New retirement law will create business risk
New legislation to be enforced from March 2015 affecting retirement funds could make non- payment of retirement fund contributions by employers a criminal offence. Penalties for non- compliance will include fines of up to R10 million and the possibility of imprisonment for up to 10 years. Company directors could also be held personally liable for non- payment. In addition, pension fund contribution rates have also been raised to 17.5 per cent of employees’ wages. Sanlam Umbrella Fund principal officer, Kobus Hanekom, commented that while the amendment should be welcomed, it may constitute a significant business risk for employers. “In the past, non- payment of employer contributions was, to a large extent, merely regarded as a breach of contract.” he said in a statement. “All the implications of the legislation have not yet been fully considered. If inability to pay will constitute a legal excuse, under what circumstances will they be excused? Ultimately we’ll have to wait and see how our courts will interpret these rules,” he added. In response, Sanlam Umbrella Fund has amended its rules and introduced a temporary suspension of participation arrangement for its members. Fund rules previously allowed for employers to terminate participation in the fund only. “This is a final and drastic measure, especially if the employer believes the cash flow concerns are of a temporary nature. We also understand that smaller employers are more often exposed to temporary periods of cash flow constraint, and creative ways must be found to assist them,” said Hanekom. Participating employers will now have the option of either immediate termination if a financial recovery is unlikely, or a six- month suspension if the employer believes it will recover financially.