By Johnathan Paoli
South Africa is grappling with a growing pension crisis, with 149 municipalities nationwide defaulting on their pension fund contributions, putting the financial futures of thousands of workers at risk.
A recent meeting of the Standing Committee on Finance exposed alarming levels of non-compliance, with municipalities alone owing over R1.4 billion in unpaid pension contributions.
Committee chair Joe Maswanganyi expressed frustration with the current state of affairs, particularly regarding the lack of accountability for those responsible for withholding pension contributions.
Maswanganyi firmly rejected the idea of setting up a new ad-hoc committee to investigate the issue, and instead emphasised the need to strengthen existing oversight bodies, such as the Financial Sector Conduct Authority (FSCA), the Pension Fund Adjudicator (PFA), and the Auditor-General, to ensure better enforcement of pension obligations.
“As for the calls to establish an ad-hoc committee, we do not have the necessary skills to conduct such an investigation into employers who are not complying with the legislation,” he said.
Municipalities, which are responsible for the pension contributions of municipal workers, are among the worst offenders.
A staggering 69% of the outstanding pension contributions are concentrated in the Free State, with 22 out of 23 municipalities in arrears, while across the country, 58% of municipalities have failed to meet their pension obligations, leaving employees vulnerable as they approach retirement.
In a particularly troubling case, the Mafube Local Municipality was found to owe R38 million in unpaid pension contributions, despite having deducted the amounts from employees’ salaries.
The scale of the issue has sparked public outrage, as workers who have faithfully contributed to their pension funds are being denied access to their savings, which are often their only means of financial security in retirement.
With the implementation of the new two-pot pension system, which allows workers to access a portion of their retirement savings in emergencies, the need for urgent intervention has never been more critical.
The Democratic Alliance’s (DA) finance spokesperson Wendy Alexander held that while the FSCA and the PFA have made strides in addressing non-compliance, the existing system has proven ineffective in holding defaulters accountable.
She said pension funds are subjected to a complex system of warnings and non-compliance letters, but the process lacks teeth, and criminal proceedings against responsible officials remain rare.
Alexander highlighted the case of the Renosterberg Local Municipality in the Northern Cape, where three municipal managers are facing fraud and theft charges related to R73.5 million in unpaid pension contributions.
These contributions, which were withheld from 47 employees between 2018 and 2023, were never paid into the Municipal Workers Retirement Fund, despite being deducted from employees’ salaries.
She said the lack of consistent enforcement of the Pension Fund Act is contributing to a backlog of unpaid pension obligations, which continue to accrue penalties and interest.
The problem of unpaid pension contributions has reached alarming levels, with local governments frequently prioritising operational costs and employee salaries over the pension benefits of their workers.
This “recycling” of contributions not only breaches legal and fiduciary duties but also contributes to the growing backlog of unpaid pension obligations, with interest and penalties accruing over time.
The impact of this non-payment is severe, with many municipal workers losing out on critical retirement savings, and some being denied access to vital risk benefits, such as death and disability cover.
The committee chair’s sentiment was echoed by the DA deputy finance spokesperson Marina van Zyl who argued that focusing on enhancing the capacity of existing institutions would be a more sustainable solution.
“While a new committee may offer a focused, short-term investigation, a comprehensive approach leveraging the capacities of our current institutions is far more effective,” van Zyl said.
She called for greater empowerment of the FSCA, the PFA, and other relevant institutions to ensure that employers comply with the Pension Fund Act, thereby providing long-term security for South African workers.
Van Zyl said that urgent reform was necessary in order to address the challenges and threats to the lives of the workers of local government.
“Municipalities and government departments have defaulted on pension contributions, leaving public employees uncertain about their financial futures. This breach of trust is unacceptable,” she said.
The committee discussed the potential for creating specialised units within the South African Police Service (SAPS) to investigate financial crimes related to pension fund mismanagement.
The committee called for the regulation of fees charged by pension fund administrators under the new two-pot system to prevent further erosion of retirement savings and urged faster resolution of unclaimed pension benefits, which have become a growing issue due to the widespread non-payment of contributions.
The committee found that failure to make pension contributions was not only a breach of trust but also undermined the financial security of South African workers, and said that without prompt intervention, the financial stability of the country’s retirement systems, and the livelihoods of thousands of employees, remain at risk.
Several municipalities were publicly named and shamed by the FSCA.
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