Proposed national social security fund not the solution

FIFI PETERS: I suppose tying into the unemployment numbers is the problem of retirement financial savings. Why it’s fairly essential for us to get extra folks into jobs is that it’ll increase our capability to make sure that lots of people are capable of retire comfortably after they attain that stage.

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Final week authorities issued a inexperienced paper for public remark, speaking about making some modifications to the retirement trade. At present many individuals don’t contribute to funds that may present them with earnings when they’re not of a working age, and authorities needs to make it obligatory for folks to contribute a portion of their wage right into a state-run safety fund. The concept is to supply earnings safety within the case of unemployment and incapacity – and even retirement – to much more folks.

We do have South Africa’s largest pension fund administrator, Alexander Forbes, on the present simply to share its view on the proposal. We’re chatting with John Anderson, govt for investments and enablement at Alexander Forbes. John, thanks a lot in your time. Simply converse to us about what this proposal, if carried out in its present type, would imply in your members.

JOHN ANDERSON: Thanks, Fifi. Respect it. We’ve run some numbers simply to take a look at it. Clearly within the trade you’ve received people who find themselves lined by non-public occupational schemes, the place an employer would put a scheme in place. And you then get individuals who contribute on their very own, and also you get people who find themselves uncovered. You additionally get the general public sector, the Authorities Worker Pension Fund, and municipal schemes, the place folks contribute. Of the 50 million people who find themselves employed in South Africa, roughly half are lined by some type of retirement provision – by way of an employer, the federal government, or a kind of schemes.

If the present proposal by way of the inexperienced paper goes forward – which we don’t assume is probably going for varied causes – it implies that 7.5 million people who find themselves lined, roughly a present 60% of them will likely be totally lined by the nationwide social safety fund. What it successfully means is that for that 60%, for his or her salaries as much as R276 000 and contributions of 12%, their advantages will likely be lined by the state scheme, moderately than their present schemes. Whereas present schemes are backed by belongings, the brand new state scheme is backed by a future promise primarily – whether or not by future generations or future authorities.

After which for salaries above R276 000, people can then prime up the nationwide social safety fund with sure accredited preparations. So mainly your present schemes grow to be top-up schemes and everyone will get lined by the nationwide fund. Of people who find themselves at present not lined, together with the casual sector, home staff, agriculture sector and so forth, everyone should then contribute the place they’re at present not contributing, or be subsidised by the taxpayer, primarily. That’s in a nutshell what would occur.

FIFI PETERS: As you probably did define, backed by a promise – and a promise that’s not assured if we take a look at what’s presently occurring on this economic system and the truth that our authorities doesn’t actually have that a lot cash.

However the problem additionally right here, John, is the truth that the retirement trade, because it capabilities proper now, inasmuch because it has come very far, has left fairly various folks behind in that journey. So the present system in itself will not be an efficient one for all. So due to this fact, as Alexander Forbes, how will we make higher modifications to our retirement trade?

JOHN ANDERSON: I believe that’s an incredible level. There are positively points that must nonetheless be resolved within the trade. If we return to 10 years, I believe over the past 10 years there have been lots of good modifications made simply to ensure issues are extra clear, extra aggressive. There’s been trade consolidation insuring all of these issues, however there are nonetheless various challenges – a giant cause why individuals who do at present contribute to schemes by way of the employer fall quick at retirement. It isn’t as a result of they didn’t contribute; they did contribute. However after they left the employer – as a result of folks on common change jobs about seven instances earlier than they retire – each time they modify jobs the overwhelming majority money out the pension, after which begin once more on the new employer.

So the very first thing to vary is to maintain a portion, not every little thing, preserved for retirement as a result of compound curiosity provides up. The Nationwide Treasury is in reality aiming to handle that subsequent 12 months by way of what they’re calling the two-bucket system, the place folks can entry a number of the cash for short-term wants however in trade they should then guarantee that they protect the bulk for the long run. If that does undergo – it nonetheless must undergo an entire course of – that can deal with that particular shortcoming. In order that’s the primary one.

The second is that that at present all employers can select whether or not to place an association in place for workers. It’s a selection, it’s voluntary. There are lots of employers on the market – be they SMEs, startups [or others] – that don’t have schemes in place. We all know that when you don’t present it by way of an employer, the bulk received’t save themselves.

So what treasury is attempting to do is to attempt to introduce what they’re calling ‘auto enrolment’ – to make use of present private-sector preparations which have administration capabilities, after which have employers auto-enrol people; however they will then choose out if it’s not inexpensive and so forth. That’s the second factor.

And the third factor that we expect wants addressing is, when folks get to retirement, there’s a state old-age pension that’s accessible, nevertheless it has a way check. So, earlier than you qualify for that state old-age pension, which is meant to supply a minimal (grant) to handle folks on the poverty threshold, there’s a way check. That really acts as a disincentive for folks to avoid wasting. So earlier than they get to retirement, so as to qualify for the state old-age pension they spend all of the retirement cash usually saved by way of provident funds and the like – after which they’re worse off.

So take away that disincentive and take away the means check. In the event you do all of these issues, the present system can have higher outcomes. What it doesn’t deal with although, is the casual sector. That requires one thing very completely different. The present system has not been profitable at catering for that market, and it wants a unique answer. It’s one the place much more work is required. The present proposal is impractical, sadly, for that particular phase. However there are examples the place it has labored.

FIFI PETERS: John, that’s maybe a dialog for an additional day, however your level is nicely made. Thanks a lot in your time – even referencing the truth that lots of people money out their pensions after which get one other job, assuming that they even get one other job. I do know lots of people who do money out their pensions and spend fairly various years unemployed, which simply provides to the disaster.

That was John Anderson, govt for investments and enablement at Alexander Forbes.

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