The draft conduct standard on the “Requirements related to the payment of pension fund contributions”, which will replace Regulation 33 of the Pension Funds Act (PFA), was submitted to Parliament in December last year, the FSCA said in a communication this week.
The draft standard, which was issued in terms of section 106(1) of the Financial Sector Regulation Act, was published for public comment in May 2020.
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The highlights of the standard are:
- It stipulates the minimum information that employers making contributions in terms of section 13A of the PFA must provide to retirement funds.
- It obliges funds to report employers that contravene or do not comply with sections 13A(2)(b) or 13A(3)(a) of the PFA.
- It sets the rate of interest payable on late or unpaid contributions.
One of the most contested provisions that emerged during consultations with the industry was the requirement for trustees to report to the SA Police Service employers that do not comply, for 90 consecutive days, with sections 13A(2)(b) or 13A(3)(a) of the PFA. In other words, employers that fail to submit the required information when paying contributions or fail to pay contributions.
Industry commentators said the SAPS is not willing to open a case for these contraventions, and the National Prosecuting Authority is unwilling to investigate or prosecute them. It was also pointed out that, in the case of umbrella funds, the requirement could result in hundreds of cases being reported each month.
In response, the FSCA said the provision was required, as fear of prosecution would act as a deterrent.
The FSCA also said:
- It was liaising with the SAPS to improve the process for reporting these contraventions.
- If a board reports non-compliance to the SAPS, but the SAPS refuses to open a case, the trustees will not be in contravention of the conduct standard.
- That there might be a high volume of reporting in the umbrella fund environment was a cause for concern, not a reason to remove the requirement.
However, as a concession, the FSCA amended section (4)(a) of the conduct standard so that only “material” contraventions or non-compliance must be reported to the SAPS.
The requirement that trustees must report “material” contraventions or non-compliance of sections 13A(2)(b) or 13A(3)(a) of the PFA to affected fund members has been retained.
There were objections to the extensive information that must be contained in a contribution statement. There were concerns that not all the member information will be available or applicable, with the result that retirement funds and participating employers will not be compliant with the conduct standard.
As a result, the standard has been amended so that certain information is not mandatory if it is not available.
Commentators were also concerned that the conduct standard does not contain a mechanism to force employers to provide members’ personal information.
The FSCA said employers that did not provide the required information would be in contravention of the conduct standard and, typically, section 13A of the PFA. A penalty can be imposed, in terms of section 37 of the PFA, for such a contravention.
Late payment interest
The conduct standard sets the interest rate for arrear contributions at the prime rate plus 2% – the amended wording makes it clear that funds do not have any discretion in this regard.
The standard’s provisions on late payment interest will replace Government Notice 397 of 12 May 2010, the FSCA said.
In keeping with section 103(5) of the National Credit Act, the interest on unpaid amounts may not exceed the principal debt (inclusive of the costs associated with the recovery of the unpaid amounts).
Longer implementation period
Some commentators said the 90-day implementation period was insufficient for the necessary changes to be made to administration systems.
The FSCA said most of the requirements in the conduct standard are based on the existing requirements in Regulation 33. To the extent that new requirements are included, the FSCA said these requirements will not necessitate major system changes.
However, the FSCA has amended the implementation date to six months after the standard has been published or a later date determined by the authority.
If implementing the standard within six months is limited to specific entities, the FSCA will consider these instances on a case-by-case basis and, if justified, dispensations will be granted via exemptions.
Impact on the industry
The FSCA said the conduct standard will not have a significant impact on the retirement industry, because most of the requirements have been law for an extended period through Regulation 33.
However, the standard will result in increased costs in some cases, particularly because of system and process changes, as well as additional administration costs. But commentators did not provide quantitative data or estimations of the expected increase in costs, the FSCA said.