Employer's failure to pay pension fund contributions to become a criminal offence

An employer’s failure to pay contributions to a pension fund will become a criminal offence and may also attract personal liability.

According to Rosemary Hunter, partner at Bowman Gilfillan, a leading pan-African corporate law firm: “Before September 2007, an employer’s failure to pay contributions due by it and its employees to a retirement fund in terms of its rules was a criminal offence.

“In 2007 non-payments were ‘de-criminalised’ and, instead, the registrar of pension funds was empowered to refer non-payment cases to the enforcement committee of the Financial Services Board (FSB).

“Although that committee was empowered to impose civil penalties on those who violated provisions of various financial services laws, for unknown reasons the registrar has not referred non-payment cases to the enforcement committee.”

It is now proposed in the draft Financial Services Laws General Amendment Bill, 2012, that the Pension Funds Act be amended to make an employer’s failure to pay contributions a criminal offence once again.

If Parliament adopts the amendment, on conviction an employer may be held liable to pay a fine of up to R10 million and serve a term of imprisonment.

“The threat of criminal sanction did not prove to be a particularly effective inducement to compliance before 2007 and there is no reason to believe that it will be more effective now,” said Ms Hunter.

She said stronger inducement is likely to be provided by another proposed amendment which, if adopted by Parliament, will stipulate the people with personally liability for compliance by an employer with its obligation to pay contributions to its employee’s pension or provident fund.

If the employer is a company, its controlling shareholder and each of its executive directors who are ‘regularly involved in the management of the company’s overall financial affairs’ will have personal liability.

If the employer is a close corporation, liability will reside with each member who controls or is regularly involved in its overall financial affairs; and cases where the employer takes the form of ‘any other body’, each person (including each trustee or partner) ‘in accordance with whose instructions the governing body of the employer acts or who controls or is regularly involved in the management of the employer’s overall financial affairs.’