South Africa enjoys one of the highest rates of occupational retirement funding "coverage" of formal sector employees in the world, despite the fact that most employers are not required by law to enrol their employees in occupational retirement funds. Of the approximately five million members of occupational retirement funds in 2012, approximately one million belonged to pension or provident funds established in terms of bargaining council agreements. In terms of the Labour Relations Act, 1995, these are binding on not only the employers and employees represented by parties to those agreements, but also on other employees within the scope of defined "bargaining units" in the industry and their employers.
It seems likely that this high rate of employee enrolment in occupational retirement funds is largely attributable to the generous tax incentives provided to employers and employees in terms of the Income Tax Act, 1962, but these incentives are meaningless to low-income earners who pay little, if any, tax anyway. This may be
why the Private Sector Security Provident Fund (PSSPF) was established in 2002 in terms of a sectoral determination issued by the Minister of Labour in terms of s55 of the Basic Conditions of Employment Act (BCEA).
Unless exempted from this obligation, all employers conducting private sector security businesses are required to enrol specified categories of employees (such as guards) as members of the fund in terms of the sectoral determination. However, only approximately
half of them are currently complying with this obligation. In addition, only 15% of them are also complying with their statutory duties in terms of s13A of the Pension Funds Act, 1956 (PFA) read with PFA regulation 33(1), to pay monthly contributions to the PSSPF timeously, and to furnish it with contribution schedules containing the up-to-date information it needs to attribute specific contributions to specific member accounts in the fund.
Of the 497 394 "active" security officers registered by the Private Security Industry Regulatory Authority (PSIRA) for the year ended March 2017, only 242 677 were reported by the PSSPF in June 2016 to be "active" members of the fund. Another 79 513 were reported by the fund to be "inactive" members – those for whom the fund had not received identifiable contributions for periods in excess of 24 months.
It is hardly surprising then that the PSSPF is the topic of a large pro- portion of the approximately 254 complaints the pension funds adjudicator receives each month, nor that it attracts media attention. It has been suggested by some commentators, including the pension funds adjudicator, that the problems evident from the complaints lodged could be addressed by more effective regulatory action.
There are, however, a wide range of impediments to the sound functioning of PSSPF and the delivery of "value for money" benefits to members and dependants, and nominees of deceased members. In the circumstances, even if the fund's board and its administrator were to comply with all applicable laws, it is unlikely that it would be able to deliver the benefits.
The same is probably true for the Contract Cleaning National Provident Fund, the only other fund to which employees in a particular industry are required to belong in terms of a sectoral determination.
The nature of the industry from which PSSPF members are drawn
Thousands of under-resourced employers of small numbers of employees and high rates of non-compliance with private security industry laws
On the one hand, the private sector security industry comprises a few employers, such as Fidelity Security Services and Bidvest Protea Coin, of large numbers of employees with sophisticated human resources capacities including technology (including, most importantly for the purposes of this article, payroll). And, on the other hand, there are many thousands of employers of small numbers of employees, many of whom are, presumably, without such capacities.
Capacity constraints may explain the failures of some employers to provide to the PSSPF accurate, up to date and complete information and supporting documentation relating to the identities, remuneration, work histories and other information required for the effective administration of the fund. These challenges occur when enrolling those employees as members of the fund, paying contributions to it and when their employees, or the dependants of deceased employees, claim benefits from the fund. Similar failures by other employers may be attributable to simple negligence or poor employment relations.
The rate at which employees enter and exit the market is high, as is the rate of non-compliance by security industry employers with applicable laws, including those relating to regulation and supervision by the Private Security Industry Regulatory Authority (PSIRA) and those relating to the employment of employees – applicable to all employers.
Low wage rates and intermittent and insecure employment
Most of these employees are relatively unskilled and are paid wages little, if any, more than those prescribed by the Minister of Labour in terms of sectoral determinations issued in the BCEA. These are barely sufficient for their own maintenance, let alone those of their families.
Some are only employed for so long as their employers are party to specific security service contracts. If those contracts terminate, so does their employment. Some employees remain unemployed for long periods.
In the circumstances it is likely that at least some private sector security employees either explicitly agree to, or simply acquiesce in, non-compliance by their employers with their obligations to enrol the employees as members of the PSSPF. The employee, and possibly even the employer, simply cannot afford to pay the contributions.
Fraud by employers
Other PSSPF members may be led to believe that the fund contributions regularly deducted from their wages are being paid to the fund but, when they claim their benefits, they discover that their employers never paid either the employee contribution or those for which they were liable. If the members do receive any benefits at all, they are much lower than they would otherwise have been.
Other impediments to provision of "value for money" retirement benefits
Low contribution rates and high non-investment costs
In terms of the rules of the PSSPF, after the first four months of a member's membership of the fund, the employer must deduct from the employee and pay to the fund an amount equal to 7.5% of their wages together with the employer's contribution in an amount equal to 10% of those wages. Two-thirds of the employer's contribution (5% of the employees' wages) is credited to the PSSPF's "reserve account" and used to provide for "risk benefits" (benefits payable on pre-retirement, permanent disablement or death) and the costs of running the fund, including the:
costs entailed in obtaining and processing information provided in a range of formats, some of which may be incomplete and/or incorrect; fund's considerable legal costs, a large proportion of which is likely to be incurred in the course of attempts to enforce compliance by employers with the statutory duties of their boards in terms of sections 7C and 7D of the PFA.
The balance, plus the member's contribution (together amounting to only 10% of his or her wages), is then invested to provide for his or her retirement.