pension laws – Financial Education Learning Platform

By Tokiso TKay Nthebe Navigating the entrepreneurial landscape and juggling the demands that come with being a business owner can become daunting; from managing compliance and governance issues, setting up business systems, making sales and keeping costs low to ensure profitability. The business landscape is also very competitive, where organisations compete to attract and retain talented employees to support their business growth and development. As such, business owners tend to provide employee value propositions (EVP) that offer benefits such as retirement funds, severance benefits, risk benefits, bonuses or medical aid among many. While retirement benefits are among some of the most attractive benefits within the EVP offering, employers who choose to set up retirement funds need to ensure that they are compliant with the relevant laws that govern retirement funds. This article discusses the risks and consequences business owners with retirement funds face when they fail to comply with relevant pension regulations. What are occupational funds? Any business can establish a type of retirement savings scheme to help its employees save for the future during their working years. The retirement savings scheme, also known as an occupational retirement fund, provide retirement, disability and death benefits and is governed by the applicable pension laws. The occupational retirement fund scheme can be a pension or provident fund, allowing the employer and employee to both contribute towards the scheme. What are the employers’ responsibilities? Employers who offer retirement benefits must comply with laws that govern retirement benefits which include pension, income tax, labour and insurance laws to name a few. From a governance perspective, pension laws require that these retirement funds be registered and licensed, have boards of trustees that oversee and manage the fund to ensure that the funds are financially sound, and members’ assets are protected. For the purpose of this article, I will focus on the provisions of pension laws that require employers to pay retirement contributions to pension funds administrator within a prescribed period. In the Lesotho context for example, employers need to comply with the provisions of section 29 (1) of Pension Fund Act (PFA) of 2019 which requires retirement contributions to be paid to the pension fund administrator within a period of seven days after the month the contributions are received. Payment of contributions A trend within the retirement fund industry that is worrying, however, is the non-compliance by employers who deduct contributions from employees’ salaries, but do not remit these to retirement fund administrators. When these contributions are not paid to retirement funds and invested, the consequences for members are dire who face the risk of retiring with insufficient money at retirement. As an employer, this non-payment of retirement contributions and non-compliance with the relevant laws has far-reaching consequences that can negatively affect your business. What are the consequences? There are many consequences when employers fail to pay contributions to the administrator. Below, I highlight some of the consequences, however, please note that the list is not exhaustive. Interest charged: Employers who fail to pay member contributions may be liable to pay interest on the contributions. In Lesotho, S29 (3)(a) of the PFA prescribes that interest be charged at a rate of prime +5%. Penalties: Employers who are non-compliant are liable to pay penalties. In Lesotho, a daily administrative penalty of LSL10 000 for each day that the contributions are not paid will be charged. Not acting in the member’s best interest: When employers establish retirement funds, the intention is to offer a competitive EVP and help employees save for retirement. When employers do not pay contributions on time so that they are invested, employees’ forfeit the compounding effect, therefore reducing the possibility of retiring financially secure. Reputation risk: Employers who are non-compliant are exposed to reputational risk, where companies can be named and shamed in the media. The South African Financial Sector Conduct Authority (FSCA) for example publishes a list of employers who owe pension funds regularly. As an employer, it is important to remit contributions and accurate schedules to the administrator as soon as possible to ensure benefits are invested on time. Not only is it the right thing to do, but because it helps your assets, your employees, secure financial stability in retirement and positioning yourself as an employer of choice. Do the right thing, comply and not put your business at risk.

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