A number of companies have felt the financial implications due to the growing COVID-19 pandemic that has struck our nation. With these difficulties comes the issue of Retirement Funds and how these will be affected due to the financial constraints brought on by the global pandemic. The COVID-19 pandemic has put a strain on the economy and businesses are feeling the effects. Financial distress caused by the pandemic has rendered some businesses unable to pay contributions required of them in terms of the Pension Act 24 of 1956. On the 26th March 2020 and the 27th March 2020, the Financial Sector Conduct Authority issued communications with regard to Retirement Funds to assist employers who face this financial distress due to the COVID-19 global pandemic.
SECTION 13A OF THE PENSION FUNDS ACT DEFINES THE RIGHTS OF THE FUND AND THE RESPONSIBILITY OF THE EMPLOYER.
The employer must pay the contributions to the fund by the 7th day after the end of the month. 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. Penalty interest is payable on arrear contributions by the employer at the prescribed rate. The employer must provide the fund with a monthly statement of its member data which agrees to the contribution payment made by the 15th day after the end of the month. The act defines the minimum information that the employer must provide in the monthly returns. The act also provides a procedure that funds follow should the employer not pay within the prescribed periods. An amendment of the rules of a fund relating to the reduction of contributions or the suspension or discontinuation of the payment of contributions shall not affect any liability to pay any contribution which was owed before the said amendment.
The Financial Sector Conduct Authority (FSCA), a market conduct regulator of financial institutions, is aware of the financial strain being put on employers and their companies due to the effects of the COVID-19 pandemic. In light of these effects, the Divisional Executive of Retirement Funds Supervision, Olano Makhubela, of the FSCA has 26th March 2020 issued two communications in order to assist companies who have been affected and are feeling the financial constraints in making the relevant pension contributions. These communications are Communication 11 of 2020 by Divisional Executive of Retirement Funds Supervision, Olano Makhubela, and a General Communication 12 of 2020 issued by the FSCA. Employers are to contact their respective funds and see what rules are in place with regards to financial difficulties in making the relevant contributions due to the COVID-19 pandemic. If there are no rules in place by a fund, the respective fund is to contact the Conduct Authority with the relevant amendments to their rules.
COMMUNICATION 11 OF 2020 SECTION 3
- An employer must make a formal request to the fund explaining their current financial status with regards to the suspension or reduction of contributions which the fund must then consider taking the employers circumstances into account;
- The fund and the employer would need to agree on the date from which the rules will be applied. It is preferable that this is set down in writing.
- The fund must liaise with the employer and all records of correspondences must be kept.
- It is important that, where possible, premiums for risk benefits continue to be paid.
- If the Fund does not have any rules in place to assist the employer, the fund must then submit relevant rule amendments to the Conduct Authority.
- The Conduct Authority will then send a letter and unstamped version of the rule amendment. Funds will receive the stamped rule amendment once business resumes as normal.
- Funds are required to keep a proper record of affected members of the fund, which they will be required to produce upon request by the Conduct Authority.
COMMUNICATION 12 OF 2020 SECTION 5
This communication set out by the Financial Sector Conduct Authority sets out the expectations on regulated entities. With regards to Retirement Funds, the Conduct Authority records the following as per general communication 12 of 2020:
“The Board should keep abreast of risks that COVID-19 brings to the fund, and take necessary steps to mitigate such risks. The Board is also encouraged to clearly communicate COVID-19 developments and risk management strategies to fund members, to promote calm and minimise the risk of premature fund withdrawals.
Retirement fund benefit administrators must inform all relevant stakeholders such as funds and their members, as well as third parties of any changes to their processes, procedures and ensure that the necessary communication is sent in this regard”.
FSCA ISSUES GUIDANCE NOTE TO RETIREMENT FUNDS INDUSTRY TO RESPOND TO COVID-19 RISK
In a press release dated the 27th March 2020, the FSCA referred to some rules that funds may already have in place to assist employers and companies who face financial distress in these unprecedented times and cannot afford to pay the retirement contributions on behalf of their employees. Some of the rules include: –
- A provision for temporary absence from work (with or without pay);
- A break in service (in instances where employees are not working);
- A postponement of contribution payments; and/or
- reduction of pensionable service (in respect of employees who are working reduced hours).
If your company is facing financial difficulties due to the COVID-19 pandemic which hinders you from making a contribution to the Pension Fund, contact your relevant fund and find out the rules that they have in place to assist companies facing financial distress due to the pandemic.
Kindly note that if you are unsure of any process or have any queries please contact your nearest SEESA office
ABOUT THE AUTHOR
Sharado Parbhoo is a Labour Legal Advisor from the Durban Office. He studied at the University of KwaZulu-Natal where he obtained his L.L.B degree and is an admitted attorney of the High Court of South Africa.
REFERENCES
PENSION FUND ACT 14 OF 1956 SECTION 13A;
www.fsca.co.za accessed on the 01st June 2020 at 18h00pm.
FSCA COMMUNICATION 11 OF 2020 COVID-19: SECTION 13A OF THE PENSION FUNDS ACT, 1956 AND FINANCIALLY DISTRESSED EMPLOYERS AND EMPLOYEES – SUBMISSION OF URGENT RULE AMENDMENTS, OLANO MAKHUBELA DIVISIONAL EXECUTIVE: RETIREMENT FUNDS SUPERVISION FINANCIAL SECTOR CONDUCT AUTHORITY, issued on the 26th March 2020;
FSCA COMMUNICATION 12 OF 2020 (GENERAL) IMPACT OF CORONAVIRUS (COVID-19): EXPECTATIONS ON REGULATED ENTITIES, www.fsca.co.za/Regulatory%2520Frameworks accessed on the 01st June 2020 at 14h00pm;
FSCA Press Release 27 March 2020, FSCA issues guidance note to retirement funds industry to respond to COVID-19 risk, https://www.fsca.co.za/Pages/covid-19-industry-communication.aspx accessed on the 01st June 2020 at 15h00pm.