Delayed Government payments impact on pension fund contributions

29 June 2021 The Office of the Pension Funds Adjudicator (OPFA)
Adv Muvhango Lukhaimane, Pension Funds Adjudicator

Adv Muvhango Lukhaimane, Pension Funds Adjudicator

Having been inundated over the last several years with volumes of complaints against the Private Security Sector Provident Fund (PSSPF) and its participating employers, the Pension Funds Adjudicator, Adv Muvhango Lukhaimane, has in a recent determination called into question the viability of the fund that is compulsory for employers of private security guards, and has asked the Financial Sector Conduct Authority to assess such viability.

Ms Lukhaimane was commenting in a matter in which KL Gcaba complained of the failure of the second respondent (Izikhova Security Services) to register her as a member of the first respondent (PSSPF) and pay contributions due on her behalf.

Employers in the private security sector are compelled by a Collective Agreement to register their employees with the PSSPF and pay monthly contributions to the fund on behalf of their employees.

Compliance with this legal obligation has proved to be challenging for many employers in the sector which is exacerbated when in turn fees for their services provided are not timeously by their clients which are sometimes government departments.

Such was the case in the recent determination by the Pension Funds Adjudicator where she ruled that Izikhova Security Services was still legally obliged to pay over pension contributions to the PSSPF and provide contribution schedules notwithstanding that it had alleged not to have been paid for its services by the Department of Social Development and had applied in 2019 to the Department of Employment and Labour for an exemption from the obligation to pay pension contributions. According to Izikhova, there had been no response to its application for an exemption.

In making her determination, Ms Lukhaimane said: “The issue raised by the second respondent (Izikhova Security Services) is very pervasive in this sector as employers conclude contracts with government departments and other clients, who delay with the payment for the services rendered.

“This is a cause for concern as it means that the second respondent would be unable to honour its obligations, including the payment of salaries to employees and provident fund contributions to the first respondent.

“Therefore, notwithstanding the nobility of a compulsory fund, the question that follows is whether this model of retirement funding, and the nature of the business of the employers in the sector, is the best suitable vehicle to realise the objects of a compulsory fund and the Act.”

She went on further to state that the PSSPF “…cannot fulfil this objective as its capacity is impaired by the late payment and/or non-payment of services provided by the employers to their clients, including government departments.

“This Tribunal has observed a trend (in several complaints it adjudicated upon against various employers) which is cumbersome on the employer’s ability to efficiently to comply with section 13A of the Act. Furthermore, central to the matter is the ultimate prejudice faced by the vulnerable employees in this sector. Thus, it is noteworthy for this Tribunal to refer its concerns in this regard to the Financial Sector Conduct Authority (FSCA) in order for the latter to perhaps assess the viability of a compulsory fund within the nature of business rendered by employers in the sector.”

What was also concerning is the conduct of the PSSPF in taking legal action against defaulting employers. The fund is currently under statutory management after findings of alleged abuse by the previous trustees of the PSSPF were made through an onsite inspection of the fund by the FSCA.

Those findings caused the FSCA to launch a High Court application to place the PSSPF under curatorship, however, those proceedings resulted in an agreed outcome between the then board of the PSSPF and the FSCA, placing the fund under statutory management.

Under those circumstances, it would be reasonable to expect that the PSSPF is being closely monitored by the FSCA, and given the regularity with which the Adjudicator receives complaints relating to the non-payment of contributions in the private security sector, it should be a focus area and cause for concern.

However, the Adjudicator emphasized that the PSSPF “has a fiduciary duty to act with care and due diligence to protect the interest of its members. Further, section 13A(6) of the Act places a further obligation on the first respondent (PSSPF) to report such non-compliance with the provisions of section 13A of the Act with the FSCA.

“The first respondent may also take other legal steps to deal with the second respondent’s default. There is no evidence that the first respondent initiated any action in terms of the Act. Thus, the first respondent failed to discharge its statutory obligations conferred by the Act,” said Ms Lukhaimane.

She ordered the first respondent to register the complainant as its member from 1 October 2018.

The second respondent was ordered to commence making provident fund deductions from the complainant’s salary with effect from April 2021. The second respondent was also ordered to pay to the first respondent the complainant’s outstanding contributions plus late payment interest.

The first respondent was also ordered to provide the complainant with her latest benefit statement, and one annually thereafter as long as her membership subsists.

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