State tables original pensions-for-all plan
Existing pension and provident funds could lose significant business if the government goes ahead with proposals to introduce a compulsory social security system that would provide some level of retirement, death and disability benefits for all.
The proposals, which date back to 2012, were tabled at the National Economic Development and Labour Council (Nedlac) on Friday in their original, unrevised form, in line with a Cabinet decision earlier this year, even though the social development department had drafted an updated version last year which was never released.
The proposals in the discussion document tabled at Nedlac by Social Development Minister Bathabile Dlamini would see the creation of a National Social Security Fund (NSSF) which would provide universal retirement or life insurance cover.
This would be of particular benefit to low-income formal-sector workers who do not have such cover.
Employers and workers would be required to contribute a combined 12% of qualifying income up to a ceiling. However, workers earning below an agreed threshold would not have to contribute, with the government subsidising their contributions.
The creation of such a fund would have far-reaching implications for existing occupational and voluntary retirement funds, especially those catering for low-income workers, with the document saying they will suffer a "significant loss of business".
Controversially, the document — which has been long awaited by, among others, the Congress of South African Trade Unions (Cosatu) — recommends the compulsory annuitisation of at least two-thirds of retirement fund savings on retirement, a proposal Cosatu has opposed with vigour.
For their part, nongovernment organisations will not be happy about the lack of provision for a basic income grant.
The Association of Savings and Investments has indicated it would need time to consult its members before commenting on the proposals.
Business Unity SA’s representative on Nedlac, Tanya Cohen, also said it was too early to comment but added it was good the process of discussing the document would begin. A Nedlac task team would be established to deal with it.
The document proposes the consolidation of the "highly fragmented" social security system, including funds such as the Unemployment Insurance Fund and the Road Accident Fund, into a single department to oversee social security.
The South African Revenue Service would collect contributions to the new fund, which would be tax deductible.
The document envisages a five-to 10-year transition period to implement the proposals once the new department and NSSF are in place.
"We acknowledge the reform agenda is wide reaching and the issues are complex, so the proposals will not be implemented overnight," Dlamini said in her presentation to Nedlac.
Dlamini said one of the key principles of the proposals was social solidarity.
"This means that social risks must be shared by everyone in a common pool where everyone contributes according to their means, while receiving benefits according to their needs."
The initiative to reform SA’s social security system began in 2006 when Cabinet appointed an interministerial committee to investigate this.
Dlamini said differences in opinion, even within the government, had delayed the finalisation of the proposals.