FIFI PETERS: The government has asked for your opinion and public comment on a proposal to introduce a system in which we have a mandatory pension and insurance savings system, where the contributions we make as South Africans will go to a national social network managed by the state. security fund. The idea is that working South Africans contribute up to 12% of their wages to the fund that will provide some security when it comes to retirement, disability and unemployment benefits.
But to clarify exactly what the government is trying to do here, we have Johan Gouws, the head of advisory at Sasfin Wealth. Johan, thank you very much for your time. Just give us an understanding from a government perspective of what is changing and why it is changing when it comes to retirement savings.
JOHN GOUWS: Good evening Fifi and the listeners. I will try to keep it as short as possible because there are many details. The document contains many complex and far-reaching reforms, and I don’t expect to see any changes anytime soon. But the only thing is, this will basically sit alongside the NHI or the National Health Insurance scheme. So the three main areas that the document has covered and I was working on them [1:32] …… covered by the social protection system. It is a basic contributory state pension, compulsory health insurance and then adequate income security for all those between 18 and 69 years old. The national social security to be planned will be a defined benefit scheme that would pay benefits partially. funded basis.
What this means is that those who contribute to the fund today will have a percentage of their contributions that will be used to fund those who are already retired.
The idea here is that the draft proposal includes a mandatory pension and an element of insurance. There are two separate elements, and the government is trying to provide a safety net for people with protection in terms of death, loss of income, support due to old age, disability and unemployment. Therefore, all of these contributions to the risk benefit and pension components of the national security fund would be combined with all contributors sharing the risk of that pool of funds. So what you’re seeing is a kind of universal benefit.
You have mentioned contributions, and it could be that a mandatory pension payroll contribution of between 8% and 12% of earnings is applicable for employers and employees. And, for example, of the 12% contribution, 10% will go to a mandatory fund and 2% to an unemployment insurance component.
But there is a limit to these contributions. The suggestion is that workers earning less than R27,000 will not contribute to the national security fund. And on the other hand, on the roof side, workers who earn more than R276,000 per year, or R23,000 per month, will not be required to contribute income above the R276,000 level. One idea, someone earning at least 276,000 rand will contribute 760 rand per month, or 100 rar per year, to the national security fund.
Where they want to end, Fifi, is that they basically want to help people replace the income of a person who is retiring with at least 40% during retirement of what that person would have earned during their career. Therefore, for the poorest people, in general, the old-age grant will also help to achieve this 40% target; and for the richest people, their supplemental savings outside the safety fund will have to cover the difference to maintain their richer lifestyle.
FIFI PETERS: Johan, is this a good deal for South Africans?
JOHN GOUWS: Well, I don’t know if in some cases we really have a choice, and there are a lot of tradeoffs here. We know that the government is limited in terms of resources. We know that a lot of promises have been made over many years, and I think this can possibly be carried over to some political elements where the ANC really has to work very hard and get very creative in terms of delivering on those promises, to remain relevant to. your voter base. We know the elections are coming, so there is definitely that element. But the harsh reality is that there are many people who are very vulnerable in the system, and we need to find some kind of solution because otherwise we have a reminder of what happened a month ago in terms of social unrest. That could become a reality more and more of a regular occurrence if we don’t address some of these issues.
FIFI PETERS: And who potentially loses here?
JOHN GOUWS: Well, I think that’s a very good question, because it depends on what all of this means in terms of the general retirement savings industry. My concern is that our retirement savings pool could reduce it to a lower contribution from existing members, because now they are a little concerned that if these kinds of regulations are put in place then you ask about this …[6:04] come back to the table, because they are saying why ……. And then you also have this other effect of emigration.
What that could mean is that you have a declining savings fund in our country that our economy cannot afford, and that again will result in a downward spiral in terms of higher unemployment from an already high level, fewer people contributing to the fund from saving for retirement. and more people become dependent on the NSSFF and other government schemes, while the fiscus will also struggle.
So I think what we have to do here, Fifi, is we have to be very careful 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 harm us in the long run. to run.
FIFI PETERS: Well, like you said, it’s complicated. I think we have plenty of time to read it and go through the details, dig into them and find out exactly what they mean before the next step happens.
But, Johan, thank you very much for joining us and giving us an indication of what is going on here. Johan Gouws is Sasfin Wealth’s Head of Advisory.