Interest on late payment of contributions by employers
1. From which day is late payment interest calculated on arrear contributions payable by the employer: the 1st of the month, or the 8th of the month?
In terms of the Pension Funds Act and Conduct Standard 1 of 2022, interest is payable by the employer on arrear/late contributions. This interest is calculated from the first day following the expiration of the period contributions were payable for until the fund receives the contributions – at the prime rate plus 2%.
There is confusion about whether the penalty interest starts to run from the 1st day of the next month or the 8th day of the next month. The Office of the Pension Fund Adjudicator (OPFA) and the FSCA hold different views:
FSCA’s view:
- The interest must be calculated from the day after the 7th day of the next month, that is the eighth day.
- Communication 15 of 2023 (RF) (11 May 2023)
OPFA’s view:
- The interest is calculated from the first day of the next month.
- Communication 1 of 2024 (5 February 2024)
The FSCA and OPFA will be meeting to discuss this difference of opinion and the FSCA is considering whether to issue an Interpretation Ruling on the matter. There is currently no consensus, which means that administrators and funds have no clear guidance on this matter.
2. Does the in duplum rule apply to the amount of interest payable by an employer on late contributions?
The in duplum rule
The in duplum rule means that the interest on a debt can’t exceed the unpaid balance of the principal debt.
Example: Margaret lends Joe R200. Margaret charges Joe interest on this debt. When the interest gets to R200 (the same amount as the original debt), the in duplum rule means that the interest cannot grow any higher.
Recent High Court case
In the recent High Court case of Municipal Workers Retirement Fund v Umzimkhulu Local Municipality and Others the High Court found that the in duplum rule does not apply to the interest prescribed in the Pension Funds Act for arrear contributions. Therefore, the employer had to pay the full amount of statutory interest owing to the fund.
The FSCA’s and OPFA’s views
Before the case:
- The in duplum rule applies to arrear contributions.
Now - after the case:
- The in duplum rule does not apply to arrear contributions.
This means that the interest on arrear contributions payable by an employer can continue to add up and even exceed the original arrear contribution amount owed by the employer.
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