As an HR Manager or business owner, you likely view your employee benefits programme as a tool to attract talent. But if you haven’t reviewed it in the last 12 months, it could be a silent liability.
Between the introduction of the Two-Pot Retirement System, strict FSCA compliance requirements, and rising insurance premiums, “set it and forget it” is no longer a viable strategy.
An outdated scheme doesn’t just cost you money, it can expose your company to legal risks and leave your employees underinsured.
This guide will walk you through a strategic employee benefits audit. We will show you how to ensure you are compliant with the Pension Funds Act and how to unlock significant cost savings without cutting benefits.
Quick Audit: 5 Signs Your Scheme is Outdated
- You haven’t “re-broked” your group risk rates (Life/Disability) in the last 2 years.
- Your induction training tells employees that their “Nomination of Beneficiary” form is a binding will (It’s not!).
- Your payroll system isn’t automatically splitting contributions into “Savings” and “Retirement” pots.
- High earners are contributing more than R350,000 p.a. without a tax-structuring plan.
- You are paying “percentage-based” admin fees instead of a flat fee per member.
Part 1: The Compliance Audit (Protecting Your Business)
The regulatory landscape in South Africa is shifting. The Financial Sector Conduct Authority (FSCA) is increasingly focused on “Treating Customers Fairly” (TCF). Here are the three critical pillars you must audit:
1. Section 37C: The “Death Benefit” Trap
One of the most misunderstood aspects of employee benefits is what happens when an employee passes away.
- The Law: Under Section 37C of the Pension Funds Act, death benefits do not automatically go to the employee’s nominated beneficiary or into their estate.
- The Audit Check: Do your employees understand that their “Nomination of Beneficiary” form is just a guide? The Fund Trustees have the final say and must legally find all dependents (including illegitimate children or financially dependent parents).
The Risk Scenario: An employee passes away. HR tells the widow, “Don’t worry, the R2 million payout is yours.” Six months later, the Trustees discover a long-lost child and award them 50% of the funds. The widow sues the company for providing incorrect advice. Does your induction training explicitly explain the Trustees’ power?
2. Regulation 28: Investment Safety
Are your employees’ retirement savings invested safely?
- The Law: Regulation 28 limits how much risk a retirement fund can take. For example, a fund generally cannot invest more than 75% in equities or 45% in offshore assets.
- The Audit Check: Review your umbrella fund’s investment fact sheets. Are the default investment portfolios compliant?
- The Risk: Non-compliance places member savings at risk of market volatility that legislation specifically tries to prevent.
3. Two-Pot Readiness (Payroll Audit)
Since 1 September 2024, the Two-Pot System has changed how contributions are split.
- The Audit Check: Is your payroll system correctly splitting new contributions?
- 1/3rd into the Savings Pot (accessible annually).
- 2/3rds into the Retirement Pot (locked until retirement).
- The Risk: Incorrect deductions can lead to tax nightmares for your staff and compliance breaches for your company with SARS.
Part 2: The Financial Audit (Unlocking Cost Savings)
Once you are compliant, it’s time to look at the bottom line. You can often achieve maximum cost savings simply by modernizing your structure.
1. “Re-Broke” Your Group Risk Rates
Group Risk (Life, Disability, and Funeral cover) premiums should not be static.
- The Saving: If your staff demographic has changed (e.g., you hired younger staff or had fewer claims), you might be overpaying.
- The Action: Ask Clarity to “re-broke” or benchmark your rates against the market. We often see savings of 10-15% just by challenging the current insurer with competitive quotes.
2. Check for “Legacy” Admin Fees
Older retirement funds often charge administration fees based on outdated models (e.g., a percentage of payroll rather than a flat fee per member).
- The Saving: Modern umbrella funds are highly competitive. Moving from a standalone fund or an older umbrella arrangement to a modern, tech-driven platform can significantly reduce the “drag” on your employees’ investment growth.
3. Tax Efficiency : The 27.5% Cap
Are you structuring packages to maximize tax breaks?
- The Rule: Employees can deduct contributions up to 27.5% of their remuneration or taxable income (whichever is higher), capped at R350,000 per year.
- The Saving: If high earners are contributing more than R350,000, they are paying tax on the excess. A salary structuring audit can help them divert that excess into more tax-efficient vehicles.
Book a Free Employee Benefits Audit
FAQs: Your Top Questions Answered
What is the maximum tax-deductible contribution to a provident fund?
You can claim a tax deduction on contributions up to 27.5% of your greater taxable income or remuneration, subject to an annual ceiling of R350,000. Any contribution above this is made with after-tax money.
What is Section 37C of the Pension Funds Act?
Section 37C governs the distribution of lump-sum death benefits. It removes the member’s “freedom of testation.” Instead, it places a duty on the Fund Trustees to identify all dependents and distribute the money equitably to those who need it most, regardless of what the will says.
What are the Regulation 28 limits in 2025?
Regulation 28 caps exposure to risky assets. Key limits include:
- 75% in Equities (Shares)
- 45% in Offshore Assets
- 25% in Property
- 10% in Hedge Funds
How often should we audit our benefits scheme?
We recommend a full pricing and compliance audit every 2 years or whenever there is a major legislative change (like the recent Two-Pot system). This ensures your rates remain competitive.
Simple Benefits. Smart Business.
Your employee benefits programme should be an asset, not an admin burden.
By auditing your scheme for FSCA compliance and efficiency, you protect your business from legal risk and put more money back into your employees’ pockets (or your bottom line).
At Clarity, we specialize in simplifying the complex. We guide South African businesses through the fine print of Section 37C, Regulation 28, and Group Risk to ensure you have a solution that is compliant, cost-effective, and human.
