Two-pot withdrawals reveal a litany of errant employers

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JEREMY MAGGS: Finally on the programme today, the Pension Funds Adjudicator sounding the alarm on companies that do not pay over employee funds to administrators as the two-pot claims mount in the first two weeks of the new retirement system.

I want to get some clarity now from her and welcome to Muvhango Lukhaimane. First of all, what specific role then, does the administrator play, and perhaps more importantly, how critical is it to ensuring the integrity of employees’ retirement savings?

MUVHANGO LUKHAIMANE: My concern is really that we are already receiving enquiries. Whereas we had projected that our office will start dealing with two-pot related complaints in about two, three months’ time. The resources that we have put in place dedicated to receiving enquiries on this are already receiving enquiries.

That is because members who want to claim, some of them are going to their funds and when they get there, they find that there’s nothing in the vested pot, there’s nothing in the savings pot, and there’s definitely nothing in the retirement pot.

Whereas they know that deductions have been made from their salaries all along. So they were expecting that there would be something in all three pots. So that is really where our involvement comes in.

JEREMY MAGGS: And if I’m hearing you correctly, this is criminal of nature. How widespread is this, do you think?

MUVHANGO LUKHAIMANE: Well, it is quite widespread. I can only speak from the list that the FSCA [Financial Sector Conduct Authority] released early in the year and also from the complaints that we finalise in our office. Eighty-two percent of the complaints that we finalise in our office have in one way or another to do with employers not having paid contributions.

It might be that they paid but did not pay all the contributions, or they didn’t pay at all, or they stopped paying somewhere in the middle.

Read: Two-pot withdrawal applications total R4.1bn so far, says Sars

JEREMY MAGGS: What are the most common excuses that are being encountered in this respect?

MUVHANGO LUKHAIMANE: Well, the biggest excuse is really around financial difficulty. However, we cannot even put this down to Covid because when Covid hit, there were employers that jumped on the bandwagon of Covid, and it might have looked as if Covid was the issue, but this problem has been coming along well before Covid.

In some instances, it’s just employers not wanting to comply. In other instances, you find that employers also get frustrated with the way that a fund is managed …

They [then] stop contributing until the fund administrator can sort out whatever administrative issues might be going on.But then that is not in line with the law.

You can never stop but there are avenues where they can report to the Financial Sector Conduct Authority because the administrator is licenced by them anyway.

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JEREMY MAGGS: And it took the implementation of the two-pot system to bring this to light.

MUVHANGO LUKHAIMANE: Yes, because before what used to happen is that a person would only discover this at claim stage. Now claim stage is dribs and drabs, but now because people are accessing their money whilst in employment, suddenly [there’s] a bigger number of people who are realising that their contributions were not paid on time.

It’s actually quite opportune in a way because one of the things that people don’t know is that retirement fund contributions actually prescribe if you don’t claim in time, if you don’t get to reasonably know and keep up to date in time that you are owed, even by the time you approach our office, we can only recover what we can subject to prescription.

JEREMY MAGGS: And often that process is very difficult.

MUVHANGO LUKHAIMANE: No, our process is quite easy. If you lodge a complaint with us, we will be able to finalise a complaint in a period of not even more than four or five months we would have an outcome that is akin to a high court order for you.

But the issue is if you don’t activate your claim on time, we might say to you, but given the surrounding circumstances, you should have known that the employer was not contributing. Therefore, even though you worked for seven years, even though you can prove deductions for seven years, we can only give you three-years’ worth of your contribution.

Read: Two-pot: Expect delays in payments from the ‘savings pot’

JEREMY MAGGS: Which could lead to a huge amount of heartache, particularly if you are depending on that money, as most of us are. How difficult would it be, Muvhango, to enforce that order once it’s given?

MUVHANGO LUKHAIMANE: Well, it’s not difficult at all because our orders are the same as high court orders. So the sheriff is obliged to assist the person to implement that order. Once we realised the extent of the problem, we then started giving what we call orders sounding in money.

So the exact amount that you are owed will be sitting on the order so that it’s easy for you to enforce. We also work with law companies that do pro bono work and also the Legal Aid Clinic to help the complainants enforce where they’re unable to do so by themselves.

JEREMY MAGGS: You said to me the problem is fairly widespread. Have you specifically noticed though any particular industries or sectors that are more prone to not paying over pension funds to administrators?

MUVHANGO LUKHAIMANE: Well, your biggest sector at the moment is your private security sector. Then you will find that in the retail sector there’s quite a bit. Our office then receives quite a significant number of complaints for the transport sector and also the metal and engineering sector.

Also, if I can add, those being your private sector organisations, in the public sector, we also find that unfortunately municipalities and some SOEs also fall foul of the law.

Read: Two-pot retirement system demystified

JEREMY MAGGS: Beyond the court order, are there other penalties or legal consequences that companies can or must face when they fail to pay over, as required by law?

MUVHANGO LUKHAIMANE: Yes, there is. It’s really a shame because it is the board of the fund that must chase after these outstanding contributions, that must actually follow the steps in the act. After 90 days, they can report this matter as a criminal matter to the South African Police Service.

Then because the Pension Funds Act makes it a crime not to pay contributions, you can be imprisoned for up to 10 years for failure to do so.

It is just that funds don’t activate these processes, either they don’t do anything at all or most of your big umbrella funds will just liquidate the employer’s participation in the fund when they see that they have not paid for three months or for 90 days and then the members are just left to sort themselves out.

JEREMY MAGGS: And is there any way that employees can protect themselves from being shortchanged, and particularly in the sectors that that you’ve mentioned like security or retail, when non-compliance appears to be rampant?

MUVHANGO LUKHAIMANE: The first thing that members must do is when you know that you are registered with a pension fund or you are supposed to ask for the details of that fund from your employer, get your membership certificate while it’s still in the beginning. At the end of the financial year of that fund, ask for your benefit statement.

If you don’t get a benefit statement, that’s usually your first concern to say why haven’t I received a benefit statement. Then when you receive your benefit statement, then you are able to see whether the employer has paid everything over.

If you don’t receive your benefit statement, then you are able to lodge a complaint on that fact on its own to say, I need my benefit statement, I need proof that I’ve been registered with the fund.

JEREMY MAGGS: Thank you so much for outlining and bringing to light what is a very serious problem and, as you rightly say, possibly the two-pot implementation has helped raise this to the surface. The Pension Funds Adjudicator, Muvhango Lukhaimane, I do appreciate your time today, thank you.