The much-anticipated two-pot pension system, designed to give workers access to a portion of their retirement savings, has instead unearthed a shocking scandal: thousands of employers have failed to contribute, leaving employees with empty pension pots and jeopardizing their future security. The revelation has sparked outrage amongst labour unions, who are demanding swift action against the culprits.
The problem came to light when workers, expecting to access their funds, discovered their accounts were devoid of contributions. This widespread non-compliance has disproportionately affected municipal and security workers, many of whom are already among the lowest-paid in the country. Their hopes of using the two-pot system to address pressing financial needs – such as paying off debt, home loans, or funding their children’s education – have been dashed.
The South African Municipal Workers Union (Samwu) has identified the Free State as a particularly hard-hit province, with 13 out of 37 municipalities defaulting on pension payments, some for years.
This systemic failure has left workers facing a double blow: not only have they lost out on their pension benefits, but in some cases, court orders demanding payment have led to municipalities attaching bank accounts, resulting in salary stoppages for employees.
Cosatu, the Congress of South African Trade Unions, has called for immediate action, demanding that errant employers repay the stolen funds, including accrued interest. This issue will be a central point in their planned nationwide strike action.
Cosatu KZN Secretary Edwin Mkhize expressed his anger: “It’s like actually stealing from the poor. It’s fraud, it’s corruption and it’s something that needs to be dealt with accordingly,” he stated.
Mkhize highlighted that Cosatu’s advocacy for the two-pot system inadvertently exposed this massive problem, emphasizing the need for accountability and consequences.
He further elaborated on the devastating impact on workers: “Many of our members would have only realised when they go on pension that there’s nothing in the purse and really, that would have been a nightmare. We believe there are many workers who have been victims, but you may find that they are dying in silence because it can’t be that this thing is only happening now,” Mkhize said.
He criticised the lack of consequences for officials responsible for mismanaging these funds, stating that despite often admitting to losses in parliamentary committees, no action is taken.
“We want to get to a stage where all those companies will have to have their day in court to go and actually account for this fraud they’ve committed against the workers,” he demanded.
Mkhize also raised concerns about the fate of pension funds when members die before receiving their full benefits.
“Sometimes our members go on retirement and then they get a lump sum and the fund has to keep some portion for you to earn every month as part of your pension. But some members do not even enjoy that benefit and after a few months they pass on. We’ve never reached a point where we are able to ask: what happens when the funds keep a certain portion and then you die? It means that millions of rands belonging to workers get lost somewhere,” he explained.
He directly blamed the industry regulator for failing to protect workers' money.
“You have companies, you have pension fund managers that have been reported for having stolen the monies of workers from the pension fund, even some big institutions. But we have a regulator whose primary mandate is to ensure there is proper management of the finances of workers. And every time they fail the workers there is no consequence,” Mkhize asserted.
Samwu’s Free State secretary, Thabang Tseuoa, echoed the outrage, highlighting the inaction surrounding the issue: “The pension funds have to act. When this non-payment exceeds 90 days, they have a responsibility to open criminal cases, which has not happened in any municipality.”
He pointed out the lack of accountability: “You can check in South Africa: where has a pension fund opened a criminal case against the municipal manager, the CFO, and they’ve been found guilty? You will not find a single municipal manager or CFO having been fined for non-payment of pensions,” Tseuoa stated.
Tseuoa cited a court case in the Free State where the Municipal Workers Retirement Fund successfully sued Mafube municipality for R35 million in arrears. However, the municipality’s inability to pay has created a further crisis.
“Now if the court order says you must pay R35 million, and they’re not paying because it’s beyond their financial means, what’s going to happen? Your pension fund would then attach a bank account of a municipality to service that particular debt. Who’s suffering again? An employee who’s not going to get a salary because now a bank account is attached. So there’s double jeopardy on the employee: they have lost on the pension benefits and they’ve lost on the salary,” said Tseuo.
He criticized the pension funds for allowing arrears to accumulate to almost R40 million before taking action, and condemned the government, Treasury, and Cogta for their inaction.
Despite the Pension Funds Adjudicator, Muvhango Lukhaimane, urging workers to lodge complaints, the scale of the problem remains deeply concerning. Lukhaimane stated: “With our latest annual report to March 2024 (before the two-pot system came into effect), 84% of the complaints finalised involved a non-compliant employer. This problem is across all sectors of the economy – sometimes it is hidden in fund liquidations,” she said. She highlighted the broader implications, stating: “This is concerning because it not only affects the member’s retirement savings but other risk benefits that are dependent on settlement of premiums by funds to third parties such as death, disability and funeral benefits, leaving members further vulnerable at times of great need.” The scandal underscores a systemic failure to protect workers' rights and highlights the urgent need for comprehensive reform and accountability within the South African pension system.
