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National pension reform: Protecting the funds from state capture

There are novel checks and balances.
Pensioners stand in line outside Marshalltown Post Office to collect their grants. Image: Masego Mafata.

When the Department of Social Development proposed a national contributory pension fund, the outcry was immediate: the state cannot be trusted with our money.

But would the state be able to capture the funds in the proposed National Social Security Fund (NSSF), described in the Green Paper on Comprehensive Social Security and Retirement Reforms?

Not easily. The Green Paper proposes a governance structure that makes capture difficult. This type of structure might be more common in the years to come, following the likely recommendations of the Zondo Commission.

The money in the fund, to which everyone with a job would contribute, would be protected by the ‘arm’s-length’ principle.

The board of the NSSF would be drawn from a wide variety of sectors that have an interest in the fund. There would be members from government, labour, employers, and civil society.

The minister would appoint members to the board following nominations from the different groups themselves. Directors would be expected to be dedicated servants of the fund, and would have to be well-qualified.

The Green Paper proposes that the fund be protected from the influence of national government by limiting how government can interact with the fund: “Policymakers can raise policy-discussions and propose policy changes, but they cannot interfere in the

day-to-day operation of individual social security funds other than through change of law.”

So while the board would be appointed by the minister, according to the rules of the fund, the CEO of the fund would be appointed by the board, and would answer directly to the board.

Regulation of the fund would be done by two distinct bodies. The South African Reserve Bank (SARB) would take charge of prudential matters — making sure the fund has enough capital and isn’t taking risks — while the Financial Sector Conduct Authority would ensure fair treatment of fund contributors.

The administration of the contributions to the fund would be done by SARS. SARS systems — already in place — would make the administration of contributions and benefits effectively automatic.

Would this be enough to allay concerns over capture?

Pulling it all together

The Green Paper on Comprehensive Social Security Reform would consolidate social security functions currently in different departments. This is in line with present thinking in the National Treasury on “consolidation”, bringing together functions of government that are similar, but located in different departments.

The NSSF would absorb other existing social protection agencies. These would include the Road Accident Fund (RAF, located in the Transport ministry), the Unemployment Insurance Fund and Compensation Fund (UIF and CF, in Labour), and Compensation for Occupational Diseases (in Health).

The Green Paper proposes that all these be integrated into a new ministry solely concerned with social security.

One immediate effect of this consolidation would be to reduce the vast and ineffectual bureaucracies. Costs would be shared under one roof.

At present, as described in the Green Paper, social security policy is “implemented in five different government departments through multiple institutions reporting to different governance structures, which leads to incoherence in both policymaking and implementation.”

In the Green Paper’s proposal, there would be one system for all these.

The Green Paper proposes the creation of a Master Social Security Registry (MSSR), which would hold all information on everyone’s contributions and benefits .

And there would be a Consolidated Public Interface for Social Security (CPISS). CPISS would offer online and telephonic services, and also have offices where the public could bring questions and complaints. These offices would absorb the functions and premises of labour offices and South African Social Security Agency (SASSA) branches, and would help grant beneficiaries look for work – a novel idea in South Africa.

The proposed ‘arms-length’ governance structure of the NSSF. Source: DSD, Green Paper on Comprehensive Social Security and Retirement Reforms

This is part of a series on pensions reform. Next: criticisms of the NSSF

© 2021 GroundUp. This article was first published here.

COMMENTS   19

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Quite impossible to protect the cheese when a mouse is in charge of the cheese factory.

If this becomes reality I will cash out my pension now – even with the huge tax penalty – and invest the little that remains. (Thereafter, I will of course also become part of the new national scheme and insist on a good pension from the fund once I reach retirement age)
Taking money from young “investors” and paying it to older “investors” is actually not that much different from a pyramid scheme.

Looks like EFFIE is on an extended lunch break?

This manna from heaven article is right down his alley

This is definitely a ponzi scheme that the tax payer will have to bail out. Most US cities have unsustainable pension schemes and now we think we can do things better.

I was horrified to learn that welfare is now called “social justice” in certain circles. Its like those that have a job are suddenly responsible for irresponsible breeding habits of the general population.

Maybe not a bad idea??

It will then be a discretionary investment and you wont be drawing a “taxed” salary or pension. You will be harvesting tax where possible and the rest is withdrawal of savings.

You might end up paying far less tax and can manage your own “pension”

Instead of growing the economy to bring new capital into the retirement system, the socialist “transformation” efforts of the ANC robs Peter to pay Paul. This scheme is one step further in the same direction. They will now Rob Peter to pay Peter.

Agree Sensei..

I certainly won’t be standing in line to purchase tickets to this circus, or the proposed NHI Carnival

Having a govt minister appoint the board is too open to manipulation.

To the GroundUp researchers : Would you support the concept of a taxpayer committee controlling the purse-strings of this project ?

Each taxpayer would vote on his tax return for his chosen committee member. The more tax you pay the greater the weighting of your vote.

Who better to prevent corruption than the people who provide the cash ?

I would suggest to GroundUp that any future policy proposals have to include purse-string control suggestions as well. In SA today, WHO controls the cash is more important than the idea itself.

I followed your argument until I saw the phrases “the minister can appoint” and “through change of law”. Right there your case fell flat. Sorry, not convincing at all!!

South Africans have no reason to mistrust the government, with their pensions.

The pensions administered by the Government Employee’s Pension Fund (GEPF) and the Public Investment Corporation (PIC), have done well and provided millions of South Africans with financial security in retirement.

The private sector, now gets to participate in government’s successes.

As shown with PPE Procurement during a pandemic and SASSA grant corruption, the SA citizens do not trust the corrupt cadre deployed ANC one little bit.

The ANC is a crime against humanity.

Governments successes?

Pray do tell, WHAT SUCCESSES?

What about the contrast?

Governments failures which outperforms the successes 100 fold?

Please wake up from cuckoo land

Tell that to the Transnet folk who got swindled by the very same ANC thieves.

A great satirist you are EFF Commie.

Dude you are smoking too much of the green stuff if you think there are any government success stories. I think we should ask Trevor Noah to read out your comments on his show it will have the audience rolling in the isles.

Even if the governance issues are sorted out and that is a big if, what does one do to counter civil servants disinterest, incompetence and racism. I have been trying to organize a pension for my brother and it has been made impossible by the person dealing with asking for nonsense documents which are impossible to upload.

Again, the nyaope you’re smoking is too strong. Go back to your shack and keep quiet.

My apologies, PeeWee. My earlier comment was aimed at the contents of the article, not a reply to your comment. In fact I think you made some very good points.

I would have thought we needed proper research from journalists rather than just a regurgitation of the paper now pulled given the strong objections to its proposals (including National Treasury).
Did the author consider that our SOEs have similar “arm’s length” governance principles and have largely been stripped bare?
Did the author consider that PAYG is a ponzi scheme requiring politicians (and this board elected by them) to make difficult financial calls to increase contributions and extend retirement ages which Europe has proved is near impossible for them to effect.
What experience, in the author’s opinion, has SARS got in collecting contributions form informal, atypical and low paid workers? Or is this truly a raid on the assets of the middle class?
Government will compete with the private sector for tax incentivized savings. Does the author believe the health and education sectors as examples of how this is beneficial in practice? Or do they just continually tip the playing field?
I would hope Moneyweb publishes articles considering both sides of an argument, aligned to the thinking of its readers rather than a summary of a retracted now widely discredited government socialist paper.

End of comments.

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