Staff at cash-strapped, state-owned arms manufacturer Denel learned on Tuesday that the company has paid their salaries, but not their pension contributions. 

In a letter sent out by the “Denel retirement fund”, the fund said workers would not be able to claim benefits as monthly payments were not up to date.

Section 13A of the Pension Funds Act is unambiguous in that any employer must effect payment of members’ contributions to the fund before the seventh day of the month following the month for which it is due,” the letter, seen by Business Day, said.

“The fund will not be able to process or effect payment of members’ benefits, which include death in service and medical disability benefits, resignation benefits, investment return updates and any other benefits payable.”

It also said it would charge Denel interest on late payments.

Union Solidarity, which has a significant membership at the firm said it has not yet confirmed how many employees are affected. “Denel didn’t pay [pension] contributions for a large part of the group. We are still waiting for the exact numbers.” 

On June 25, Denel group CEO Daniel du Toit said in a letter to staff that the company was unable to pay employees their full salaries. 

“Due to the ongoing liquidity challenges, we are now faced with the unfortunate reality that the company is not in a position to fulfil the 100% salary obligation for June 2019. Employees will receive 85% of the salary obligation for June 2019,” said the letter.

Following this, public enterprises minister Pravin Gordhan announced a “lender” had enabled the arms manufacturer to pay the rest of the staff salaries. But on Tuesday afternoon, it became clear that none of the pension contributions for June had been paid. Pension contributions are commonly between 12% and 19% of  a salary.

In March, ratings agency Fitch downgraded Denel’s long-term credit rating.

Denel said in a statement on Wednesday that its management was working “tirelessly” to correct the situation.

“The organisation is also engaging the banks to secure bridging finance to support the company until recapitalisation is received,” the statement read.

“This issue is connected to the current liquidity challenges experienced by Denel, which also resulted in a delayed payment of full salaries to employees in June. Denel is in constant communication with the Denel retirement fund managers and will advise employees as soon as the issue is resolved.”