R26,000 hit for some pension fund members in South Africa
Municipalities across South Africa have been criticised for failing to pay more than R1.4 billion in pension fund contributions deducted from workers’ salaries to the Municipal Workers Retirement Fund (MWRF).
This staggering shortfall equates to an average loss of R26,000 per worker, though the reality is likely much worse.
The issue was brought to light during a recent parliamentary Q&A, where Finance Minister Enoch Godongwana was questioned on the details of municipalities that deducted pension contributions but failed to transfer the funds to the retirement fund.
The inquiry followed a landmark judgment by the Bloemfontein High Court, which ordered the Mafube Local Municipality to repay R38 million in pension contributions it had unlawfully withheld from employees.
Minister Godongwana revealed that as of 31 March 2024, only 108 of the country’s 257 municipalities were compliant with pension fund payments.
The remaining 149 municipalities were in arrears, collectively owing R1.414 billion to pension funds.
“National Treasury does not have the details on how the funds were used,” Godongwana stated, adding that municipal councils are responsible for implementing consequence management, including pursuing criminal charges against officials implicated in financial misconduct.
Despite this obligation, there appears to be little accountability.
Godongwana admitted that the National Treasury is unaware of any criminal charges filed against officials who failed to transfer pension contributions.
This lack of enforcement has left thousands of municipal workers in financial trouble, undermining their retirement security.
The MWRF, which serves over 55,000 members, is one of the largest retirement funds for local government employees and councillors.
The R1.4 billion in unpaid contributions translates to a potential loss of R26,000 per member.
However, given that over half of South Africa’s municipalities are non-compliant, the actual impact on workers is likely far greater, leaving many municipal employees without the retirement savings they are entitled to.
This issue is not unique to municipalities.
Recent developments surrounding the “two-pot” pension system have exposed a broader crisis of non-payment in South Africa.
The system, introduced in September 2023, allows workers to access part of their retirement savings.
However, thousands of employees discovered their funds were missing, revealing that over 3,000 employers had failed to contribute to workers’ pensions.
SABC Economics Editor Tsepho Mongwai noted that since the launch of the two-pot system, significant flaws in the pension system have been exposed.
He reported that R21 billion in withdrawals have been made to date, with the South African Revenue Service (SARS) expected to generate approximately R5 billion in tax revenue from these withdrawals.
However, Mongwai highlighted cases where some employers have neglected pension contributions for up to 20 years, leaving employees with no savings when they needed them most.
“When you have almost everyone claiming at the same time, it starts to expose those deficiencies in the system,” he said.
This crisis points to systemic failures in oversight and enforcement. Trustees of pension funds are struggling to monitor compliance among the numerous employers they oversee, exacerbating the issue.
Pension Funds Adjudicator Muvhango Lukhaimane criticised the lax enforcement by pension funds, noting that it emboldens employers to neglect their obligations.
“If the employers see that the fund in its enforcement measures is lax, then they are also going to take a chance,” she said.
The scale of non-compliance and the lack of accountability have left workers, both in municipalities and private companies, vulnerable to financial insecurity.
As the government grapples with the broader pension crisis, workers are left to bear the brunt of systemic failures, raising urgent questions about the protection of their hard-earned retirement savings.
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