Retirement funds and COVID-19: payment of contributions

The COVID-19 crisis has taken a major toll on the world’s economy, and has battered stock markets since the virus started spreading globally. Investment value was eroded and industries across sectors were financially impacted by the lockdown restrictions implemented to curb the spread of the virus.

 The Financial Sector Conduct Authority (FSCA) has called for retirement funds to urgently submit rule amendments to alleviate the financial difficulties faced by distressed employers and members during the COVID-19 pandemic if the Fund rules do not provide for such assistance.

The rules of the Funds administered by Master Builders KwaZulu-Natal do make provision to assist distressed employers. The rules provide for temporary absence, whether the member receives full pay, reduced pay or no pay. This is of great importance due to the dire condition of the construction and other industries, which are adversely affected due to the COVID-19 epidemic.

The rights of Funds and the responsibility of the employer as set out in Section 13A of the Pension Funds Act (PFA) is defined as follows:

• The employer must pay the contributions to the Fund by the 7th day after the end of the month in respect of which the contributions were payable.
• The contribution payment must be paid directly into the Fund’s bank account and must reflect therein by the 7th day after the end of the month in respect of which the contributions were payable.
• Penalty interest is payable on arrear contributions by the employer at the prescribed rate.
• The employer must provide the Fund with a monthly reconciliation of its member data which agrees to the contribution payment made.
• The Pension Funds Adjudicator defines the minimum information that the Employer must provide in the monthly returns.
• The Pension Funds Adjudicator also provides a reporting procedure that the Funds are obliged to follow should the Employer not pay over contributions in the prescribed period.

Section 13A of the Pension Funds Act (PFA)

Section 13A of the PFA compels the employer to pay the retirement fund contributions deducted from an employee’s salary as well as the employer’s contribution to the retirement fund in question within seven (7) days of the end of the month for which such contributions are deducted. A failure to comply renders the directors of the company personally liable for the payment of such amounts. Furthermore, it constitutes a criminal offence with severe penalties.

The FSCA therefore urges employers to continue with the payment of contributions where possible and to at least make contributions to cover the costs associated to risk benefits, such as group life and group disability benefits to ensure fund members are covered during these uncertain times.

Vishane Pramrajh | Employee Benefits Manager