• Nigel Carman and Rosemary Hunter - Fasken

Warning to employers: Check that you have been paying contributions to your employees’ retirement fu

The as yet unreported November 2018 judgment of the high court of the Eastern Cape (Grahamstown) in Municipal Workers Retirement Fund v Ndlambe Local Municipality [2018] ZAECGHC 139 provides useful warnings to employers that they need to check regularly that the contributions they pay (and have been paying) to the employees’ occupational retirement funds are (and have been) in the correct amounts in terms of the funds’ rules, and are timeously paid.

In the Ndlambe case the employer had regularly deducted employee contributions from their remuneration and paid them to their fund believing that the amounts of those contributions had been correctly calculated. When, many years later, the fund sued the employer for both the shortfalls and late payment interest on the amounts of those shortfalls, the employer raised two defences.

The first was that the fund’s claim for the shortfalls on contributions made more than three years before summons had been issued had prescribed. The court dismissed this defence saying that, by regularly paying contributions to the fund, even if in incorrect amounts, the employer had acknowledged its liability for the payment of contributions to the fund in terms of the rules and prescription had been accordingly interrupted.

The employer’s second defence was that its underpayment of contributions had been an honest mistake on its part and so it should not have to pay late payment interest on amounts it had not been aware it was liable to pay - particularly as the fund had not alerted it to its mistake.

This defence, too, was rejected by the court.

“One would imagine that there was a duty on the Municipality, as the employer, to ensure that it was making the right payments and to keep up to date with the relevant schedules”

said Justice Roberson.

“The payment of interest is as much part of the contributions as the contributions themselves, bearing in mind that contributions are invested by the Fund in the interests of members.”

The judge also pointed out that section 13A(7) of the Pension Funds Act requires that late payment interest be paid at the prescribed rate and the court has no discretion to alter that rate.

The current prescribed rate for late penalty interest is –

  • for transactions with values not exceeding R10 000, the Repo rate applicable from time to time + 1/3 thereof + 11 percentage points with a finance charge rate cap of 23%; and

  • for transactions exceeding R10 000, the Repo rate applicable from time to time + 1/3 thereof + 8 percentage points with a finance charge rate cap of 20%

Although the Act allows a ’grace period’ of seven days for the payment of contributions, if not paid within that period, interest is calculated from the first day of the month following the month in respect of which the contributions are payable.

The prescribed rate may be seen to be punitive. This is deliberate,

Finally, it is important for employers to appreciate that a fund to which arrear contributions are owed not only has legal standing to sue the delinquent employer for the recovery of those arrears, but it is required by law to sue for them. This was confirmed in June 2018 by a full bench (that is, three judges) of the Gauteng division of the high court in Joint Municipal Pension Fund v Ehlanzeni District Municipality [2018] ZAGPPHC 594 at paragraphs 35, 39 and 40.


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