Late payment of retirement fund contributions

Eugene Taljaard - In terms of Section 13(A) of the Pension Funds Act both member and employer contributions should reflect in the fund’s bank account by the 7th of the month following their deduction from salaries or wages. This means that it is the employer’s responsibility to make payment of the contributions to the retirement fund timeously so that they reflect in the fund’s bank account by the 7th of the month.

The Act further states that accompanying supporting schedules must be received by the administrator of the fund by the 15th of the month. These schedules listing current members’ details and reflecting the member and employer contributions should balance to the amount paid. The information is used by the administrator to update member and fund records. Clearly any delay or inaccuracies in the data submitted will impact on the administrator’s ability to pay claims, carry out annual updates and produce member benefit statements.

A delay in the payment of contributions clearly prejudices members financially and therefore the Act makes provision for the payment of interest on contributions not paid in time. The employer is responsible for “late payment interest”.

In line with the change in the Usury Act, the interest rate applicable to late payment of contributions will be increased with effect from 1 April 2010. The Usury Act provides for two rates, as follows:-

• For transactions not exceeding R10 000, the Repo Rate plus one third thereof, plus 11percentage points;
• For transactions exceeding R10 000, the Repo Rate plus one third thereof, plus 8 percentage points;

At the time of writing, the repo rate is 7%, which means that for balances under R10 000 the interest rate is 20.33% and for balances over R10 000 the interest rate is 17.33%.

The above rates of interest are charged from the 1st of the month, irrespective of whether this day is on a weekend or on a public holiday. It is therefore in your (the employer’s) interest to ensure that contributions reflect in the fund’s bank account by the 7th of the month.

Once the late payment interest is received from the employer, the member accounts will be credited with the late payment interest received per member.

It is incumbent upon the administrator to inform the ‘authorized person’ (normally the Principal Officer) if the contributions and member data has not been received by the 22nd of the month. If contributions are outstanding for a period of 90 days the Board of Trustees are required to advise the Financial Services Board and report the matter to the Attorney General who will take further action.

As can be seen from the above S13(A) has been set up in order to ensure that employers fulfill their contractual obligations and to protect the interests of the fund members.

E.P. Taljaard
15 April 2010