There is a way retirement funds can pay special Covid-19 relief benefits to members undergoing financial distress

In his latest weekly letter to the nation, entitled From The Desk of the President, Cyril Ramaphosa has painted a grim picture of South Africa’s economic prospects, warning of further job losses, salary cuts and a hugely weakened fiscal position.

The president’s address follows announcements by major corporations — both in the private and public sector — of far-reaching liquidations, business downscaling and mass retrenchments. 

South Africa, which already holds one of the worst unemployment rates in the world, will be severely affected by the downturn.

“For a country such as ours, which was already facing an unemployment crisis and weak economic growth, difficult decisions and difficult days lie ahead,” the president said. Ramaphosa added that while relief efforts undertaken by both government and the private sector — including loans, tax relief, debt restructuring, extended credit lines and retail rental exemptions – had managed to mitigate some of the worst of the financial fallout, the long-term prospects remained ominous. 

But it seems that not all relief possibilities have been tapped into just yet. The time has come for pension and provident funds to step up to the plate, not to bail out Eskom, but to help some of South Africa’s most vulnerable individuals weather an economic storm in this country not seen since World War I. This is especially applicable to workers who had to take a pay cut or have been temporarily suspended from employment during the lockdown.

For the context of this article a “special relief benefit” is a benefit which may be paid to a member of a fund who is still employed, but is in financial distress due to loss of or reduction in pay resulting from circumstances other than a strike or lock-out. These include the Covid-19 Temporary Employer-Employee Relief Scheme (TERS), the deferment of the payment of employee tax, and additional measures announced on 21 April 2020.

According to Rosemary Hunter, partner at Fasken Attorneys and a pension funds specialist, some bargaining councils have concluded agreements in which provision has been made for the replacement of a portion of the normal remuneration of employees with payments by employers of a part, or the whole, of the shortfalls remaining after TERS benefits have been taken into account. 

In its Communication 11 of 2020, issued in March this year, the Financial Sector Conduct Authority (FSCA) reminded local retirement funds subject to regulation in terms of the Pension Funds Act (PFA), that they are permitted to have rules that allow for the non-payment of contributions to pension funds and provident retirement funds during periods in which employees are temporarily laid off or are remunerated at rates lower than normal.

“This is an important measure,” says Hunter, “because, the less that is required to be deducted from an employee’s remuneration and paid to a fund in the form of contributions, the more may be available to the employee as ‘take-home’ pay in these difficult times. 

“Nonetheless, while these measures represent significant attempts to mitigate the financial distress, they are unlikely to be sufficient to replace the whole of their normal incomes for the whole of the periods during lockdown or other economic restrictions,” she adds.

Cosatu has claimed that it asked the government in March 2020 to take the necessary steps to make the payment of special relief benefits by pension and provident funds possible, and was disappointed by its failure to act.