In this article explore whether the failure by a pension fund to timeously collect arrear pension contributions will result in the fund not having a claim against the employer where the defence of prescription is raised by such employer. The issue in the pensions industry is whether prescription should apply to pension arrear contributions in light of the onus placed on employers to ensure contributions are paid. Non-remittance of pension contributions by employers deprives members and their beneficiaries of full benefits. These benefits can only be paid to beneficiaries whose contributions are up to date.

A pension fund is a scheme which provides retirement income. Employers are to deduct money from employee salaries and remit to the pension funds. If money the money deducted from employee is not remitted to the pension fund by the employer it becomes pension contribution arrears. The harsh reality in Zimbabwe is that many employers are failing to comply with the deadlines of remitting money to pension funds. The Insurance and Pension Commission (IPEC) published online, a list of top 50 entities dominating the pension contribution arrears as at 31 March 2022. Moreover, the Commission also released a report stating that the backlog of unpaid contributions increased from ZWL$5.3 billion in March 2022 to ZWL$26.31 billion in December 2022

In a bid to protect the rights of employees, laws were enacted to ensure that participating employers remit money to their respective funds.


THE OLD PENSIONS LAW
The Pension and Provident Funds Act [Chapter 24:09] is the old Act of Parliament which is no longer in force. Section 35(1) of the Pension and Provident Fund Act Chapter 24:09 imposed a criminal sanction of a fine not exceeding level five or imprisonment for a period not exceeding three months or to bothon any person who fails to transmit or deposit any scheme or account when required to do so in terms of the Act.

Section 13(1) (a) of thePension and Provident Funds Regulations, 1991 states that the rules of a pension fund or provident fund shall require all members to make compulsory contributions to the fund.  The Statutory instrument was amended and this gave effect to the Pensions and Provident Funds (Amendment) Regulations, 2020 (No.25). Section 56A of the Pensions and Provident Funds (Amendment) Regulations, 2020 (No. 25) states that if a participating employer, fails to timeously make deductions or to pay to the fund concerned he shall be liable to a penalty of three hundred dollars for each day that the non-compliance continues up to a maximum of sixty days.


THE NEW PENSIONS LAW
The Pensions and Provident Funds Act [Chapter 24:32]  came into force on the 2^nd day of September 2022 and repealed the Pension and Provident Funds Act [Chapter 24:09] together with Pension and Provident Funds Regulations, 1991 andPensions and Provident Funds (Amendment) Regulations, 2020 (No.25).

The new Pensions and Provident Funds Act [Chapter 24:32] provides practical solutions on the issue of payment and collection of pension contributions. Section 19 of the new Actstates that every participating employer shall pay contributions in full to the fund within 14 days after the end of the month in respect of which the contributions were payable. It also declares that any participating employer who fails to remit contributions within the fourteen (14) day period shall be guilty of an offence and liable to a category 1 civil penalty.

Furthermore, section 19 also provides that if a participating employer fails to remit contributions within the fourteen (14) day period, the Principal Officer shall report to the Commission, within seven days after the expiration of the fourteen day period.

Attention must be drawn to fact that the new Act further provides that if a participating employer fails to remit pension contributions for a period of three months, the Commissioner shall direct the employer to remit such contributions to the fund within such period as the Commissioner may specify. Before giving the direction to the participating employer, the Commissioner shall invite representations from such employer, to give reasons for the non-remittance of contributions.

In the event that a participating employer fails to comply with the said directive, the Commissioner shall issue a garnishee order directing the bank of such employer to remit outstanding pension contributions to the fund, either by way of a single instalment or such number of instalments as the Commissioner may specify.

In summation, the new Act gives an obligation to Pension Fund Administrators to report to the Commission if an Employer fails to remit money to the Pension Fund. Moreover the Commission is also given the power to issue a garnishee order inorder to recover the arrears.


DO PENSION ARREAR CONTRIBUTIONS PRESCRIBE?
Prescription is a legal principle which entails that a debtor’s liability to pay an outstanding debt is extinguished after the passing of a specific period of time. This entails that if a creditor fails to claim his debt within a specific period of time, the creditor will lose his right to claim what is due to him.  It is necessary to ascertain whether or not pension contribution arrears fall under a debt because all debts prescribe.

In terms section 2 of the Prescription Act [Chapter 8:11] a debt is defined as anything which may be sued for or claimed by reason of an obligation arising from statute, contract, delict or otherwise. Section 16 of the Pensions and Provident Act [Chapter 24:32] clearly states that a participating employer has an obligation to pay deductions from an employee’s remuneration to the pension fund. 

Pension contribution arrears prescribe because the obligation of an employer to remit money to the pension fund arises from statute. In terms of the Prescription Act [Chapter 8:11], pension contribution arrears fall under ordinary debts which must be recovered in 3 years. Put it differently, a sponsoring employer will not be held liable if the three (3) year period within which to recover the pension contribution arrear lapses.


WHEN DOES PRESCRIPTION START TO RUN
Section 16(1) of the Prescription Act [Chapter 8:11] stipulates that prescription starts to run as soon as a debt becomes due. In the case of Mukahlera v Clerk of Parliament & Others 2005 (2) ZLR 365 (SC) it was held that a debt becomes due when a cause of action arises. In the case of Western Bank Ltd v SJJ van Vuuren Transport (Pty) Ltd & others 1980 (2) SA 348 (T) it was held that a debt becomes due when it becomes immediately payable by the debtor. The above-mentioned cases reveal that prescription start to run when the obligation to pay what is due arises and when the creditor becomes fully aware of all the facts that must be proven in order to recover the debt.

As regards to pension contributions, an employer must deduct money from an employee’s monthly salary and remit it to the pension fund within 14 days after the end of the month. When this is not done, prescription starts to run. The harsh reality is that the debt will be extinguished if it is not recovered in three years.

Pension funds and members and must always be vigilant in enforcing their rights against defaulting employers. Failure to act timeously will result in serious financial loss on the part of the members and beneficiaries. While the new Pensions and Provident Act provides robust remedies for payment of contributions, prescription brings harsh realities. The failure by a pension fund to timeously collect arrear pension contributions will result in the fund not having a claim against the employer where the defence of prescription is raised by such employer.

For assistance with inquiries on Pensions and related issues, kindly get hold of our Estates Planning, Insurance and Pensions Practice Group on info@mmmlawfirm.co.zw