On 31 August the Minister of Social Development issued a notice to withdraw the Green Paper on Comprehensive Social Security and Retirement Reform (2021). This decision taken by government is welcomed.
We believe that the proposed National Social Security Fund is not the solution to address the range of social security challenges facing South Africa. The proposal had many flaws and largely ignored material reforms that were implemented in the retirement funding industry over the last decade. These reforms were aimed at:
- improving governance and financial inclusion
- reducing costs
- delivering better outcomes for members
- Leveraging existing retirement arrangements
Existing arrangements in the formal sector protected many citizens during the Covid-19 pandemic. The industry (which includes various stakeholders who worked together during this time) responded quickly to provide relief and ensured that much-needed group risk benefits such as life and disability cover remain in place. This period has highlighted a shortcoming of the current system in that people need access to savings for relief in unforeseen emergency circumstances.
Our view is that iterative reforms to the retirement funding industry hold greater promise to provide financial security to retirees by leveraging the existing framework.
Such reforms include the recent proposal by National Treasury to introduce a “two-bucket system” as a sustainable, practicable and efficient way of addressing both long-term and short-term savings needs. In addition, auto-enrolment of employees where arrangements are not yet in place can also act to stabilise incomes in retirement if it is affordable. By scrapping the means-test to access the state old-age pension an important minimum safety net is provided to everyone at retirement and the disincentive to save is finally removed. We believe that these changes could help achieve a minimum income replacement of about 40% at retirement for formally employed individuals which is the stated objective in the paper.
Amplifying our impact to reach more South Africans
Much consideration still needs to be applied to the informal sector where traditional retirement funding models and their administration are not appropriate. New models may emerge as technological adoption and further regulatory enablement mature.
Unemployed people, in particular, require support in a fiscally sustainable manner. We support the stance that economic growth must be inclusive and accelerated to create employment that benefits the spectrum of South Africans.
Alexander Forbes is therefore an active participant in the drive towards impact investing and infrastructure development. In this way, we can help create employment and set South Africa on an improved growth trajectory into the future.
The release of the Green Paper stimulated debate and reflection across society relating to the role and impact of retirement funding as well as the deep social challenges facing our country.
While the proposal did not adequately solve this complex challenge, it does highlight the need for our industry as well as broader social partners to continue to pull together to amplify our impact to reach more South Africans.
PERSONAL FINANCE