In 2022, in a decision handed down by the KwaZulu Natal High Court, held in Pietermaritzburg it was made clear that the failure by a pension fund to timeously collect arrear pension contributions from recalcitrant employers, will result in the fund not having a claim against the employer where the defence of prescription is raised by such employer. The case and its consequences have caused a debate in the retirement fund industry as to whether prescription should apply to arrear contributions in light of the onus placed on employers to ensure that contributions are paid to a pension fund; whichever fence you may sit on, the law remains clear on its stance: prescription applies.
Interestingly the Financial Services Tribunal recently heard an application for reconsideration brought by an employer against the Pension Funds Adjudicator and other respondents, including an ex-employee, of the Adjudicator’s determination that the employer should pay outstanding contributions to the pension fund which should in turn pay the contributions to the ex-employee on the grounds that the employer wilfully prevented its ex-employee from knowing that it had failed to pay outstanding contributions during a period of his employment.
The ex-employee approached the Adjudicator on the grounds that the pension fund had delayed paying his withdrawal benefit to him. However, the pension fund produced a proof of payment of the withdrawal benefit and this complaint fell away. Despite this, the Adjudicator had found that the employer owed contributions to the pension fund for its employee for the period April 2009 and August to September 2010. In making this determination, the Adjudicator was aware of the defence of prescription that could be raised in terms of section 30I of the Pension Funds Act, 1956 read with the Prescription Act, 1969.
The Adjudicator argued that the employer wilfully prevented the ex-employee from knowing his contributions were unpaid for the aforementioned period to the pension fund; in the circumstances the matter had not prescribed and the ex-employee was thus entitled to the outstanding contributions.
In its application for reconsideration, the employer argued, and the Tribunal accepted as the essence of the dispute, that –
- The ex-employee could have ascertained at the time, by scrutinising his payslip, that contributions were not paid to the pension fund;
- The ex-employee had breaks in service potentially leading to the failure to pay contributions to the pension fund; and
- It is unreasonable that the Adjudicator made a determination based on the employer’s inability to provide documentation from more than a decade ago, of which neither the Companies Act, 2008 nor the Tax Administration Act, 2011 require retention.
Significantly, the Adjudicator filed further reasons in terms of Rule 13 of the Tribunal Rules and conceded that the ex-employee ought to have been aware of the non-payment of contributions towards his retirement fund and should have taken action against the employer at that time.
In the result, the matter was referred back to the Adjudicator for reconsideration with specific regard to the issue of the application of the time bar. It is almost inevitable that the Adjudicator will reverse the initial finding in light of the arguments brought forward by the employer as well as the Adjudicator’s concessions. Whatever, the outcome, it is clear that prescription applies to arrear contributions and where a payslip clearly shows that contributions were not paid for a particular period, the onus is on the employee to raise the issue of non-payment directly with their employer within three years. Failure to do so timeously may result in their claim against the employer prescribing.
The decision can be found at: IN THE HIGH COURT OF SOUTH AFRICA (fsca.co.za)
