Regulator sounds alarm over South Africa’s R5.2bn pension contribution arrears

Could leave retirees facing poverty and destabilise the retirement ecosystem if it reaches a significant amount, the head of the financial regulator said.

The failure by South African employers to pay R5.2 billion ($288 million) in pension contributions could leave retirees facing poverty and destabilise the retirement ecosystem if it reaches a significant amount, the head of the financial regulator said.

Currently 7 770 employers have failed to make pension contributions deducted from workers’ salaries, including almost 150 local governments, whose arrears are estimated at about R1.4 billion, Unathi Kamlana, commissioner at the Financial Sector Conduct Authority, said in a speech Tuesday.

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“As pension funds rely on steady contributions to maintain liquidity and fulfill their obligations, they may become strained when contributions are inconsistent or delayed,” Kamlana said. “This in turn could limit their ability to invest in long-term projects, diminishing their role as major institutional investors in the economy,” making the entire retirement system more vulnerable, he said.

Failing to make the contributions also have implications on workers’ retirement savings in a nation where already less than 10% of the population is able to retire comfortably, said Kamlana

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To remedy the situation, the regulator is banking on the enactment of the Conduct of Financial Institutions Bill. The law will bring employers who pay retirement contributions under its supervision, allowing it to boost compliance and accountability, Kamlana said.

The regulator is also considering greater penalties on fund managers and administrators who don’t take action against employers that have pension-contribution arrears, he said.

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