What Employees need to understand about the retirement fund

Employees need to understand that where retirement benefits are in fact provided, the employer is a separate legal entity from the retirement fund.

The purpose of the Fund

The purpose of a fund is to assist the employee to save for retirement.

Whereas the relationship between the employer and the employee is regulated by the Labour Relations Act, the Basic Conditions of Employment Act and the Employment Equity Act, the relationship between the fund and the employee is regulated by the Pension Funds Act and the rules of the fund.

The only legal obligation that may arise on behalf of an employer that has contractually elected to provide an employee with retirement benefits is to make a monthly payment of the required contributions on behalf of the employee to the fund.

On termination of the employee’s employment with the employer, the fund (and not the employer) has the legal obligation to pay out benefits that accrue to the member of the fund.

In the instance that an employee is not paid out his benefits, an employee has a right of recourse against the fund and not the employer.

Section 37D of the Pension Funds Act allows a registered fund to deduct and pay any pension benefit that would usually be payable to a member or their beneficiaries, to the member’s employer as compensation for damages caused to the employer by virtue of the employee’s dishonest conduct while employed.

When an employer wants to seek the relief allowed by section 37D, it is entitled to require the fund to withhold payment of the member’s benefit until such time as a court order is obtained confirming that damages are payable to the employer, so that the fund can then satisfy the court order out of the pension benefit.


For more information on labour law advice or services. Please feel free to contact us at Cape Labour Consultants and we will gladly assist you. Cape Labour & Industrial Consultants is a Cape Town-based providing Labour Law (Industrial Relations) and advice to employers and employees across all market segments and industries since 1987.

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