The universal pension

Johannesburg - A discussion document on “comprehensive” social security has finally been tabled at Nedlac – the consensus-seeking body comprising government, business, labour and civil society – more than four years after it was initially drafted.

Now the social partners are being given less than a year to agree on a fundamental reform to the entire public and private retirement system.

According to Zane Dangor, director-general of the department of social development, the “core proposal” is for the creation of a National Social Security Fund (NSSF) – a universal state pension fund to which all employed South Africans will contribute.

It will displace a large part of the existing pension industry, relegating private pension funds to a “top-up” function.

This week, industry experts reportedly said the net effect would be to benefit asset managers, who would be called on to manage the enormous new pool of funds, even though the thousands of existing private pension funds would probably become heavily rationalised.

The poor vs rich

Low-wage earners will, in theory, retire on a combination of the old age grant and NSSF annuities, while the rich will retire on such annuities as well as whatever additional pension they have accumulated.

“Clearly, the rich have ample space to top up, whereas poor people’s only real route to a decent pension is through the mandatory system,” said Dangor.

“We will see a lot of debate on this and the time-frame is tight. In September 2017, we want agreement on the document and the process of implementing it,” said Dangor.

This is because Treasury’s retirement reform bill has been suspended until February 2018.

This will in effect turn provident funds into pension funds by enforcing the purchase of annuities instead of cashing out lump sums on retirement.

Cosatu campaign

Labour federation Cosatu drove a campaign against the annuitisation rule, saying the complementary parts of the comprehensive social security system first need to get sorted out.

The annuitisation of relatively small provident savings would lead to very low monthly incomes and pose the threat of kicking some people out of the old age grant system, without improving their income.

“I would not do it either,” said Dangor of annuitising small retirement savings.

“Ideally, it should be part of a package.”

A policy expert involved in Nedlac discussions said that the mere fact that something had been tabled was almost more important than the content.

He called the 2017 deadline “wildly unrealistic”.

“It is just a discussion paper. A lot of it is vague. But at least it gets the ball rolling,” he said.

“This will easily be a five-year process, but at least we can have a discussion and get the department of social development and Treasury to talk.”

The four years of stalemating around the pension fund have been blamed squarely on the department and Treasury.

“National Treasury is as relieved as we are that it is now at Nedlac,” Dangor said.

“It took us four years to agree in government.”

A newer version, completed in 2015, was abandoned after a ministerial committee found that the 2012 paper had been “more aligned to the Constitution”.

The 2015 paper was never released, but it was apparently more fiscally conservative.

This week, Cosatu welcomed the discussion document’s release as a “push against the neoliberal offensive from Treasury in particular”.

“Ironically, it was the minister of finance who tabled the 2012 paper,” said Dangor.

The 2015 paper questioned the most basic design for the NSSF – whether it should be a defined benefit or a defined contribution fund, said Dangor.

In a defined benefit system, the payouts are predetermined, irrespective of what happens to the fund’s investments.

In the latter, the pensioner carries the risk of their pension rising or falling with the markets.

“The default position has reverted to the NSSF being a defined benefit fund, which is a more social democratic model,” said Dangor.

“A lot of the to-ing and fro-ing after 2012 was about this. For the poor, a defined contribution fund is really just a savings account,” he said.

Missing majority

A version of the basic income grant, targeting able-bodied, working-age people, would “inevitably” be part of the looming Nedlac negotiations about comprehensive social security, said Dangor.

“In the original paper we spoke about the gap. The assumption is that there will be some kind of benefit. We needed some kind of income there,” said Dangor.

“That was a major stumbling block. It was taken out.”

According to Dangor, even political opponents of the basic income grant are starting to warm to the idea, based on the forecasted continued growth in inequality.

“Growing inequality shows that a basic income grant has to be on the agenda again. It is inevitable that discussions about it will arise at Nedlac.”

“There is this perennial debate around the basic income grant. I can’t see it ever happening,” said a policy expert working for one of Nedlac’s constituencies.

One compromise might be a “jobseekers’ grant”, which would conditionally benefit unemployed people who had no other contact with the grant system, he added.

WAITING FOR A BETTER DEAL: After casting her vote in Diepsloot on August 3, pensioner Monica Ngubane (73) said she felt hopeful that doing so would improve her life. She has never missed a vote. Picture: Tebogo Letsie

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