

The effect of the 3-year rule is that any claim the employee has would be limited to claiming only 3 years' pension contributions worth from the employer to date of the complaint. This is not an ideal situation, especially for employees who have been working for the employer for a period exceeding 3 years with deductions having been taken for the entire period. 

Thankfully, section 30I(2) of the Act says that the provisions of the Prescription Act, 68 of 1969 apply in respect of a debt when calculating the 3-year rule in section 30I(1) of the Act.  

The provisions of the Prescription Act which deal with debt say that the 3-year limitation rule starts when the debt is due, however, the debt shall not be deemed to be due until the creditor (the employee in this case) has full knowledge of the facts from which the debt arises, provided that the creditor will be deemed to have such knowledge if he or she could have acquired it by exercising reasonable care. 

Most employees will only become aware that their employer was not paying over the pension fund contributions when they try to access their retirement benefits. This is the current situation where there has been an influx of employees trying to access their savings portion of the two-pot retirement system, only to find there is no pot to begin with. 

In such a case the law looks favourably upon the employee because the facts which allow the employee to become fully aware that the employer owes him or her retirement contributions, or retirement benefits only become known to the employee when trying to withdraw the retirement benefit. Therefore, the 3-year limitation rule would begin from the date the employee receives the shocking news that they have no benefits to withdraw. 

The effect is that the employer will be liable for all pension contributions from the time the employer started deducting the contributions. Furthermore, section 13A(7) of the Act says that where amounts are not paid into the pension fund's account within the 7 days as required, those amounts, when deposited into the pension fund's account, will, in addition, attract the prescribed rate of interest.  

This means the employer will be liable for the interest amount over and above the contributions. This ensures that the employee will enjoy the same benefits as if he or she had been contributing to the fund from day 1 when the first pension contribution was deducted and not paid over to the pension fund.  

Such a position is supported by the cases of Orion Money Purchase Pension Fund (SA) v Pension Funds Adjudicator and Others [2002] 9 BPLR 3830 (C) at 3839F-G and Mabale v Feedmix Provident Fund and Others [2008] 1 BPLR 29 at 37E-F where it was held that the aggrieved employee must be put in the position he or she would have been in had the employer timeously registered the employee with the fund and paid all provident contributions due.  

Conclusion

Where an employee finds that their employer is in contravention of section 13A of the Act it is not the end of the world. One can easily find assistance with the Adjudicator or an experienced pension law attorney. 

M Ntuli Attorneys are registered tax practitioners who provide assistance on a range of tax matters. We approach tax and legal issues with certainty.