Non-compliance with retirement fund laws requiring payment of deducted employee contributions could get council bosses in trouble Finance Minister Enoch Godongwana says municipalities owe pension funds at least R1.4 billion in contributions that have been deducted from workers’ salaries have but not been paid over. The National Treasury has warned municipal managers that they could face criminal charges if they fail to rectify this. Picture: Ayanda Ndamane/Independent Newspapers
MUNICIPAL managers in charge of municipalities that owe pension funds R1.4 billion could face criminal charges should they continue failing to comply with their statutory obligations.
The National Treasury has issued a stern warning to municipal bosses including some of the country’s biggest municipalities that they may be guilty of financial misconduct.
”It has been observed that municipalities have defaulted on their responsibility to ensure that third party payment obligations are met, despite deductions being made from employees’ salaries,” noted Jan Hattingh, Treasury’s chief director responsible for local government budget analysis.
In the document dated December 6, 2024, Hattingh said the failure to pay over the deductions put several municipal employees in a very unfortunate situation where they have no funds in their pension fund accounts despite salary deductions having been made.
He urged municipalities to ensure that measures are in place so that contributions are paid over to the pension funds.
Hattingh advised municipalities with outstanding pension fund contributions to ensure that any outstanding payments are paid over the latest by the end of the 2024/25 financial year (of June 2025).
Municipalities that fail to do so will face punitive measures being implemented against them.
According to Hattingh, it is equally important to ensure that payment of the statutory deductions is prioritised or suitable arrangements are made with them towards settling their accounts.
Municipal managers’ fiduciary responsibilities as outlined in the Municipal Finance Management Act (MFMA) state that they may not act in a way that is inconsistent with the duties assigned to them in terms of the MFMA.
”The failure to pay over deductions to pension funds is inconsistent with section 65(2)(f) of the MFMA, which requires the accounting officer to ensure that the municipality complies with its tax, levy, duty, pension, medical aid, audit fees and other statutory commitments.
“Equally of importance is to ensure that payments to these statutory bodies are prioritised, or suitable arrangements are made with them towards settling their accounts,” reads the Treasury document.
In addition, Hattingh warned that such failure constitutes an act of financial misconduct in terms of the MFMA, which also provides that the accounting officer of a municipality (municipal manager) commits an act of financial misconduct if he or she deliberately or negligently fails to comply with a duty imposed by a provision of the Act.
The MFMA, read together with the Municipal Regulations on Financial Misconduct Procedures and Criminal Proceedings, also makes it a financial offence to fail to pay over statutory deductions.
In September, the Municipal Workers Retirement Fund was granted access to the Frankfort, Free State-based Mafube local municipality’s banking records in a bid to recover nearly R38 million in deducted contributions that were not paid over.
The money had been owed since 2021.
Finance Minister Enoch Godongwana has revealed that as of the end of March last year, municipalities’ arrear contributions stood at R1.4bn.
The Financial Services Conduct Authority (FSCA) has outlined measures to safeguard employees’ rights and retirement savings in the event of non-payment of contributions including retirement fund boards taking all reasonable steps to recover outstanding contributions from defaulting employers and reporting contraventions persisting for more than 90 days to the SA Police Service for criminal proceedings, among others.
Godongwana said eThekwini Metro and the Emfuleni local municipalities owe deducted contributions to the SA Local Authorities Pension Fund for 249 months, which is nearly 21 years.
The George and Mossel Bay local municipalities in the Western Cape have both disputed the FSCA’s assertion that they owed contributions for 246 months and approached the authority, challenging the arrears.
In November, the FSCA named and shamed 7 770 employers who failed to pay contributions across different categories – employers with outstanding contributions that are more than R50 000 for a period of more than five months, employers with outstanding contributions above R50 000 but their last contribution date has not been provided.
The list included employers with outstanding contributions less than R50 000 but their outstanding late payment interest is more than R50 000 and has been outstanding for more than five months and employers that have not contributed since date of participation in a retirement fund.
Trade union federation Cosatu said in addition to naming and shaming delinquent employers it will partner with the FSCA and the Department of Employment and Labour to ensure compliance as well as lobby the government to bar defaulting companies from being awarded tenders.
loyiso.sidimba@inl.co.za