Directors’ personal liability for unpaid pension contributions: what employers need to know

IN today’s challenging economic climate, many companies face financial distress and even insolvency. However, recent legal developments make it clear that financial hardship is no excuse for failing to meet statutory obligations, particularly the obligation to pay over retirement fund contributions deducted from employees’ salaries.

- NICOLETTE VAN VUUREN and TSHEPISO TSHSHONGA

This was the view of the Western Cape Division High Court in Engineering Industries Pension Fund v Installair (Pty) Ltd and Others (1633/2023) [2025] ZAWCHC 8 (16 January 2025), which confirmed that financial distress cannot shield employers from the consequences of non-compliance. This case underscores the legal duty of employers to comply with retirement fund obligations, and it highlights the potential for directors to be held personally liable for non-compliance.

Legal framework

The Pension Funds Act 24 of 1956 (the PFA) aims to protect the retirement savings and financial security of members by ensuring that contributions are properly deducted, managed, and remitted to the relevant fund. It sets out clear employer obligations, including the timely and full payment of contributions, and holds directors personally liable in cases of non-compliance. This reinforces trust in the retirement system and ensures that employee benefits are protected, regardless of an employer's financial challenges. Section 13A of the PFA plays a critical role in ensuring compliance. Section 13A(1) requires employers to pay both employee and employer contributions in full and on time. It also obliges the principal officer of the fund to report instances of non-payment to the board. Where an employer fails to comply, directors may be held personally liable. Accordingly, section 13A of the PFA and its subsections provide clear guidance on the establishment, implementation, and maintenance of effective compliance in respect of pension fund contributions. Furthermore, the section creates a robust enforcement mechanism to ensure that financial distress cannot be used as a justification for withholding retirement fund contributions.

Case background