Monday, January 24

National pension reform: protecting funds from state capture

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

But could the state capture the funds in the proposed National Social Security Fund (NSSF), outlined in the Green Paper on Comprehensive Social Security and Retirement Reforms?

Is not easy. The Green Paper proposes a governance structure that makes capture difficult. This type of structure could become more common in the coming years, 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 NSSF board would come from a wide variety of sectors that have an interest in the fund. There would be members of the government, labor, employers and civil society.

The minister would appoint the members of the board after the nominations of the different groups. Directors would be expected to be dedicated fund servers and would have to be well qualified.

The Green Paper proposes that the fund protect itself from the influence of the national government by limiting the way the government can interact with the fund:

daily operation of individual social security funds other than through a change of law “.

So while the board would be appointed by the minister, in accordance with the fund’s rules, the executive director of the fund would be appointed by the board and would report directly to the board.

The regulation of the fund would be in charge of two different bodies. The South African Reserve Bank (SARB) would take care of prudential matters, ensuring that the fund has sufficient capital and does not take risks, while the Financial Sector Conduct Authority would ensure fair treatment of the fund’s contributors.

The administration of the contributions to the fund would be in charge of the SARS. The SARS systems, which are already in place, would make the administration of contributions and benefits effectively automatic.

Would this be enough to allay concerns about capture?

Pulling everything together

The Green Paper on comprehensive reform of social security would consolidate the functions of social security currently in different departments. This is in line with the current thinking of the National Treasury on “consolidation”, which brings together government functions that are similar, but located in different departments.

The NSSF would absorb other existing social protection agencies. These would include the Traffic Accident Fund (RAF, located in the Ministry of Transportation), the Unemployment Insurance Fund and Compensation Fund (UIF and CF, in Work), and Compensation for Occupational Diseases (in Health).

The Green Paper proposes that all of these be integrated into a new ministry that deals exclusively with social security.

An immediate effect of this consolidation would be to reduce vast and ineffective bureaucracies. The costs would be shared under one roof.

Currently, as described in the Green Paper, social security policy is “implemented in five different government departments through multiple institutions reporting to different governance structures, leading to inconsistencies in both policy formulation and policy making. in implementation “.

In the Green Paper proposal, there would be a system for all of these.

The Green Book proposes the creation of a Master Register of Social Security (MSSR), which would contain all the information on the contributions and benefits of all.

And there would be a Consolidated Public Interface for Social Security (CPISS). CPISS would offer telephone and online services, and would also have offices where the public could raise questions and complaints. These offices would absorb the functions and premises of the labor offices and branches of the South African Social Security Agency (SASSA), and would help grant recipients to find work, a novel idea in South Africa.

NSSF’s proposed “independent” governance structure. Source: DSD, Green Paper on Comprehensive Social Security and Retirement Reforms.

This is part of a Serie on pension reform. Next: criticism of the NSSF

© 2021 GroundUp. This article was published for the first time here.

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