The law is clear about how pension pay-outs are handled, and the circumstances that can prevent them
The Pension Funds Act offers employers and employees with clear insights and guidelines around how retirement funds are paid out, and what processes need to be followed in the event of a dispute. The latter can come about as a result of a financial loss to the employer due to employee conduct such as theft or fraud, but any business planning to prevent pension payments must follow due process before anything can happen. In short, says Nicol Myburgh Head: CRS Technologies HCM Business Unit, it’s a long walk from claiming that an employee owes you their pension to actually taking the money.
“A company may opt to take an employee’s pension because the employee owes the company a significant debt that can’t be paid off with existing salary commitments,” he adds. “If the employee acknowledges the debt in writing, this amount can be legally claimed from the pension. This is usually any amount outstanding after termination of the contract and the final salary has been paid.”
The reason the debt may have to come out of the pension is that legally companies cannot deduct more than 25% from a person’s salary at any given time. If the debt exceeds that amount, the employer cannot take it from the salary and can then request the provident fund or retirement annuity to deduct the amount. However, this amount cannot be deducted without the employee’s prior consent and the signatures of both employer and employee, unless so ordered by the court.
“If an employee owes the business money but doesn’t have an acknowledgement of this debt in writing, then things get tricky, especially if the person was dismissed due to fraud or theft,” says Myburgh. “The company can set a claim against the pension fund, but it’s a very complex process and can usually only succeed if it goes to court and is managed from a legal perspective. At this point, the company explains to the fund that the employee owes a certain amount due to theft or fraud, and the case follows due process. Companies are unable to deduct stolen or fraudulent fund amounts directly from a person’s pension unless they have a court order and request the fund to do so.”
While the processes and regulations may feel stringent for organisations battling to recoup costs after an employee has been criminally negligent or owes them a significant debt, they are in place to protect employees as well. Unscrupulous employers have, in the past, taken pension funds without employee permission and the Act is designed to provide checks and balances on both sides.
“The lesson here is to ensure that if an employee takes out a debt with a company the relevant paperwork must accompany every part of the process,” concludes Myburgh. “Additionally, both employers and employees need to recognise the importance of due diligence when it comes to pension fund pay-outs and ensuring that every box is ticked, every i dotted and every t crossed.”