The department of social development has released a green paper on comprehensive social security and retirement reform for 2021. We note that it is largely similar to previous proposals dating back to 2012.
In brief, the proposal is to create a centralised National Social Security Fund managed by the government. This fund intends to provide basic benefits for all qualifying citizens up to a threshold, including all employees from within the private sector. In addition, citizens can choose to top up their retirement benefits using an occupational or individual arrangement.
In practice, this means most existing members will become dependent on government through the National Social Security Fund for their retirement and insurance benefits, rather than through an occupational or individual scheme as is currently the case. We argue that such a route may result in reduced benefit security due to a number of deficiencies in the proposed system:
There are better ways to further improve matters in retirement funding industry
Such a route may result in reduced benefit security due to a number of deficiencies in the proposed system
The department of social development has released a green paper on comprehensive social security and retirement reform for 2021. We note that it is largely similar to previous proposals dating back to 2012.
In brief, the proposal is to create a centralised National Social Security Fund managed by the government. This fund intends to provide basic benefits for all qualifying citizens up to a threshold, including all employees from within the private sector. In addition, citizens can choose to top up their retirement benefits using an occupational or individual arrangement.
In practice, this means most existing members will become dependent on government through the National Social Security Fund for their retirement and insurance benefits, rather than through an occupational or individual scheme as is currently the case. We argue that such a route may result in reduced benefit security due to a number of deficiencies in the proposed system:
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There are less disruptive and more effective means to improve matters further in the retirement funding industry, building on significant improvements made over the last few years. The single biggest interventions to improve outcomes are: auto-enrolment; compulsory preservation of a portion of retirement savings (as proposed recently by the Treasury, with the possible introduction of a two-bucket system); and scrapping the means test for the state old age pension.
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Separate interventions should be thoroughly explored for the informal sector, taking the specific dynamics of this sector into account to ensure a sustainable and pragmatic solution. To improve outcomes for retirement fund members, Alexander Forbes will continue to engage through industry bodies and directly with policymakers.
This is a matter of public interest. Substantive comments can be submitted to: GreenPaperCSS@dsd.gov.za.
• Anderson is executive for investments, products and enablement at Alexander Forbes.
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