Mandatory pension system proposed by government

Among other things, ‘those who contribute to the fund today will have a percentage of their contributions being used to fund those already in retirement’: Johan Gouws – head of advice, Sasfin Wealth.
Image: Masego Mafata

FIFI PETERS: The government has asked for your opinion and your comment as the public on a proposal to introduce a system in which we have a mandatory pension and insurance saving system, where the contributions that we make as South Africans will go into a state-run national social security fund. The idea is that working South Africans contribute up to 12% of their salaries into the fund that will provide some security when it comes to retirement, disability, and unemployment benefits.

But to clarify exactly what government is trying to do here, we have Johan Gouws, the head of advice at Sasfin Wealth. Johan, thanks so much for your time. Just give us an understanding from government’s perspective of what is changing, and why it’s changing when it comes to retirement savings.

JOHAN GOUWS: Good evening, Fifi, and to the listeners. I’ll try to keep it as brief as possible because there’s quite a lot of detail. The paper contains a lot of complex and wide-ranging reforms, and I do not expect to see any change anytime soon. But the one thing is that this will basically be sitting alongside the NHI or the National Health Insurance scheme. So the three main areas that the paper has covered is looking to address the gap in the current social protection system. It involves a basic contributory state pension, a statutory health insurance, and then adequate income security for all those people aged between 18 and 59. The national social security fund that is being planned will be a defined-benefit scheme that would pay benefits on a partially funded basis.

What this means is that those who contribute to the fund today will have a percentage of their contributions being used to fund those already in retirement.

The idea here is that the draft proposal includes a mandatory pension and an insurance element. There are two separate elements, and government is trying to provide a safety net for people with protection in terms of the event of death, loss of income, support due to old age, disability and unemployment. So all these contributions to the pension and risk benefit components of the national security fund would be pooled with all contributors sharing in the risk of that pool of funds. So it’s a universal kind of benefit that they’re looking at.

You’ve mentioned the contributions, and it could be that a mandatory pension payroll contribution of between 8% and 12% of earnings will be applicable for employers and employees. And, for example, of the 12% contribution 10% will go towards a mandatory fund, and 2% an unemployment insurance component.

But there is a ceiling on these contributions. The suggestion is that workers earning less than R20 000 will not contribute towards the national security fund. And on the other side, on the ceiling side, workers earning more than R276 000 per annum, or R23 000 per month, will not be obliged to contribute on the income above the R276 000 level. So to give you an idea, somebody that’s earning R276 000 at least will contribute about R2 760 per month, or R33 100 per annum towards the national security fund.

Where they want to end up, Fifi, is that they want to basically help individuals to replace the income of a person who retires with at least 40% during retirement of what that person would have earned during their career. So for poorer people typically, the old-age grant will also assist in achieving this 40% target; and for people who are more wealthy, their supplementary savings outside the security fund will have to cover the difference to maintain their wealthier lifestyle.

FIFI PETERS: Johan, is this a good deal for South Africans?

JOHAN GOUWS: Well, I don’t know if in some cases we really have a choice, and there are a lot of trade-offs to be made here. We know that government is limited in terms of resources. We know that many promises have been made for many years, and I think you can pull this possibly back to a little bit of a political element where the ANC really has to work very hard and become very creative in terms of delivering on those promises, to remain relevant to its voter base. We know that the elections are coming up, so there is definitely that element. But the harsh reality is that there are a lot of people that are very vulnerable in the system, and we need to find some kind of solution because otherwise we have a reminder of what happened last, a month ago in terms of the social unrest. That might just become more of a reality and more of a regular occurrence if we don’t address some of these issues

FIFI PETERS: And who potentially loses out here?

JOHAN GOUWS: Well, I think it’s a very good question, because it depends on what this all would mean in terms of the general retirement-savings industry. My concern is that our retirement savings pool might shrink you to a lower contribution by existing members, because they’re now getting a bit worried that, if these kind of regulations will be put in place, then questions about prescribed asset income comes back onto the table, because they are saying well what next? And then you also have this other effect of emigration.

What that could mean is that you have a declining savings pool in our country that our economy can ill afford, and that will again result in a downward spiral in terms of higher unemployment from an already high level, fewer people contributing to the retirement savings pool and more people becoming dependent on the NSSFF and other government schemes while the fiscus will also then struggle.

So I think what we need to do here, Fifi, is we need to be very careful about how we approach this because there are a lot of things that need to be balanced to try and not have unintended consequences that will hurt us in the long run.

FIFI PETERS: Well, as you said, it is complicated. I think we’ve got quite a bit of time to read through it and go through the details, flesh through them and find out exactly what they mean before the next step happens.

But, Johan, thanks so much for joining us and giving us an indication of what is going on here. Johan Gouws is the head of advice at Sasfin Wealth.

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A state run National security fund !!!!!!
This State is utterly hopelessly incapable of managing this :
This would be pure and simple ANC funding for all the businesses /SOE,s it runs into the ground.
Blatant state theft fund ,a better descriptive.

Why not make Eskom Pension and Provident Fund the guardian of this money?

This is just direct theft or tax (theft by ANC). At least they are not trying too hard to hide it. The BEE and other measures to combat capitalism and free market has eroded the assets in pension funds and RAs to the extend that after the “managers” have taken their cut and real inflation has been deducted you are left with very little. There is a point in your pensions life where your yearly contribution will be less than the negative nett growth on your pension. It is like early retirement only you are still working. Worst good decision I ever made was to get an RA, it is like a piggy bank and only the ANC can open it…I get to look inside and see what is left at 55….and they get to keep a sizable chunk of it until I die… Pension is so 1980’s make another plan if you can’t run! Thank you ANC

Universal Basic Income can and will work whilst ensuring that everyone can enjoy the basic human right of freedom, from to live and freedom to be happy.

However, UBI and Social Security/Support are contradictory with latter removing freedom and happiness whilst only ensuring just lives.

There is no freedom when the state decides which products an individual will be given.

Extensive research has been done in the USA concluding that those who on Social Support who leave and earn above the threshold almost always end up going back down.

Whilst those who are on a UBI improve there lives and are much more happier.

Not sure what you are trying to say?

How ridiculous! It is certainly NOT a human right to be happy.

Your argument certainly goes against the (as you refer to it) “human rights” of those middle class already struggling to pay their bills from whom another R30k a year will be taken away.

There most certainly is no certainty that the UBI will work or even improve anything. Your comment is baseless. Besides, you cannot compare ANY other countries or previous research of UBI to the situation in South Africa.

All we can use as a measure is previous performance history of the ANC Government financial projects and policies. Taking that into consideration, the prospects are bleak. Very bleak.

If u want authority over yr life (aka freedom) then u get to have the responsibility for yr choices as well. Why must someone else pay for yr bad mistakes.

” STATE RUN national security fund ” . We all know what that means. The ANC is running out of projects to loot and are trying desperately to invent new ones , totally oblivious that with every further hurdle they invent productive people getting the hell out of South Africa.

I’m going to be sarcastic but bear with me: How about doing something similar with our school system? Instead of some kids scoring 10%, others 40 and some hard workers above 70 or 90%, why not give everyone in the class the same marks – the class average of, say 60%? Because with the next exams there will be fewer and fewer hard workers and the class average will be 20% or lower.

We are now entering the period where the Socialist students are supposed to be cramming for the exam.

A market economy does not work in this manner. Every Minister cannot calculate how much money his portfolio needs to give effect to it’s plans. The Minister of Finance calculates how much the economy can afford to sacrifice every year (and over a three year period) in such a manner that it does not impair the economy’s ability to grow and create jobs. It taxes the economy (individuals and businesses) accordingly. The proceeds are allocated, by parliament, to the various portfolios. The Department of Social Development should motivate it’s case at the meetings where appropriations are decided on. Ministers usually have grandiose spending plans. If they are left to collect the money for these plans in addition to ordinary taxes, they will kill the economy in no time. We had also heard of a National Health Insurance plan. Will the Department of Health also be allowed to skim off 12% in a health tax? Money Web and its commentators should be careful not to give merit to plans raised by Stalinists. (Tito Mboweni)

Vbs bank is the model for this one.

Long before anyone retires on this scheme, the cash will be long gone

And hey, just another 12 percent of your after tax paycheck gone…no problem I’m sure. After all, we’re all just rolling in dough

Simply more and more socialist as the days roll by.

Pray tell where they think this 12% will come from?
The wealthier SAs are slowly but surely leaving, so who’s going to pay… The street vendor and the spaza shop? (Cos that’s what we’ll all become).

In my opinion, Socialism only works in rich countries – where everyone contributes but everyone benefits. SA will never be a Sweden, Norway or Denmark which is what the ANC are trying to achieve! There are no shortcuts to success…robbing those who work hard and pay taxes to give to those without prospects but plenty of expectations is not the answer. Education and Birth control would be a good start to a solution in 3rd world countries including our own.

Those countries have sovereign wealth funds and comes from North Sea oil regions.

Middle class will be eliminated by these changes and make no mistake, no one is coming to save us

End of comments.

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