• Vickie Lange

Lifeline for employers experiencing financial difficulty as a result of COVID-19 Pandemic


In light of the global COVID-19 pandemic, the Financial Sector Conduct Authority (FSCA) has thrown a lifeline to financially distressed employers and employees.


In Communication 11 of 2020 released on 26 March 2020, the FSCA reminds funds of the provisions of Section 13A of the Pension Funds Act of 1956 and provides allowance for the submission of urgent rule amendments.


Should an employer be unable to continue to pay employees and make contributions in terms of the requirements, during and subsequent to the lockdown, Vickie Lange, Head of Best Practice at Alexander Forbes, offers the following solutions:


1. Gauge your ability to pay all employees and at what levels


Should an employer be unable to continue payment of full salaries to employees and to continue the payment of contributions without interruption to the retirement fund, then it is important to determine if employees would be able to continue paying member contributions on a reduced package. Depending on the ability to pay employees, there are different scenarios to manage contributions due to the retirement fund. “Where the pensionable salary will be reduced or if there will be no income payable at all during this period, the treatment of the monthly retirement fund contributions must be addressed in line with legislation. This includes both the employer and employee contribution,” Lange says.


2. What do the fund rules provide for in this case?


The employer must engage the trustees to be clear on what the rules of the fund provide for where consideration must be given to changing pensionable salary, contribution levels or both.


According to Lange, the fund rules dictate the level of contribution required to be collected for each category of employee. “Any deviation from this could lead to a transgression of section 13A described above.”


Most rules provide for:

  • temporary absence from work (with or without pay)

  • a break in service (in instances where employees are not working)

  • postponement of contribution payments

  • reduction of pensionable service (for employees who are working reduced hours or short-time)


Lange says that based on the above, the rules would generally dictate whether or not:


  1. contributions would be maintained on the full pensionable salary (prior to lower level of earnings), or

  2. contributions would be based on the new lower pensionable salary (this could impact the level of insured risk benefits), or

  3. whether or not the employee contribution is payable.


In these scenarios, the insured risk benefit costs, based on the full pensionable salary (where applicable) and the administration costs would be payable by the employer.


Lange explains that where an employer elects to reduce the employees’ pensionable salaries, this would have a corresponding impact on the insured risk benefits. Employers considering this approach could consider reducing the pensionable salary for contribution purposes, but retain a risk salary upon which the premium is based and ensure that cover, at previously accepted levels, remains in place. This would need to be stipulated in the rules of the fund.


3. What if the rules do not provide for reducing or suspending contributions?


Where the fund does not have a rule in place, the FSCA has stated that the fund should then urgently submit a rule amendment to them following engagement with the