Lindiwe Zulu withdraws green paper on social security reform

Social development minister Lindiwe Zulu has withdrawn the green paper on comprehensive social security and retirement reform less than two weeks after it was first gazetted to much controversy in August.

The withdrawal was effected by a notice in the government gazette on Tuesday. It gave no reasons for the withdrawal. Zulu caught the market by surprise in August when she suddenly published the paper, without going through the cabinet or the National Treasury to test it against existing tax and fiscal policy.

It also emerged that it had ignored a report by the National Economic Development and Labour Council (Nedlac) setting out risks and problems raised by business.

Business also stated that the green paper largely reproduced a 2016 version, while Treasury deputy director-general Ismail Momoniat said it reflected some of the aspirations of the various constituencies in Nedlac, with consensus still to be reached.

Trade unions were also strongly opposed to the proposal that all employees would be mandated to contribute 8% to 10% of their qualifying earnings up to R276,000 to a state-run national social security fund which would pool resources to provide retirement, survivor, disability and unemployment benefits. The high limit also raised concern that it would trash the business model of the private savings industry, a major funder of a government that saw its finances come under severe pressure because of the Covid-19 induced economic slump. 

Private sector players have expressed unease at the creation of a huge bureaucratic structure that could have damaged what is regarded as a well-functioning private system, an argument reminiscent of discussions around the government’s attempt to set up the National Health Insurance Fund. It also came at a time when confidence in state-owned entities is at a record low after years of corruption and mismanagement, with critics branding the Zulu proposal a “tax grab”.

Stephen Smith, a senior policy adviser at the Association for Savings and Investment SA, whose members have R6-trillion of assets, said SA needs to protect the savings pools accumulated by the life industry, which has financed much of the country’s investment requirements and funds the government via the capital market.

The International Labour Organization (ILO) warned that there would be a “significant escalation in contributions for the future”. This would erode individual earnings. Research by the ILO concluded that the proposed contribution ceiling of R276,000 was too high.

Business argued during Nedlac deliberations that such a high threshold would cannabilise the business of the retirement industry, replacing or overlapping “with almost all existing retirement and life fund contribution flows, terminating or reducing the associated investment of funds in the capital market. The risks to the economy and the income security of SA’s workforce are large and the benefits were unclear.”

Update: August 31 2021
This story has been updated throughout. 

ensorl@businesslive.co.za