The government is exploring amendments to the Basic Conditions of Employment Act (BCEA) to address the persistent issue of employers failing to remit retirement fund contributions. These changes aim to safeguard workers’ financial security and ensure compliance across industries.
The proposed amendments have been under discussion at the National Economic Development and Labour Council (Nedlac), a statutory forum where government, business, labour, and community organisations negotiate socio-economic policies.
Matthew Parks, the parliamentary co-ordinator for the Congress of South African Trade Unions (Cosatu), told Moonstone that the Department of Employment and Labour is seeking legal advice on reinforcing section 34A of the BCEA.
The key questions include whether employers can be legally obliged to pay interest on arrear contributions and whether amendments could bolster enforcement mechanisms.
Parks also disclosed that the department is taking legal advice on repealing a ministerial directive that prevents labour inspectors from investigating employers’ compliance with retirement fund contributions. This directive was initially introduced to avoid overlapping with the Financial Sector Conduct Authority’s jurisdiction but has since been identified as a barrier to effective enforcement.
The Department of Employment and Labour declined to provide Moonstone with further information about the potential amendments. Departmental spokesperson Teboho Thejane said the public will have an opportunity to comment once any draft amendments are published.
Enhancing enforcement mechanisms
In related developments, Finance Minister Enoch Godongwana said the Department of Employment and Labour is working on measures to enhance the enforcement of retirement fund-related claims under section 34A of the BCEA.
These include empowering the Labour Court, the Commission for Conciliation, Mediation and Arbitration, or bargaining councils to issue orders compelling employers to pay outstanding amounts on behalf of employees.
National Treasury is also engaging with the Department of Employment and Labour to address non-compliance in the private security sector, where numerous employers have failed to remit contributions to the Private Security Sector Provident Fund. This sector’s arrears are emblematic of a broader issue plaguing the retirement funding system.
The scale of the problem
The introduction of the two-pot retirement system on 1 September triggered a surge of withdrawal applications. Many members discovered that supposedly deducted contributions had not been paid to their funds.
In November last year, the FSCA disclosed that 2 330 employers were in arrears up to 31 December 2023.
According to the FSCA, funds have reported 7 770 employers across the private and public sectors for failing to make timely contributions. Of these, 36% are from the private security sector. The total outstanding contributions reached about R5.2 billion, representing 0.2% of the total R3.15 trillion in assets within South Africa’s retirement funding system.
Municipalities are also among the worst offenders, with nearly 150 implicated for not remitting contributions deducted from employees’ salaries. The unpaid contributions from municipalities alone are estimated at R1.4bn.
Business Day reported this week that Godongwana has written to the 20 municipalities with the highest arrear contributions urging them “to take appropriate measures against those delegated with the responsibility of ensuring the timely payment of statutory contributions”.
“The correspondence to municipal managers was to remind them of their fiduciary responsibilities under the Municipal Finance Management Act and to request them to put measures in place, including the development and approval of a payment plan in order to address the outstanding amounts.”
Challenges with prosecutions
Parks and Zareena Camroodien, the FSCA’s head of retirement fund governance and trustee conduct, confirmed that Nedlac is trying to find solutions to the problem of unpaid contributions – solutions that can be agreed upon by all stakeholders, including the Association for Savings and Investment South Africa, Cosatu, the FSCA, and National Treasury.
Camroodien told Moonstone that the FSCA will meet with the National Prosecuting Authority (NPA) next week to discuss the prosecution of delinquent employers.
In terms of the Pension Funds Act (PFA), failing to pay contributions on time is not only a breach of contract but also a serious violation of the law. Section 37(1)(a) of the PFA classifies the non-payment of contributions as a criminal offence, punishable by a fine of up to R10 million, imprisonment for up to 10 years, or both.
In terms of section 13A of the PFA, the board of a fund is responsible for ensuring that contributions are paid timeously.
To support section 13A, the FSCA introduced Conduct Standard 1 of 2022, which outlines the responsibilities of employers and retirement fund boards regarding contribution payments.
Boards must report material contraventions to the affected members and the FSCA. Where the contravention persists for 90 days, boards must lay a criminal complaint with the South African Police Service (SAPS) against the persons at the participating employer who are responsible for compliance with the PFA.
Camroodien told the National Assembly’s Standing Committee on Finance in November last year that funds and administrators have pointed out that when they report employers to the SAPS for non-payment, some police stations do not understand this is a statutory crime.
The Authority had a “very constructive” meeting in November with the NPA, which indicated it is willing to take forward a number of cases, she said.
Last year, municipal managers were prosecuted for the non-payment of retirement fund contributions. In the Northern Cape, the Directorate for Priority Crime Investigation (the Hawks) pursued cases against officials from Renosterberg Municipality. Three senior managers were charged with fraud, theft, and contraventions of the Municipal Finance Management Act and the PFA for failing to remit R73.5 million in retirement contributions between 2018 and 2023. The officials involved made their first court appearance in October 2024.
Additionally, Johnny Mackay, the former municipal manager of Kai !Garib Municipality, faces 271 counts of violating the PFA for failing to fully remit payments to the Consolidated Retirement Fund for Local Government between September 2021 and March 2022.
Collaborative path forward
The Conduct of Financial Institutions (COFI) Bill promises to further strengthen the FSCA’s oversight. Once enacted, the FSCA will gain direct regulatory authority over employers participating in retirement funds, enabling it to:
- Hold employers accountable for unpaid contributions.
- Engage directly with non-compliant employers.
COFI will also provide the Authority with an opportunity to collaborate with other oversight bodies to address ongoing compliance challenges.
Unathi Kamlana, the Commissioner of the FSCA, said last year that the Authority, in partnership with the Office of the Auditor-General of South Africa, is exploring the potential application of the material irregularity findings process. Under such an approach, audits of public entities revealing significant violations of the PFA would be referred to the FSCA or other relevant bodies for further investigation and enforcement action.
In addition to the anticipated promulgation of the COFI, Kamlana said the Authority is looking at enhanced collaboration with key stakeholders, such as SAPS, the NPA, National Treasury, and the South African Revenue Service.
FSCA Commissioner Unathi Kamlana emphasised the importance of partnerships with key stakeholders, including the Auditor-General, SAPS, and the NPA. These collaborations aim to ensure that violations uncovered during audits lead to meaningful enforcement actions.
In a world where social media can almost track every move, why not track employer’s bank accounts with payments to staff? I am sure banks can verify this information withe SARS and Dept of Labour? By having a system in place whereby employer make salary payments, the Dept of Labour and SARS should be able to establish which employers have paid over staff salary tax deductions and UIF contributions. This system should also be in place for the pension / provident / retirement fund contributions, which many employers deduct, but not pay over to the various funds. Our personal bank accounts have debi-check systems in place for when money is deposited, the debit orders are deducted. Why not have a similar system in place for employers and their obligations towards their staff?