An astounding 149 of South Africa’s 257 municipalities are in arrears when it comes to paying over pension contributions deducted from salaries, putting their staffs’ retirement at risk and underscoring the immense governance problem in local government.
The new “two-pot” pension scheme, implemented in October, has underlined the growing problem of arrears payments by municipalities. The regulator, the Financial Sector Conduct Authority (FSCA), this week warned that some municipal workers have been unable to get their two-pot payouts because of payment arrears.
Municipal managers who fail to do this risk a fine of up to R10m and a jail term of up to 10 years. This stems from section 13(a) of the Pension Funds Act, which says an employer must pay pension contributions no later than the seventh day of the next month after a salary deduction.
But despite the fact that 58% of municipalities are in arrears on these pension payments, there have only been three arrests of municipal officials, all in the Northern Cape.
This month, the municipal manager of Kamiesberg was arrested on this charge, following the arrest of three officials from the Renosterberg municipality in September for failing to pay R73.5m in contributions, and that of Kai !Garib’s former municipal manager, Johnny Mackay, in October 2022.
Non-payment of retirement contributions is a big problem in both the private and the public sector, and, typically, when a business is failing, pension payments can be put on hold. But the difference is that national government’s financial allocations to municipalities include provision for pension fund payments – which suggests these arrears are due to poor governance, a deliberate diversion of money, or outright theft.
Speaking at Stellenbosch University earlier this month, FSCA commissioner Unathi Kamlana said sometimes this non-payment is due to “sheer management ineptitude”.
“One particularly egregious practice is the recycling of employer pension contributions – a financial mismanagement tactic where municipalities, instead of forwarding contributions to pension funds, divert the funds for operational expenses or to pay salaries.”
This not only breaches the municipal manager’s fiduciary responsibility, it sacrifices an employee’s long-term financial security for the short-term needs of that municipality, he said.

The problem is getting worse. A comparison between arrears as of March this year and the previous year shows five of nine provinces went backwards, with total arrears now at R1.4bn. FSCA officials estimate this has increased to about R1.6bn today.
The provincial breakdown shows that all but one of the Free State municipalities are in arrears. The Free State also leads the way in the total value of arrears, with R840m – four times the next worst, the North West, with just under R200m.

Nor is this a recent problem. Some of the arrears have been languishing for decades, with disputes emerging between municipalities and funds. In six municipalities, the backlog dates back more than 20 years.
But the age analysis of the arrears demonstrates that the issue really exploded between two and four years ago, and has remained at crisis levels over the past two years.

Takalani Lukhaimane, FSCA manager for retirement funds conduct supervision, says the problem has become so acute that the FSCA has been forced to create a division that just looks at section 13(a) issues.
She tells Currency that the estimated value of arrears in both public and private sectors stood at R5.2bn by the end of December last year. This implies that municipal arrears are about a fifth of the total problem.
But Lukhaimane says what makes the municipal situation that much more frustrating is that municipalities get an allocation from the government to cover salaries as well as pension contributions.
The FSCA does not have specific information on whether the arrears are linked to the employee contribution or the employer contribution. Mostly, municipalities match employee contributions, with both contributing 7.5% of an employee’s salary towards their pension. But Lukhaimane says the FSCA believes that in the vast majority of cases, it is the combined employer contribution and member contribution which is in arrears.
In some cases, pension funds have gone to court to force the municipality to pay over the funds. But often municipalities do their utmost to thwart the courts, swapping bank accounts or agreeing to comply, then simply halting payments later.
This was the case of the Mafube municipality in the Free State, where the pension fund has been demanding the municipality pay the outstanding R38m it owes in arrears contributions.
In a court case in September, judge Thiloshni Ramdeyal slammed the municipality for its “frivolous defences” to a “serious breach of the law”, as well as the fact that its municipal officials had simply ignored earlier court orders that it begin paying.
Ramdeyal added that if court orders “can be flouted with impunity, the future of the judiciary and the rule of law would indeed be bleak”.
Most, but not all of the country’s pension funds are defined contributions – where there is a set monthly payment towards a pension fund, rather than a defined benefit fund, where pensioners get a set amount every month. Some funds are a mix of both.
Keabetswe Tsuene, a specialist analyst for the FSCA, says the numbers show that small municipalities in particular are struggling. The province with the most arrears contributions is in fact KwaZulu-Natal, even though the total amount is small.
While the FSCA has had discussions with many of the municipalities to find a solution, this has evidently yielded little. Reasons for these municipalities failing to pay are broad, including governance problems, but others simply don’t prioritise pension payments over more pressing financial demands.
One thing that is not going to happen is government bailouts. Lukhaimane says the issue has been discussed with the Treasury, and the response was a definitive “no”.
To see if your pension fund is in arrears, please check this spreadsheet:
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