LEGAL NOTE: MAY 2025 – LATE PAYMENT INTEREST (LPI)

FCSA Communication 6 of 2025: The calculation of late payment interest by pension funds

The FSCA issued Communication 15 of 2023 which set out their view. In 2023, the FSCA confirmed the following:  

Following the repeal of Regulation 33 and the issuing of the Conduct Standard on Pension Fund Contributions, the law now says:

“For the purposes of section 13A (7) of the Act, compound interest on late payments or unpaid amounts – must be calculated from the first day following the expiration of the period in respect of which such amounts were payable until the date of receipt by the fund;”

Contributions must be paid not later than seven days after the end of the month for which such a contribution is payable.  It follows that LPI must be calculated from the day after the seventh day i.e. LPI runs from the 8th day to the date of payment of the arrear contributions.

OPFA COMMUNICATION 1 OF 2024:

Some confusion arose because in 2024 the Office of the Pension Funds Adjudicator (OPFA’) issued a communication to respond to queries from the retirement funds industry on the calculation of LPI calculated on the late or non-payment of contributions to funds.

According to the OPFA, the phrase “…the first day following the expiration of the period in respect of which such amounts were payable…”  as outlined in section 13A (7) of the Pension Funds Act must be interpreted according to its ordinary grammatical meaning, ensuring clarity, and avoiding ambiguity or absurdity. Considering the above, the OPFA found that if contributions were payable for a certain month, then the first day following the expiration of the period in respect of which such an amount was payable, is the first day of the next month.  

Some Funds applied the interpretation as set out in FSCA Communication 15 of 2023 until further clarity was provided by the FSCA.

FSCA COMMUNICATION 6 OF 2025

Clarity has recently been provided by the FSCA following the issuing of its Communication 6 of 2025 on 7 April 2025. This Communication serves to provide an update to the industry on the date to be applied for the calculation of LPI amounts in respect of the late payment of contributions. 

The Communication provides the following:

In light of the conflicting interpretation by the OPFA and the FSCA, the FSCA sought to resolve the matter by seeking advice from another senior counsel who was provided with the reasoning of the differing views expressed to the FSCA and OPFA, respectively.

Having received guidance and advice in this regard, and upon reflection, it is now the FSCA’s considered view that LPI is to be calculated from the first dayas opposed to the eight day of the month, following the end of the month in respect of which contributions were payable. 

A contribution in respect of a month is payable within the first seven days of the next month; and should it not be so paid, the defaulting payer is liable for interest at the prescribed rate both retrospectively for that seven-day period and prospectively until the contribution is paid.

·       The FSCA has requested that National Treasury consider amending the relevant statutory provisions to explicitly provide for the date from which LPI should be calculated, i.e., the 1st day following the end of the month in respect of which contributions were payable.

·       The FSCA confirmed that Communication 15 of 2023 is withdrawn.

The FSCA have since agreed with the interpretation provided by the OPFA regarding the calculation of LPI.

While the effective date has not been expressly stated by the FSCA in Communication 6 of 2025, the industry view appears to be that the effective date is the date mentioned in the Communication (i.e., 7 April 2025). Further, the industry view is that the change will apply prospectively.

The FSCA has stated that formal communication in respect of the effective date and any further implications will be provided.

As the date of publication of Communication is 7 April 2025, most Funds accept that same is the effective date in line with industry views until such a time when the FSCA communicates otherwise.