South Africa’s R4.6-trillion retirement-fund industry faces upheaval as regulators introduce changes to strengthen the sector and provide greater financial protection for more than 15 million fund members.
A research paper co-authored by SARB research fellow Neryvia Pillay notes that defined contribution funds largely dominate the country’s retirement-fund industry and are well developed, with pension funds owning about 40% of the assets on the JSE.
As the financial services industry continues to evolve, the FSCA has implemented a range of regulatory modifications by means of a new Conduct Standard regulation in certain sections of the Pension Funds Act.
The Standard addresses challenges that members and employers face.
Sealing leakages in the retirement system
Pension Funds Adjudicator Muvhango Lukhaimane estimates that 41% of complaints for 2021/2022 are related to employers not paying contributions outright.
“There is another 42.22% of complaints about the payment of withdrawal benefits, and about 80% of these complaints also relate to employers failing to pay contributions,” she says. Muvhango says fund members can open a criminal case with SAPS. However, this often doesn’t happen because they fear dismissal from their employers.
Craig Bestall, Head of Corporate Administration and Servicing at Old Mutual, says that the continued failure of funds and employers to make good on claims despite collecting contributions is one of the leading reasons that triggered new and improved legislation.
Speaking at the 2023 Old Mutual Superfund Summit, Craig reminded the audience that section 13A places a statutory obligation on participating employers to pay contributions on time and to provide the Fund with prescribed minimum data to ensure the processing of such contributions. Although this requirement existed under the previous Regulation 33, the FSCA issued a new Conduct Standard on contributions in August 2022, which came into effect in February 2023, re-emphasising the requirement.
“Basically, what it means is that funds have to make sure that when member contributions are received, they are invested timeously and accompanied by the correct prescribed minimum member data,” he says.
Minimum member data includes tax numbers, updated contact details and contribution details. The revised legislation obligates employers to inform funds (and their section 13B administrator) of the person at the employer who will be held personally responsible for non-compliance with the provisions of Section 13A.
Though much of the requirements were already expected from funds previously, the updates provide confidence and clarity on what minimum member data is and put an obligation on the fund to make sure the legislation is enacted, Craig said.
Beyond Superfund Summit: Unpacking Sections 37C and 37D of the Pension Funds Act
Section 37C of the Pension Funds Act stipulates that death benefits should be distributed within 12 months, at the very least, after a fund member’s death, with exceptions being, for example, an ongoing investigation, where the distribution of funds may take longer than 12 months.
However, the 12-month guideline does not mean retirement funds cannot pay out benefits sooner.
As it currently stands, the fund trustees must also undertake investigations to ensure that all reasonable dependants are identified and that benefits are distributed equitably. In this case, dependants can include children, parents, grandparents, spouses, life partners, same-sex partners, step-children, foster children and even unborn children, and anyone who can prove they relied on the deceased member for financial support.
Section 37D, on the other hand, enables an employer to withhold pension benefits when employees have caused damage through theft, dishonesty, fraud or misconduct. However, benefits can only be withheld or deducted after a court judgment has been obtained against the fund member or after a member has admitted liability in writing.
The employer must formally request the fund to withhold the payment of a member’s benefit and provide the fund with proof that it has or is instituting civil proceedings against the member.
The fund must also notify the member of the employer’s request and ask the member for their view on the allegations against them and the potential impact that withholding the benefit will have.
Change is inevitable, and the retirement-fund industry is moving towards a new era where members are more protected than before. However, collaboration between funds, administrators, employers and retirement-fund members will be crucial to ensure the success of the changes ahead.
If you want more insights and views on big and small businesses, visit the Business Insights section of our content hub.