FSCA cracks down on over R5bn in unpaid pension fund contributions

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JIMMY MOYAHA: The Financial Sector Conduct Authority, the FSCA, has been looking into the contributions of employers where it relates to pension funds on behalf of their employees. There has been a growing trend of employers defaulting and not making these contributions, and it is growing so much so that we now sit north of R5 billion in contributions that have not been made by employers.

The FSCA has had enough. It is going to be taking action around this, and they are exploring what they can do to get those that haven’t been paying to start paying.

I’m joined on the line by Zareena Camroodien, who is the head of Fund Governance and Trustee Conduct at the Financial Sector Conduct Authority, to take a look at this and see what’s planned here.

Good evening, Zareena. Thanks so much for taking the time. How did we get to R5 billion of unpaid contributions and how long has this been going on for?

ZAREENA CAMROODIEN: Good evening to you and to the listeners and thank you for affording the FSCA this platform. The issue of arrear contributions is not something that’s happened overnight. As you indicated, being north of R5 billion in arrear contributions is a longstanding problem.

But I think what has happened with the two-pot [retirement savings] system implementation is that it has basically amplified and brought attention to this problem …

When members tried to access the savings component during the two-pot implementation period they weren’t able to do so because some of them had no funds or insufficient funds to access anything from the savings withdrawal component.

I think that has shone the spotlight squarely on arrear contributions. So really it’s a longstanding problem, but it’s a problem that we are trying by all means to arrest as the FSCA together with other social partners.

JIMMY MOYAHA: Zareena, do we know which businesses specifically have not been contributing? We know that the likes of the private security sector have been some of the culprits there. Other examples include municipalities. Do we have a kind of more detailed list of who is not contributing and how much each person is not contributing at this stage – or each organisation or employer?

ZAREENA CAMROODIEN: Well, I think we have a good breakdown because we do obtain information from the funds as to who is not paying. As you rightly point out the private security sector is one of the main culprits with non-compliant employers. Then you have the hairdressing, beauty and skincare industry. That’s another.

And the bargaining councils – I’d say employers who participate in bargaining council funds in general. That’s a big problem as well.

So whether it’s building, metal, transport, contract cleaning, electrical furniture, et cetera, we see this trend in bargaining council/sectoral funds. That’s one of the big problems.

As you rightly indicated, you also have the municipal funds, where the municipalities have not been paying over the contributions that they ought to have been paying over.

So we have quite a good idea of who the main culprits are in respect of the non-payment of contributions.

JIMMY MOYAHA: Zareena, what is the FSCA looking to do here? What options are you looking to explore, because I think what some people might be missing here is that according to the Pension Funds Act it is actually a criminal offence not to pay these contributions? So this is not a misdemeanour, this is a very serious thing that I’d imagine you and other stakeholders involved here – such as the pension funds adjudicator – would be looking at quite seriously.

What kind of options are you exploring here from an accountability perspective?

ZAREENA CAMROODIEN: Well, that’s a really good question. We are looking at various aspects.

One is that we engage with the National Prosecuting Authority. We engaged them during the course of last year, and we are going to continue with those discussions with the NPA because I think a strong signal will be sent out if we see people in orange overalls – even though that’s obviously not ideal for anyone.

But if you are not going to bring your part, as you rightly point out, it’s a statutory crime. It’s also a common law crime of theft.

If you deduct contributions as an employee and you don’t pay them over, a strong message needs to go out.

There have been some cases that have been quite successful already if you look at the Kai Garib municipality and I think the Renosterberg and Kamiesberg municipalities in the Northern Cape.

We’d like to see more of that happening so that the non-compliant employers are dealt with as they ought be dealt with – very severely.

Unfortunately we also have recent cases that were just handed down; in fact a couple of days ago. So you have the Municipal Workers’ Retirement Fund, a case that was handed down on the 17th of January by the Bloemfontein High Court, where you had the MWR, the Municipal Workers’ Retirement Fund of the Mafube Local Municipality.

The court there held the municipal managers, executive mayor, et cetera, personally liable.

They also referred the matter to the NPA or the Director of Public Prosecutions in Bloemfontein to investigate, and obviously to take criminal action as well. So that’s one of the avenues we are exploring quite vociferously.

The other thing, of course, is to engage boards – to say ‘What about considering making these paid up for the period, or suspending contributions for the period, obviously with the relevant stakeholders being engaged until you get into a state of compliance, but still continue paying your risk benefits and your admin costs?’ for example.

Those are some of the things that we are looking at – enforceable undertakings which worked quite well, as you may know, with the ANC staff’s Provident Fund, where there was an enforceable undertaking between the fund and the employer and the FSCA.

That has worked quite successfully because the ANC has been making its contributions in terms of the enforceable undertaking.

So there are various avenues that we are exploiting to address this problem of arrear contributions.

JIMMY MOYAHA: Zareena, what of the role of the pension fund administrators? I know those are regulated by the FSCA. Is there room there to say that some of the responsibility or some obligation sits there, because from that perspective you could quite easily deal with non-compliant administrators, if any?

But obviously we understand that some of the administrators can only really do their jobs when the end contributor actually makes their contributions. But is there something that we can do from a pension fund administrator point of view?

ZAREENA CAMROODIEN: Well, the primary duty and the fiduciary duty actually lies with the trustees of the fund. In other words, with the board of the fund. So with administrators that is actually the duty of administration. It’s in fact the duty of the board as well, but they outsource that duty. So the Plan B responsibility really resides with the boards of funds.

But if they could [for] example outsource as a function to, say, write to the non-compliant employees to find out who the managing director is, or the director responsible for the management of the financial affairs of the employer, et cetera. Those are the types of things that they can do.

But ultimately the responsibility resides with boards of the funds and, even though it’s a delegated function, they can’t abdicate that responsibility.

So, as I said, duties may be, I suppose, delegated as well to the administrator to say write to the non-compliant employers. But ultimately the board owes that fiduciary duty to the member to take the necessary steps to ensure that arrear contributions and [current] contributions are paid.

JIMMY MOYAHA: Contributions need to be paid. People’s pensions and livelihoods depend on it, and the FSCA will make sure that they do what they can to bring those who are not contributing to book.

We’ll leave the conversation there, Zareena. Thanks so much for the time and for the insights. That’s Zareena Camroodien – the head of Fund Governance and Trustee Conduct at the Financial Sector Conduct Authority – on the unpaid pension contributions by employers.

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