Retirement vs saving your job
Trustees must weigh calls for pension fund contribution holidays
The trustees of your pension or provident fund will most likely have the difficult task
of balancing your need to save for retirement against granting relief to your employer that could save your job or your salary from being cut.
Many employers are considering temporarily halting contributions to retirement funds to mitigate the effects of the Covid-19 crisis on their businesses - or on employees who have lost commissions or been put on short time or unpaid leave.
The trustees' involvement should give you, as a member, some protection as they will have to be sure the relief is granted only to employers who need it to avoid pay cuts or retrenchments.
Muvhango Lukhaimane, the pension funds adjudicator, has warned trustees approving payment holidays to remember their duty of care to members.
Very few funds haveCarlyle Field
rules giving employers the discretion to
implement a contribution holiday
A contribution holiday may bring relief, but trustees granting it should check an employer's financial statements to ensure it is indeed in financial difficulty, set a time frame for the concession and/or a plan to catch up on the contributions after the payment holiday, she says.
Lukhaimane says her office is aware that some employers with strong balance sheets may attempt to abuse this opportunity.
Carlyle Field, employment law partner at Shepstone & Wylie, says very few funds have rules giving employers the discretion to implement a contribution holiday. Most fund rules allow the trustees to decide if contributions may be temporarily suspended.
Some funds do not cater for the relief employers are seeking to mitigate the Covid-19 fallout.
Rules typically cater for cases when an employee is not at work, for example when on maternity leave, and not for cases such as a return to work from lockdown.
The trustees of most funds will therefore first have to decide whether or not to amend the rules to allow for this relief and then whether to implement it, Field says.
Rosemary Hunter, a partner at Fasken, says if funds do not have rules that cater for temporary contribution relief, your employer is obliged to pay.
If you and your employer agree to avoid retrenchments by reducing your pay for a certain period, contribution amounts and group risk cover based on this pay will automatically reduce, Hunter says.
For your employer to temporarily stop contributing without pay cuts or layoffs or lapsing your group cover, your fund can ask the Financial Sector Conduct Authority to fast-track approval of a change to the rules.
Field says fund rules may provide for an employer's liability for the contributions to be deferred to a later date. Employers may, however, argue that their financial circumstances are so bad that they do not expect to be in a position to back-pay the outstanding contributions in the short term, Field says.
Michelle David, a director of Norton Rose Fulbright, says if trustees agree to allow relief, they need to ensure that an employer is indeed in financial distress.
Hunter says the rules should oblige employers to declare in an affidavit or satisfy the board or a subcommittee that it is in financial distress and that without contribution relief it will be forced to retrench and/or members will not be able to manage on their reduced pay.
However, to avoid delays - for example, from a detailed assessment of an employer's financials - trustees could assume all employers are under considerable financial strain as a result of the coronavirus crisis and allow them to stop contributions for, say, three months. Further relief could be conditional upon another application, she says.
Field says the trustees will have to balance the different stakeholders' interests with due regard to their fiduciary duties as set out in the Pension Funds Act. They have a duty to ensure that the fund is financially sound, which depends on the participating employer being financially sound.
The trustees should, therefore, not refuse to even consider relief and/or a rule amendment, as this could jeopardise the financial wellbeing or even continued existence of the employer, he says.
Hunter says umbrella fund trustees will not be able to consider each of the many participating employers' cases and would have to delegate decisions on each employer to its management committee. Trustees should set guidelines for approvals and check these are applied, she says.
However, David says only umbrella fund boards would be able to consider the impact on the fund, and its membership in totality .
She says it is important for the fund and employers to communicate about the contribution holiday and the impact on employees' group life cover, especially given the risks the pandemic poses.