The Institute of Retirement Funds has warned that some cash-strapped employers are keeping their employees’ retirement deductions and not paying the money to the retirement funds.
The problem for employees in this situation is that there is no way of knowing whether contributions are being made or not.
All appears well on the monthly payslip, in which the pension fund deductions are usually noted. It often only comes to light that the employer has not been paying contributions to the fund when the pension fund administrator sends its annual benefit statement. It is important not to wait until you receive your annual statement.
First, a company that is defaulting is usually in financial stress and runs the risk of being liquidated before you are able to claim back your pension deductions. Pension funds are not regarded as secured creditors but only as preferred creditors, so your claim may be at the end of the queue.
Second, a company may hold back deductions with the intention of ‘making good later”, hoping that the employee will not notice a delayed payment in his or her annual statement.
The problem is that in a strongly rising market, such as the 30% rise in the JSE All-Share Index since March, pension fund members will be losing out on the growth on the money that should have been invested in the market.
If you are concerned that your employer may be playing fast and loose with your pension deductions, you can ask the administrator each month if it has received all contributions.
The employer has seven days after the end of the month to transmit payment to the administrator and the administrator will need time to allocate contributions, so it would be wise to inquire after the second week of the month.
Many funds and administrators now permit members online access to their fund investments, so the member can check whether contributions have been paid by accessing his or her portfolio through the administrator’s website.
Under common law the employer commits theft or fraud if it collects pension fund contributions and fails to pay them to the recipient.
There is a new, all-encompassing provision that permits the Financial Services Board’s enforcement unit to impose administrative penalties on non-complying funds, administrators and employers.
So any defaults should immediately be reported to the Financial Services Board. One can also contact the Pension Funds Adjudicator (PFA), who can assist members, because non-payment of contributions amounts to an employer not fulfilling its duties in terms of the fund rules.
As the adjudicator’s determinations have the same force and effect as court orders, in the event of the employer not complying with the order, the fund may obtain a warrant of execution against the property of the defaulting employer and the sheriff can attach and dispose of the employer’s property.