Pension fund contributions are not discretionary payments; they are statutory obligations. Employers who fail to comply with these requirements not only prejudice their employees but also risk significant legal consequences. This principle was recently reinforced in Engineering Industries Pension Fund & Metal Industries Provident Fund v Installair (Pty) Ltd & Others.
The Issue at Hand
The Applicants, the Engineering Industries Pension Fund and the Metal Industries Provident Fund, sought to recover outstanding pension and provident fund contributions for the period of May 2020 to July 2020. The Second and Third Respondents, directors of Installair (Pty) Ltd (“Installair”), failed to submit contribution schedules and did not pay R93,715.53 in contributions for the period January 2020 to April 2020. The company had deducted pension and provident fund contributions from employees’ salaries but had not paid these amounts over to the relevant funds. Instead, the Second Respondent, argued that these deductions were used to subsidise employee salaries—an argument the court dismissed as baseless and unsupported by evidence.
Discussion
Under the Pension Funds Act 24 of 1956 (“the PFA”), employers must ensure that pension contributions are deducted and paid in full within seven days after the end of the relevant month. Failure to do so can lead to personal liability for those in control of a company’s financial affairs.
The court emphasised that:
- Employers cannot unilaterally decide not to submit contribution schedules or withhold pension contributions.
- Directors who are involved in a company’s financial affairs can be held personally liable for outstanding contributions.
- The purpose of the PFA is to protect employees’ retirement security, and any conduct undermining this statutory framework cannot be tolerated.
The Respondents had argued that external financial pressures and the COVID-19 pandemic excused their non-compliance. However, the court noted that the failure to pay pension contributions predated the lockdown, and that statutory obligations cannot be ignored due to financial hardship.
The court ordered the Second and Third Respondents to:
- Provide outstanding contribution schedules within 30 days.
- Pay the outstanding R93,715.53.
- Pay all additional contributions and interest once the full amounts are determined.
- Pay the Applicants’ legal costs on an attorney and own client scale, thereby reinforcing the seriousness of their non-compliance.
Lessons for Employers and Directors
This case serves as a stark reminder that pension obligations are not flexible. Employers who withhold contributions expose themselves and their directors (in case of companies) to significant legal risk. The judgement also highlights how statutory safeguards prevent companies from using pension deductions as a means of financial manoeuvring.
For employees, the judgment underscores the importance of vigilance in ensuring their pension contributions are being paid. If an employer fails to meet these obligations, employees and their funds have legal avenues to enforce compliance.
Ultimately, the court’s decision reinforces a fundamental principle: pension contributions are not an employer’s asset to manage at their discretion—they belong to the employees who have earned them.