Finance Minister Enoch Godongwana recently revealed that several municipalities in South Africa are facing significant pension debt, raising concerns about their financial management.
According to Godongwana, nine municipalities have reported arrears in their monthly statutory contributions to pension funds. Six of these municipalities have collectively failed to remit over R81.5 million, which was collected from employee pension contributions to the pension funds.
The disclosure came in response to parliamentary questions posed by DA MP Rochelle Spies, who sought a list of municipalities in arrears with mandatory contributions for staff and councillors.
The National Treasury utilizes the Local Government Database and Reporting System (LGDRS) to collect information on outstanding creditors, including pension fund contributions.
However, the system currently does not provide a breakdown for outstanding medical aid contributions, which are lumped under other payables. The National Treasury is taking steps to address this limitation and gather comprehensive information for future use.
One challenge faced in obtaining accurate data is that some municipalities choose not to disclose their pension fund contribution status, making it difficult to assess the overall extent of the problem.
As of now, only four municipalities in the Free State and five in the Northern Cape have disclosed their arrears on monthly statutory contributions to pension funds.
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Among the notable defaulters is Kai Garib Municipality, which has been in arrears since February 2022, owing a staggering R30 million. The Renosterberg Municipality defaulted in May 2017 and owes R19.1 million in pension fund and medical aid contributions.
Another defaulter, Ubuntu Municipality, has been in arrears since March 2023, with an outstanding debt of R3.4 million to third parties, while Thembelihle Municipality owes R5.1 million since December 2021.
The Kheis Municipality has been defaulting since July 2021, accumulating an arrear of R19.9 million. Lastly, the Magareng Local Municipality is in arrears for R4.3 million and has been defaulting since March 2021.
The National Treasury holds the authority to withhold the equitable share transfer to a municipality when it persistently fails to meet its financial obligations, under certain conditions.
One such condition is the requirement for municipalities to report non-payments to the South African Revenue Service, ensuring that pension and other staff benefits are deducted and paid to appropriate funds or institutions.
Godongwana clarified that the National Treasury had already communicated the criteria for releasing the Equitable Share in its annual budget circulars.
These criteria include the need for municipalities to present a funded budget as per Section 18 of the Municipal Finance Management Act (MFMA), as well as ensuring adequate provision for repaying all creditors in accordance with Section 65(2)(f) of the MFMA.
Whenever correspondence from pension fund administrators regarding outstanding payments is received, the National Treasury promptly requests explanations from the respective municipalities about their defaults.
It is essential to note that none of the municipalities have compensated any municipal officials or councillors impacted by the non-payment of monthly contributions to pension and medical aid funds. The responsibility for avoiding such situations lies with the respective municipal councils.
However, an alarming incident took place in the Renosterberg Municipality, where employees initiated a lawsuit against the municipality due to the non-payment issue.