The Financial Sector Conduct Authority (FSCA) has issued new requirements for contributions, contribution statements, and reporting around contributions. It wants to standardise the manner and format of reporting by funds regarding contribution matters.
On 19 August 2022, the FSCA issued Conduct Standard 1 of 2022 which deals with:
Conduct Standards are law.
The effective date of the Conduct Standard is six months after the date of publication, i.e. 19 February 2023 .
A fund must notify every participating employer before the employer starts participating in the fund, and then every year, of the employer’s duties, obligations, and liability under section 13A of the Pension Fund Act (PFA) and the Conduct Standard. This must be done in the prescribed format.
It appears, from the consultation report, that funds may do this annual notification at any time in the year and not necessarily on the anniversary date of participation.
Contribution statements are to be provided by the employer to the fund.
The employer must provide the following contribution statements to the fund:
The initial contribution statement, which is the first contribution statement provided to a fund by an employer after the employer begins participating in the fund must, at a minimum, include:
A subsequent contribution statement means any contribution statement provided to a fund by an employer subsequent to the initial contribution statement and must, at a minimum, include:
The Conduct Standard places the obligation on the employer to ensure that differences in membership data from month to month are provided to the fund. In addition, the employer must provide any other information that may be relevant to the membership data. Examples could include, in our view, information about upcoming changes within the employer that might impact on membership data.
Even where the administrator, on behalf of the fund, is tracking changes in members’ data from one month to the next and reporting on this, the employer retains the obligation to do so.
It is important that the FSCA will be able to use its enforcement powers (in the Act and in the Financial Sector Regulation Act) against the employer to enforce compliance with the Conduct Standard. This is in line with what we are seeing under the draft Conduct of Financial Institutions Bill, where the employer, with respect to contributions, will be a supervised entity and subject to the supervisory and enforcement powers of the FSCA (with respect to contributions).
Furthermore, we should not forget that the FSCA has said that it will ‘name and shame’ employers and funds where contributions are unpaid/short-paid. The FSCA recently announced that it will commence with this initiative in October 2022.
A new requirement is that all information to be provided by the employer in contribution statements must be accompanied by a declaration by the employer that all employees eligible to be members of the fund are accurately reflected in the contribution statement. Again, this places an obligation on the employer to ensure that all eligible employees appear on the contribution statements provided to funds.
The Act provides that contribution statements must be provided either at the time of paying contributions or not later than 15 days after the end of the month in respect of which the contribution payment is made.
Note that it is the minimum information to be provided in contribution statements that are prescribed in the Conduct Standard and the fund may ask the employer for additional information.
Although the Conduct Standard does not number the reports, we have done so below to aid understanding.
The person who is responsible for checking the receipt of contributions must report not later than fifteen days after the end of the period allowed to make the contributions (not later than seven days after the end of the month) to the principal officer or monitoring person:
The principal officer of a fund or monitoring person must, within seven days after the receipt of report one, submit a written report to the board in respect of every relevant employer, if the employer:
Report two must include details of:
The board must ensure that any material contravention of, or material failure to comply with S13A requirements is, within 30 days of the board being informed in writing of the failure by the monitoring person:
Any material contravention of, or material failure to comply with the S13A requirements that continues for a period of 90 days must be reported by the board:
REPORT 5: in sufficient detail to the South African Police Service, in a format prescribed by the FSCA, within 14 days after the expiration of the 90-day period; and
REPORT 6: in writing to affected members or, where the affected members cannot be identified, all the members of the fund or all the members of the fund in respect of that participating employer, within 14 days after the expiration of the 90-day period.
According to the Conduct Standard, interest is payable on late payment of contributions or unpaid contributions, where contributions (or part of contributions) are paid after the prescribed period for payment. This interest is investment income for the fund.
Interest is calculated from the first day following the expiration of the period contributions were payable until the fund receives the contributions.
Interest is calculated at the prime rate plus two percent. The fund and the employer may not agree that some other rate of interest will be paid or that no interest will be paid.
The interest is payable to the fund by no later than the end of the second month following the month in respect of which the amount is payable.
Outsourcing by the fund to an attorney for the recovery of contributions
The Conduct Standard contains requirements for the fund’s board, which decides to outsource the recovery of contributions from an employer to an attorney. These are set out below.
The board must have regard to:
The board must ensure that fees payable to the attorney for collection of arrear contributions are:
Where an attorney is appointed to recover contributions for a fund, the fund’s board must enter into an agreement with the attorney. The agreement must provide for at least the following:
During the six-month phase-in period, administrators and funds will need to decide which processes, communication, and documentation they need to amend as well as consider their current systems and policies.
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