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Bulletin | Covid-19

Is there an obligation on the employer to pay retirement fund contributions amid the Covid-19 pandemic

Fasken
Reading Time 3 minute read
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As many employers are already feeling the financial impact of the Covid-19 lockdown, some of then have taken the view that, as the fact that their employees cannot work during the lockdown is out of the employer’s control, the employers are not required to pay them their normal remuneration during this time. But what about their obligations towards their employees’ occupational retirement funds? Can they stop paying contributions to them too?

Some employers will continue to pay their employees regardless of their legal obligation to do so. This note deals with those situations where employers do not pay remuneration, or pay reduced remuneration during the lockdown period.

If the employees belong to an occupational retirement fund, must their employer still pay monthly contributions to the fund?

Section 13A of the Pension Funds Act (PFA) provides that an employer must pay to a fund any contribution for which it is liable in terms of the rules of the fund.  It must also pay the contribution which, in terms of the rules, is to be deducted from the member’s remuneration. 

The rates at which employers and employees are required to contribute to occupational retirement funds are usually expressed in their rules as a percentage of the employed members’ ‘pensionable remuneration’ or ‘salary’ or ‘wage’. 

It follows that if the employees are not able to work during the period of the Covid-19 lockdown, and are not paid in respect of that period, then no contribution will be payable to the fund by the employer or the employee. Similarly, if remuneration is reduced, the contribution amount would also be reduced.

The rules of some bargaining council funds provide that contributions to be paid to the funds will be determined in terms of bargaining council agreements. And some of those agreements provide that no contributions are payable when employees are on ‘short time’ due to the employer’s financial distress.

An employer seeking relief from its contribution payment obligations should check the rules of the fund and any applicable collective agreements binding on it.

If an occupational retirement fund does not have rules that allow for payment holidays or deferments during periods of financial distress, then, if an employer wants to keep paying its employees their basic wages but needs some form of relief to avoid having to retrench staff, it could ask the fund to amend its rules to allow this.

The amended rules could say that, if the employer can demonstrate to the satisfaction of the fund’s board that a payment holiday is needed in order to enable the employer to keep workers in their jobs, no contributions will be payable by either employer or employees during a period determined by the board.

Alternatively the rules could say that, during that period, the employer will only have to pay the contributions required by the fund to provide for the costs of the fund’s administration and premiums payable for death and permanent disability cover provided through the fund. Then, if and when the employer’s financial position improves, contributions towards retirement savings will be resumed.

On 26 March 2020 the Financial Sector Conduct Authority published a circularin which it urged funds to consult their participating employers on this and then to submit to the FSCA for its approval in terms of section 12 of the PFA amendments to the funds’ rules to facilitate such relief.

Section 13A of the PFA makes it clear that such amendments will not provide relief to employers in respect of contributions for which they were liable before the date on which the board of the fund resolves to adopt the rule amendments but they may provide relief thereafter, when some employers may be experiencing the adverse impacts of the Covid-19 crisis most acutely.

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