Directors of companies that fail to pay their employees’ pension fund contributions to the fund can now face a fine of up to R10 million and/or 10 years imprisonment. This is according to new amendments to South Africa’s pension law effective 28 February 2014.

These amendments have dramatically expanded the consequences of late or non-payment of pension contributions for participating employers and their management. Until 28 February this year, only the employer company could be held liable for late or non-compliance. The consequences for the corporate entity were limited to late payment interest (which remains in place) and administrative penalties of up to R1000 per day of non-compliance at the discretion of the registrar of pension funds.

All directors who are involved in the company’s “financial affairs” are at risk of being caught by the net of these new amendments. It is unclear which directors will be viewed as being involved in the company’s financial affairs, but it could well include all executive directors. The amendments require pension funds to request the details of these directors from the employers. Should the employers fail to provide these details, all directors may be held personally liable.

The late or non-payment of pension fund contributions by employers is unfortunately not uncommon in the pensions industry. While most employers would not dare default on salary payments, there are instances where pension contributions are deducted from the member’s salary but not paid over to the pension fund. Late payment can negatively affect members’ investment interest and risk benefit coverage and the non-payment of contributions essentially constitutes theft.

The success of this new personal liability regime will depend on how effectively it is enforced. Pension funds can report non-payment of contributions but do not have the statutory enforcement power to lead the charge themselves. Instead, a coordinated effort from the Financial Services Board, the police and pension funds will likely lead to more success. Such an effort will by extension strengthen fund governance and serve the best interests of the fund and its members.