Pressure on finances caused by COVID-19 lockdown – how can your pension fund help you?
3 June 2020
The financial consequences of the South African lockdown – caused by the Covid-19 infection
which is currently sweeping the globe – are being immediately felt. Loss of earnings and the
consequences on debt obligations are serious concerns which individuals are having to cope
with right now.
South Africa’s Pension Funds Act already caters for unforeseeable events such as the nationwide
lockdown currently underway, to assist employers or individuals who may be experiencing
financial difficulty because of lack of income.
Bruce Knight, Senior Consultant at wealth and financial advisory firm GTC, says that as
individuals and companies need to cut costs wherever possible including pension fund
contributions, all mechanisms to accommodate both employers and employees’ urgent needs
will need to be reviewed to prevent defaults on contractual payments.
“The Pension Funds Act caters for situations where employees are temporarily absent from
work, where employers need to downwardly adjust – or reduce – staff members’ salaries, or
even cease or reduce company or member contribution levels during this uncertain time,” says
Knight. “Within our own GTC Umbrella Funds, the trustees are able to assist participating
employers by outlining a range of suitable solutions when assessing financial relief
requirements for them and their employees.”
He details the options available and outlines solutions which may assist companies and
individuals with payment relief during these unprecedented and difficult times.
1. Temporary absence
“This option applies when pension fund members are temporarily absent from work, on either a
reduced salary from their employer, or no pay at all,” says Knight. “In this situation, participating
employers may elect to suspend contributions in respect of retirement benefits.”
He outlines that the suspension of contributions would apply for the period that the staff
member is absent, and this can be applied for up to a maximum of 12 months. The relevant risk
benefits would remain in place, meaning that members would continue to have their death and
disability benefits during their absence, and these would remain unchanged and not reduced
according to their reduced salaries.
Knight cautions, though, that risk premiums and administration fees will continue to be payable.
To qualify for this option, he adds that it is important for the participating employer to notify
the fund – and the employee – that members will be temporarily absent for an extended period.
“Also, the monthly membership and payroll data submission must reflect the member’s
temporary absence,” he continues.
2. Amendment to pensionable salaries
“Participating employers can also choose to amend their employees’ pensionable salaries for a
period. This means that employers may reduce staff salaries as a preventative measure, in order
to stay in business,” says Knight.
Risk salaries may be maintained to ensure the risk benefits remain in place and unchanged at
the level determined by the previous salary. The level of life and disability cover will not be
reduced according to the new reduced salaries.
Once again, Knight says that risk premiums and administration fees will continue to be
collected.
“As with ‘temporary absence’ the participating employer must notify the fund that pensionable
salaries will be amended for a period,” he continues. “And monthly membership and payroll data
submission must reflect the member’s revised pensionable and risk benefit salaries, where
applicable.”
3. Reduction or suspension of contributions
Where members are not absent from work, participating employers may elect to reduce or stop
employer, employee (or both) retirement benefit contributions.
“This means that although the company continues to operate in a ‘business as usual’ manner, it
will probably be at a reduced working level as a result of the lockdown, forcing many employers
to make financial adjustments to sustain the business.”
Even though the contributions will have been decreased or suspended, risk benefits would
remain in place and unchanged, ensuring that even though premiums in respect of retirement
savings are no longer being submitted, the life and disability benefits remain in place and these
are still provided for, through the fund.
As with the previous two options, risk premiums and administration fees will continue to be
collected.
“For inclusively costed funds (which are funds where the employer contribution rate includes
the risk benefit and running costs of the fund), employer contribution rates would need to be
maintained at a level to cover the risk premiums, administration fees and other agreed costs,”
explains Knight. “For those companies where their contribution excludes the cost of benefits
and administration, that portion of the contribution will have to continue being paid by the
employer. In normal circumstances, these costs are usually funded from the employer’s
contribution.”
Again, the participating employer must submit a request to the fund to reduce or stop employer,
employee (or both) retirement benefit contributions for a period, and monthly membership and
payroll data submission must reflect the member’s pensionable and risk benefit salaries (where
applicable).
The process to be followed:
For all the options mentioned – i.e. temporary absence, amendment to pensionable salaries and
reduction or suspension of contributions – the notification to the fund must include a
motivation for the option taken, the effective date and the expected duration of the temporary
absence.
“Also, the amendment is subject to agreement between members and the employer and the
communication, which was sent to members, must be submitted to the fund,” Knight adds.
Knight urges employers to liaise with their employee benefits consultants and to conduct a
thorough investigation into the various options available for the business, according to the
company’s specific financial situation as a result of the lockdown.
“Once a suitable strategy is agreed upon, amendments to the terms of employment with
employees should commence. Most amendments have been implemented with effect from 1
April 2020 onwards, subject to receipt of the documentation required by each Fund,” Knight
continues.
Knight notes that the financial consequences of the lockdown, as distinct from any other
motivations, have been more severe and immediate than any economic or market downturn GTC
has previously experienced in some thirty years.
“Whereas difficult economic conditions may see businesses struggling, and eventually failing,
the instant shutting down of many businesses which are thereafter incapable of generating any
revenues, has had a far more profound effect on these businesses and their staff,” Knight
concludes.
Notes to editors:
Issued by StratComms Advisory Services on behalf of GTC.
Lianne Osterberger 083 272 7313 / lianne@stratcomms.co.za
About GTC
GTC is a leading financial advisory business, specialising in the areas of retirement fund
administration, consulting and counselling; healthcare consulting; private client wealth
management; short term risk solutions; investment and asset management, fiduciary services
and other areas of financial advice. GTC also operates a unit trust management company and is
a licensed investment manager for both retirement funds and private clients in accordance with
the Financial Sector Conduct Authority (FSCA).
Collectively the GTC group employs approximately 120 staff in three major national centres.
Assets under management and administration total R42 billion.
Over 100 000 fund members participate in 350 retirement funds, most through one of several
GTC umbrella funds. Additionally, GTC consults to approximately 3 000 private clients in terms
of their wealth management goals.
GTC was established in 1991 from within the Grant Thornton Johannesburg audit practice, itself
part of Grant Thornton International. Effective late 2012, GTC was obliged to separate itself
from Grant Thornton due to various international regulations imposed by the SEC in the United
States, with Grant Thornton Capital changing its name to GTC and rebranding.
GTC has consistently been recognised within the industry for its leading principles when
conducting best practice, and GTC has been awarded various awards over the years, culminating
in the 2019 PMR.africa Diamond Arrow Award, being honoured as the highest rated company in
the category of pension fund administrators and consultants administering between 100 000
and 150 000 members in this survey.
GTC is an enthusiastic supporter of the Arts. The financial advisory and wealth business is a
proud sponsor of the Rotary Art Expo and specifically is the sole sponsor of the GTC Portrait
Awards, a competition which has run for the last four years. GTC also contributes to the
collection of art at our corporate offices in Illovo, culminating in several hundred pieces, many
regarded as important South African artworks.
Additionally, GTC sponsors the Johannesburg Symphony Orchestra (JSO) as well as the
Wanderers Golf Club. These projects are a social responsibility, a support of South African youth,
and a BEE initiative. But the real reason why GTC enthusiastically supports these various
initiatives is that they are all strong commitments to building a community. GTC believes this is
as strong a commitment as a company can make. Most importantly, it feels to them like the
right thing to do.
