Pension Funds Adjudicator Muvhango Lukhaimane criticised the PSSPF board for its apparent unwillingness to hold defaulting employers accountable, adding that complaints arose when members would attempt to claim their benefits, long after employers had failed to pay. Grapgic: Sizwe Dlamini/Sunday Independent
THE Office of the Pension Funds Adjudicator (OPFA) has made damning claims regarding the Private Security Sector Provident Fund (PSSPF) in its most recent annual report, which have subjected the fund to intense scrutiny.
The PSSPF, which is accountable for the retirement benefits of thousands of South African security guards and is designated as the primary source of pension-related complaints, was found to have experienced critical operational failures.
In its 2023-2024 annual report, the OPFA disclosed that the PSSPF was the most problematic fund in the country, with 3 654 complaints issued out of a total of over 9 000. Many security officers have been deprived of their rightful benefits due to widespread non-compliance by employers, processing delays, and poor communication between the fund and its administrator.
Pension Funds Adjudicator Muvhango Lukhaimane said frankly: “The requirement for compulsory membership in the PSSPF by security guards remains questionable as employers continue to evade the requirement to pay contributions.” She said this non-compliance had become a widespread practice despite regulations, a collective bargaining agreement, and legal consequences for defaulters under the Pension Funds Act.
Lukhaimane criticised the PSSPF board for its apparent unwillingness to hold defaulting employers accountable, adding that complaints arose when members would attempt to claim their benefits, long after employers had failed to pay.
The PSSPF and its administrator have also been faulted for their inability to efficiently process contributions from compliant employers, with Lukhaimane highlighting a severe communication breakdown, where employers are confirmed as compliant by the fund but deemed in arrears by the administrator.
The report also exposed an alarming trend: From September 2021 to February 2024, the contribution rate was reduced from 7.5% to 5%, yet some employers continued to deduct the higher rate from employees while paying the lower amount to the PSSPF. Lukhaimane criticised the fund and its administrator for failing to compare deductions against industry scales, allowing this exploitation to persist.
Lukhaimane warned of further problems on the horizon with the introduction of the two-pot retirement savings system. Under this system, employees can access a portion of their savings early, but many PSSPF members might discover their employers’ non-compliance when they try to claim. This could lead to an explosion in complaints, further burdening the OPFA.
“The introduction of the two-pot system is expected to create more issues for the PSSPF as members will become aware of non-compliant employers when attempting to claim,” Lukhaimane said.
The OPFA’s report paints a grim picture of the pension landscape, with complaints about withdrawal benefits and non-compliance with Section 13A—non-payment of contributions—dominating the sector. These categories make up 84% of all closed complaints, with the PSSPF responsible for nearly half.
“If one considers that the purpose of the PSSPF is to provide retirement benefits, the fund does not appear to be achieving its purpose since the majority of its members do not remain in the fund until retirement age,” Lukhaimane said, emphasising the failure of the PSSPF to meet its core mandate.
Lukhaimane urged the PSSPF board to monitor and act against defaulting employers, pointing out that the burden of non-compliance continued to fall on vulnerable workers. Unless the PSSPF board took decisive action, security guards would continue to suffer, and the pension crisis would only deepen.
The OPFA also called on all pension funds to improve their internal dispute resolution mechanisms after receiving 9 177 new complaints during the 2023-2024 financial year. Lukhaimane emphasised the importance of the “refer-to-fund” (RtF) process, which allows funds to address member complaints before they are formally lodged with the OPFA.
“The RtF process has been largely welcomed by the industry,” Lukhaimane said. “During the year under review, 699 disputes were resolved via the RtF process, a 10% increase over the previous year.”
While the OPFA closed 8 399 complaints this year, representing a 25% increase in case closures, the speed of resolving these complaints had slowed. Only 77% of complaints were resolved within six months, a 5% decline from the previous year.
“Some of this can be attributed to certain retirement funds that are habitually uncooperative,” Lukhaimane said, adding that regulatory interventions by the Financial Services Conduct Authority (FSCA) further complicated the resolution of member grievances.
Legal challenges to the OPFA’s determinations have increased, with 81 cases referred to the Financial Services Tribunal (FST) in the past year. While 54 of these cases upheld the OPFA’s decisions, the growing dissatisfaction among pension fund members indicated ongoing problems in the industry.
Sunday Independent (SI): The OPFA report highlights the ongoing issue of non-compliant employers in the private security sector, particularly in relation to the PSSPF. Why has the PSSPF board of management failed to consistently hold defaulting employers liable for non-payment of contributions, despite the clear legal and regulatory obligations?
Private Security Sector Provident Fund (PSSPF): The current PSSPF board was appointed on February 1, 2022, and has been working tirelessly with employers to get them to a compliant state. At the date of their appointment, we had 592 compliant employers, and this number has increased to 1821 as at the end of August 2024. It is imperative to understand that the employers are also stakeholders who need to be supported, and this board has chosen to partner with stakeholders for a more compliant environment.
SI: There are significant delays in the allocation of contributions paid by compliant employers, causing benefit processing issues. What measures are being taken to resolve these allocation delays and improve communication between the PSSPF and its administrator?
PSSPF: The contribution allocation process involves more than just payments and a schedule; it is significantly more complex. The Adjudicators’ comment on significant delays has not been substantiated with evidence that this is a failure by the Fund and/or its administrator. FSCA Conduct Standard 1 of 2022 stipulates the minimum information required, which should be read in conjunction with the rules of the Fund. If an employer sends a schedule and has deducted 5% but the required deduction is 6.5% then the administrator is unable to allocate that schedule. The Fund is working on rolling out an employer online submission portal to assist employers to curb this anomaly and ensure that when schedules are received, they are able to be allocated. In addition, the Fund has hosted numerous webinars with employers to educate them on requirements for the Conduct Standard and compliance and we continue to engage employers towards achieving a compliant status with the Fund.
SI: Why has the PSSPF not successfully enforced the requirement for compulsory membership and contributions, especially when many employers continue to evade contributions, despite the legal framework and potential criminal consequences?
PSSPF: As indicated in Q1 above, this board has taken office in February 2022 and is in the process of restoring the non-compliance, which is rife across this industry not just in relation to the provident fund. Some of the actions of the board include lodging complaints with the OPFA against errant employers, engaging errant employers for acknowledgement of debt agreements and we are currently assisting the NPA in the Defensor matter in the Kimberley Commercial Crimes Court.
SI: The reduction in contribution rates from 7.5% to 5% has reportedly been exploited by some employers who continue to deduct the higher percentage from wages but remit the lower amount to the PSSPF. What steps are being taken to address this discrepancy and ensure compliance with contribution rules?
PSSPF: It is important to understand the practical administration processes as it relates to provident funds. Provident Funds are legislated by the Pension Funds Act and wages or salaries are legislated by the Labour Relations Act or the Main Collective Agreement. The Fund has made available a platform for members to view their contributions and this is aimed at transparency and education. As the Fund, we do not know what the payroll deduction is from the member, but we do know what has been paid to us for contributions. We have implemented technology tools that allow members to compare their payslip deductions to what has been remitted to the Fund and thus take the necessary steps against the employer if need be. Further, if the employer deducts a higher amount than required in terms of the rules without paying to the Fund, the payroll deduction which is made without the members consent is a matter for the Department of Labour and not of the Provident Fund.
SI: With the introduction of the two-pot system, many members are expected to discover that their employers are non-compliant when attempting to claim benefits. How does the PSSPF plan to handle the likely escalation of complaints that this will generate?
PSSPF: The Fund started hosting educational webinars since early 2024, long before the implementation of the two-pot system to ensure our members were aware of the impact of non-compliance on two-pot claims. We have increased capacity between the Fund and the administrator to deal with the expected increase in complaints because of the two-pot system. As discussed, we are working with employers to regularise their affairs via AOD agreements, and this is critical in ensuring member interests are protected.
SI: The report indicates that there is a significant communication gap between the PSSPF and its administrator, leading to contradictory statements regarding employer compliance. What actions are being taken to improve coordination and communication between these entities?
PSSPF: A new Principal Executive Officer, Mr Dumisa Hlatshwayo, was appointed by the PSSPF board on 1 July 2024. The PEO is currently working to streamline processes and ensure that any gaps in communication are addressed and closed.
SI: Given the nature of employment in the private security sector, the PSSPF appears to struggle with retaining members until retirement age. How does the fund plan to address this challenge and ensure that its members can benefit from long-term retirement savings?
PSSPF: It is important to understand the sector we are operating in – there are structural issues within the sector, with security companies being awarded contracts on a 3–5-year basis. This means members will change employment where contracts are awarded to new parties. The compulsory savings introduced by the two-pot system will go a long way in addressing the retention of members savings within the Fund but it is important to understand that members are struggling to cope with their current financial situation and so retirement is not a top priority for them. There are structural issues which need to be addressed in order to give rise to conditions which make it appealing for members to focus on retirement savings.
SI: PSSPF members account for a disproportionate number of the complaints lodged with the OPFA. What actions are being taken to reduce the number of complaints from PSSPF members, particularly regarding withdrawal benefits and non-compliance with Section 13A?
PSSPF: As mentioned above, the Fund is engaging with the employers to increase compliance via AODs and where this is not achievable the Fund has begun litigation and lodging of complaints against errant employers. This will thereby decrease the number of complaints received by the OPFA in respect of non-compliance with Section 13(A).
SI: Considering that many employers continue to exploit loopholes in the pension contribution system, how does the PSSPF intend to tighten its oversight mechanisms to prevent further financial mismanagement and ensure members receive the benefits they are entitled to?
PSSPF: There is no financial mismanagement on the Fund, the Fund has submitted its latest set of unqualified Annual Financial Statements to the Financial Sector Conduct Authority (FSCA). If the financial mismanagement being discussed is that of employers in relation to members, then it is important to remember that there is a National Bargaining Council for the Private Security Sector that is also a watchdog for members in the sector.
SI: The anticipated rise in complaints as a result of non-compliance with the two-pot system could place further strain on OPFA’s resources. What proactive steps is the PSSPF taking to prevent this situation from worsening, and how can it better support the OPFA in resolving member complaints?
PSSPF: The Fund has not seen an increase in complaints because of the two-pot implementation. As indicated, increased capacity has been implemented to deal with the anticipated increase in complaints and processing. The entire industry has had to increase capacity because of this regime being implemented; therefore, it goes without saying that we assume the OPFA has increased capacity accordingly.
* These are combined responses from both PSSPF and Salt Employee Benefits.